Lennox
LII
#1708
Rank
S$15.84 B
Marketcap
S$458.55
Share price
-1.97%
Change (1 day)
-35.97%
Change (1 year)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-15149

LENNOX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 42-0991521
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

2140 LAKE PARK BLVD.
RICHARDSON, TEXAS 75080
(Address of principal executive offices, including zip code)

(Registrant's telephone number, including area code): (972) 497-5000

Securities Registered Pursuant to Section 12(b) of the Act:

COMMON STOCK, $.01 PAR VALUE

Securities Registered Pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 1, 2000, there were 57,210,741 shares of the registrant's
Common Stock outstanding, and the aggregate market value of the Common Stock
held by non-affiliates of the registrant was $375,094,012 based on the closing
price of the Common Stock on the New York Stock Exchange Composite Transactions
on such date.*

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1999 (the "1999 Annual Report to Stockholders") are
incorporated by reference into Part I and Part II of this Annual Report on
Form 10-K where indicated.

(2) Portions of the registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 2000 annual meeting of stockholders (the "Proxy Statement") are
incorporated herein by reference into Part III of this Report. Such proxy
statement will be filed with the Securities and Exchange Commission not
later than 120 days after the registrant's fiscal year ended December 31,
1999.
- ---------------

* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
March 1, 2000. Exclusion of such shares should not be construed to indicate
that any such person possesses the power, direct or indirect, to direct or
cause the direction of the management or policies of the registrant or that
such person is controlled by or under common control with the registrant.
- --------------------------------------------------------------------------------
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2

LENNOX INTERNATIONAL INC.

FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

INDEX

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PAGE
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<S> <C> <C>
PART I
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 13
ITEM 3. Legal Proceedings........................................... 15
ITEM 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder
Matters..................................................... 15
ITEM 6. Selected Financial Data..................................... 15
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 15
ITEM 8. Financial Statements and Supplementary Data................. 15
ITEM 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 16
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 16
ITEM 11. Executive Compensation...................................... 16
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 16
ITEM 13. Certain Relationships and Related Transactions.............. 16
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 16
</TABLE>

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PART I

ITEM 1. BUSINESS

THE COMPANY

Lennox International Inc. (including its subsidiaries, "Lennox" or the
"Company") is a leading global provider of climate control solutions. The
Company designs, manufactures and markets a broad range of products for the
heating, ventilation, air conditioning and refrigeration ("HVACR") markets. The
Company's products are sold under well-established brand names including
"Lennox", "Armstrong Air", "Ducane", "Bohn", "Larkin", "Heatcraft", "Advanced
Distributor Products" and others. The Company is also one of the largest
manufacturers in North America of heat transfer products, such as evaporator
coils and condenser coils. The Company has leveraged its expertise in heat
transfer technology, which is critical to the efficient operation of any heating
or cooling system, to become an industry leader known for its product innovation
and the quality and reliability of its products. The Company is also a leader in
the growing market for hearth products, which includes pre-fabricated fireplaces
and related products. Historically, the Company has sold its "Lennox" brand of
residential heating and air conditioning products directly to a network of
installing dealers, which currently numbers approximately 6,500, making it the
largest wholesale distributor of these products in North America. In September
1998, the Company initiated a program to acquire dealers in metropolitan areas
in the United States and Canada so that it can provide heating and air
conditioning products and services directly to consumers. The Company greatly
expanded this program with the acquisition of Service Experts, Inc. in January
2000, bringing the total of Company-owned dealerships to approximately 220.

Shown below are the Company's four business segments, the key products and
brand names within each segment and 1999 net sales by segment. The North
American residential segment also includes installation, maintenance and repair
services performed by Company-owned dealers. Segment financial data for the
years 1997 through 1999, including financial information about foreign and
domestic operations, is included in Note 4 of the Notes to Consolidated
Financial Statements on pages 39 through 40 of the Company's 1999 Annual Report
to Stockholders.

<TABLE>
<CAPTION>
SEGMENT PRODUCTS BRAND NAMES 1999 NET SALES
- ------- -------- ----------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
North American Furnaces, heat pumps, air Lennox, Armstrong Air, $1,361.6
residential conditioners, packaged heating Air-Ease, Concord, Magic-Pak,
and cooling systems and related Ducane, Advanced Distributor
products; pre-fabricated Products, Superior, Marco,
fireplaces, free standing Whitfield and Security Chimneys
stoves, fireplace inserts and
accessories
Commercial air Unitary air conditioning and Lennox, Alcair and Janka 452.8
conditioning applied systems
Commercial Chillers, condensing units, Bohn, Friga-Bohn, Larkin, 327.3
unit coolers, fluid coolers, Climate Control, Chandler
refrigeration air cooled condensers and air Refrigeration, Kirby, Muller
handlers and Lovelock
Heat transfer Heat transfer coils, other heat Heatcraft, Friga-Bohn, Kirby 220.0
transfer products, and and Muller
equipment and tooling to
manufacture coils
--------
Total $2,361.7
========
</TABLE>

The Company was founded in 1895 in Marshalltown, Iowa when Dave Lennox, who
owned a machine repair business for the railroads, successfully developed and
patented a riveted steel coal-fired furnace which was substantially more durable
than the cast iron furnaces used at the time. By 1904, the manufacture of these
furnaces had grown into a significant business and was diverting the Lennox
Machine Shop from its core business. As a result, in 1904, a group of investors
headed by D.W. Norris bought the furnace business and named it the Lennox
Furnace Company. Over the years, D.W. Norris ensured that ownership of the
Company

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was distributed to all generations of his family, and currently approximately
sixty percent of the Company's ownership is broadly distributed among
approximately 110 descendants of or persons otherwise related to D.W. Norris. In
1991, the Company reincorporated as a Delaware corporation. On August 3, 1999,
the Company completed the initial public offering of its common stock.

In 1999, the Company expanded its hearth products line through the
acquisition of Security Chimneys International, Ltd. In May 1999, the Company
acquired Livernois Engineering Holding Company and related patents. Livernois
produces heat transfer manufacturing equipment for the HVACR and automotive
industries. The Company acquired James N. Kirby Pty. Ltd., an Australian company
that participates in the commercial refrigeration and heat transfer markets in
Australia, in June 1999. In October 1999, the Company acquired substantially all
of the assets of the air conditioning and heating division of The Ducane
Company, Inc. based in South Carolina. This acquisition gives the Company
additional capacity to manufacture heating and air conditioning products. In
January 2000, the Company completed the acquisition of Service Experts, Inc. in
exchange for approximately 12.2 million shares of Lennox common stock and the
assumption of $160 million of debt. Service Experts provides residential
heating, ventilation and air conditioning ("HVAC") services and replacement
equipment through approximately 120 dealers in approximately 36 states. The
success of the Service Experts acquisition, along with the Company's other
acquisitions, will depend upon the Company's ability to integrate these
businesses into its business without substantial costs, delays or other
operational or financial difficulties. In addition, the operation of HVAC
dealers is a new line of business for the Company for which it has limited
experience.

Forward Looking Statements

This Annual Report on Form 10-K ("Form 10-K") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that are based upon management's beliefs, as well as assumptions made by and
information currently available to management. All statements other than
statements of historical fact included in this Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including but not limited to statements
identified by the words "may," "will," "should," "plan," "predict,"
"anticipate," "believe," "intend," "estimate" and "expect" and similar
expressions. Such statements reflect the current views of Lennox with respect to
future events, based on what it believes are reasonable assumptions; however,
such statements are subject to certain risks, uncertainties and assumptions.
These include, but are not limited to, warranty and product liability claims;
the Company's ability to successfully complete and integrate acquisitions; the
Company's ability to manage new lines of business; the consolidation trend in
the HVACR industry; adverse reaction from the Company's customers from its
acquisitions or other activities; the impact of the weather on the Company's
business; competition in the HVACR business; increases in the prices of
components and raw materials; general economic conditions in the U.S. and
abroad; labor relations problems; operating risks; and environmental risks.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those in the forward-looking statements. The Company disclaims any
intention or obligation to update or review any forward-looking statements or
information, whether as a result of new information, future events or otherwise.

GROWTH STRATEGY

The Company's growth strategy is designed to capitalize on its competitive
strengths in order to expand its market share and profitability in the worldwide
HVACR markets. The key elements of this strategy include:

Expand Market in North America

The Company's program to acquire heating and air conditioning dealers in
the United States and Canada represents a new direction for the heating and air
conditioning industry because, to its knowledge, no other major manufacturer has
made a significant investment in retail distribution. This strategy will enable
the Company to extend its distribution directly to the consumer, thereby
permitting it to participate in the
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revenues and margins available at the retail level while strengthening and
protecting its brand equity. The Company believes that the retail sales and
service market represents a significant growth opportunity because this market
is large and highly fragmented. The retail sales and service market in the
United States is comprised of over 30,000 dealers. The Company started this
program in September 1998, and as of December 31, 1999, it had acquired 60
dealers in Canada and 33 in the United States for an aggregate purchase price of
approximately $241 million and had signed letters of intent to acquire 5
additional Canadian and 18 United States dealers for an aggregate purchase price
of approximately $59 million. The acquisition of Service Experts in January 2000
greatly accelerated this program by adding approximately 120 dealers in
approximately 36 states. The Company believes its long history of direct
relationships with its dealers through the one-step distribution system and the
resulting knowledge of local markets will give it advantages in identifying and
acquiring suitable candidates. The Company has assembled an experienced
management team to administer the dealer operations, and the Company has
developed a portfolio of training programs, management procedures and goods and
services that it believes will enhance the quality, effectiveness and
profitability of dealer operations.

In addition to its acquisition program, the Company has initiated a program
to strengthen its independent dealer network by providing all dealers with a
broad array of services and support. Participants in the Company's associate
dealer program receive retirement and other benefits in exchange for agreeing
that at least 75% of their residential heating and air conditioning purchases
will be of the Company's products and for granting the Company a right of first
refusal to acquire their businesses. As of December 31, 1999, over 1,500 dealers
in the United States and Canada had joined the Company's associate dealer
program. All independent dealers, including participants in the associate dealer
program, are provided with access to the Company-sponsored volume purchasing
programs with third parties for goods and services used in their businesses.
Additionally, Contractors Success Group, a wholly owned subsidiary acquired in
January 2000 as part of the Service Experts acquisition, offers proprietary
products and marketing, management, educational and advisory services to dealers
(including Lennox-owned dealers) which are members of Contractors Success Group
in exchange for specified fees.

The Company also intends to increase its market share in North America by:

- selectively expanding its "Lennox" independent dealer network;

- promoting the cross-selling of its "Armstrong Air," "Aire-Flo" and other
residential heating and air conditioning brands to its existing network
of "Lennox" dealers as a second line;

- promoting the cross-selling of its hearth products to its "Lennox" dealer
base;

- expanding the geographic market for the "Armstrong Air" brand of
residential heating and air conditioning products from its traditional
presence in the Northeast and Central United States to the southern and
western portions of the United States;

- exploiting the fragmented third-party evaporator coil market; and

- pursuing complementary acquisitions that expand its product offerings or
geographic presence.

Increase Presence in Hearth Products Market

The Company manufactures and sells one of the broadest lines of hearth
products in North America, offering multiple brands of hearth products at a
range of price points. The Company believes that this broad product line will
allow it to compete successfully in the hearth products market since many
distributors prefer to concentrate their product purchases with a limited number
of suppliers. The Company believes that it can increase its penetration of this
market by selling in the traditional hearth products distribution channels and
through its historical HVAC distribution channels. Many of Lennox's heating and
air conditioning dealers have begun to expand their product offerings to include
hearth products.

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Exploit International Opportunities

Worldwide demand for residential and commercial heating, air conditioning,
refrigeration and heat transfer products is increasing. The Company believes
that the increasing international demand for these products presents substantial
opportunities, especially in emerging markets and particularly for heat transfer
and refrigeration products. An example is the increasing use of refrigeration
products to preserve perishables including food products in underdeveloped
countries. Refrigeration products generally have the same design and
applications globally. To take advantage of international opportunities, the
Company has made substantial investments in manufacturing facilities in Europe,
Latin America and Asia Pacific through acquisitions, including James N. Kirby
Pty. Ltd. and a 70% interest in Ets. Brancher. The Company's international sales
have grown from $112.0 million in 1996 to $631.3 million in 1999. The Company
intends to continue to focus on expanding its international operations through
acquisitions and internal growth to take advantage of international growth
opportunities. The Company is also investing additional resources in its
international operations with the goal of achieving manufacturing and
distribution efficiencies comparable to that of its North American operations.

Technology and Product Innovation

An important part of Lennox's growth strategy is to continue to invest in
research and new product development. The Company has designated a number of its
facilities as "centers for excellence" that are responsible for the research and
development of core competencies vital to its success, such as combustion
technology, vapor compression, heat transfer and low temperature refrigeration.
Technological advances are disseminated from these "centers for excellence" to
all of Lennox's operating divisions.

PRODUCTS

North American Residential Products and Services

Heating and Air Conditioning Products. The Company manufactures and markets
a broad range of furnaces, heat pumps, air conditioners, packaged heating and
cooling systems and related products. These products are available in a variety
of product designs and efficiency levels at a range of price points intended to
provide a complete line of home comfort systems for both the residential
replacement and new construction markets. The Company markets these products
through multiple brand names. In addition, Lennox manufactures zoning controls,
thermostats and a complete line of replacement parts. The Company believes that
by maintaining a broad product line with multiple brand names, it can address
different market segments and penetrate multiple distribution channels.

The Company's Advanced Distributor Products division builds evaporator
coils, unit heaters and air handlers under the "ADP" brand as well as the
"Lennox" and "Armstrong Air" brands. This division supplies the Company with
components for its heating and air conditioning products and produces evaporator
coils to be used in connection with competitors' heating and air conditioning
products and as an alternative to such competitors' brand name components. The
Company started this business in 1993 and has been able to achieve an
approximate 20% share of this market for evaporator coils through the
application of its technological and manufacturing skills.

Hearth Products. The Company believes that it is the only North American
HVACR manufacturer that also designs, manufactures and markets residential
hearth products. The Company's hearth products include prefabricated gas and
wood burning fireplaces, free standing pellet and gas stoves, fireplace inserts,
gas logs and accessories. Many of the fireplaces are built with a blower or fan
option and are efficient heat sources as well as attractive amenities to the
home. The Company currently markets its hearth products under the "Lennox",
"Superior", "Marco", "Whitfield", "Earth Stove", and "Security Chimneys" brand
names. The Company believes that its strong relationship with its dealers and
its brand names will assist in selling into this market.

Retail Service. Through Company-owned dealers in the United States and
Canada, the Company provides installation, maintenance, repair and replacement
services for heating and air conditioning systems

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directly to both residential and light commercial customers. Installation
services include the installation of heating and air conditioning systems in new
construction and the replacement of existing systems. Other services include
preventative maintenance, emergency repairs and the replacement of parts
associated with heating and air conditioning systems. The Company also sells a
wide range of mechanical and electrical equipment, parts and supplies in
connection with these services.

Commercial Air Conditioning

The Company manufactures and sells commercial air conditioning equipment in
North America, Europe, Asia Pacific and South America.

North America. In the North American commercial markets, the Company's air
conditioning equipment is used in applications such as low rise office
buildings, restaurants, retail and supermarket centers, churches and schools.
The Company's product offerings for these applications include rooftop units
which range from two to 30 tons of cooling capacity and split system/air handler
combinations which range from two to 20 tons. In North America, the Company
sells unitary equipment as opposed to larger applied systems. The Company's L
Series was introduced in 1995 and has been well received by the national
accounts market where it is sold to restaurants, mass merchandisers and other
retail outlets. The Company believes that this product's success is attributable
to its efficiency, design flexibility, low life cycle cost, ease of service and
advanced control technology.

International. The Company competes in the commercial air conditioning
market in Europe through its ownership of 70% of Ets. Brancher and its operating
subsidiaries. The Company has agreed to buy the remaining 30% interest in Ets.
Brancher during the first half of 2000 for 102.5 million French francs, or
approximately $17 million. Lennox France manufactures and sells unitary products
which range from two to 30 tons and applied systems which range up to 500 tons.
Lennox's European products consist of chillers, air handlers, fan coils and
large rooftop units and serve medium rise buildings, shopping malls, other
retail and entertainment buildings, institutional applications and other field
engineered applications. Lennox manufactures its air conditioning products in
several locations throughout Europe, including sites in the United Kingdom,
France, Holland and Spain, and markets such products through various
distribution channels in these countries and in Italy, Germany, Belgium, the
Czech Republic, Eastern Europe and the Middle East.

In Australia the Company distributes its residential and light commercial
heating and air conditioning products manufactured in North America and also
manufactures commercial heating and air conditioning products (packaged and
split systems) ranging in size from two to 60 tons.

Through its 50% owned Fairco joint venture in Argentina, the Company
manufactures split system heating and air conditioning products and a limited
range of L Series commercial air conditioning products for sale in Argentina,
Chile and the surrounding Mercosur trading zone, which includes Brazil,
Argentina, Bolivia, Paraguay and Uruguay.

Commercial Refrigeration

North America. The Company is one of the leading manufacturers of
commercial refrigeration products in North America. The Company's refrigeration
products include chillers, condensing units, unit coolers, fluid coolers, air
cooled condensers and air handlers. The Company's refrigeration products are
sold for cold storage applications to preserve food and other perishables. These
products are used by supermarkets, convenience stores, restaurants, warehouses
and distribution centers. As part of its sale of commercial refrigeration
products, the Company routinely provides application engineering for consulting
engineers, contractors and others.

International. Lennox manufactures and markets refrigeration products
through manufacturing facilities and joint ventures located in France, Italy and
Spain. The Company's refrigeration products include small chillers, unit
coolers, air cooled condensers, fluid coolers and refrigeration racks. These
products are sold to distributors, installing contractors and original equipment
manufacturers.

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The Company also owns 50% of a joint venture in Mexico that produces unit
coolers and condensing units of the same design and quality as those
manufactured by the Company in the United States. Since this venture produces a
smaller range of products, the product line is complemented with imports from
the United States which are sold through the joint venture's distribution
network. Sales are made in Mexico to wholesalers, installing contractors and
original equipment manufacturers. As production volumes increase, there exists
the potential to export some of the high labor content products from the joint
venture into North America and Latin America.

The Company owns an 84% interest in Heatcraft do Brasil S.A., a Brazilian
company that manufactures condensing units and unit coolers. The Company
believes this joint venture gives it the leading market share for commercial
refrigeration products in its served markets in Brazil.

The Company acquired the assets of Lovelock Luke Pty. Limited, a
distributor of refrigeration and related equipment in Australia. This
acquisition gives the Company an established commercial refrigeration business
in Australia.

In June 1999, the Company acquired James N. Kirby Pty. Ltd. for
approximately $65 million. Kirby is an Australian company that manufactures
commercial refrigeration and heat transfer products in Australia and distributes
commercial refrigeration equipment through its own and Lovelock's distribution
network. Kirby also designs and manufactures precision machining stations
primarily for the automobile industry. The Kirby acquisition provides a
technological and manufacturing base for the growth of the Company's commercial
refrigeration and heat transfer business in the Asia Pacific region.

Heat Transfer

The Company is one of the largest manufacturers of heat transfer
components, including coils, in the United States, Europe, Australia, Mexico and
Brazil. These products are used primarily by original equipment manufacturers of
residential and commercial air conditioning products, transportation air
conditioning and refrigeration systems, and commercial refrigeration products. A
portion of the Company's original equipment manufacturer coils are produced for
use in its residential and commercial HVACR products. The Company also produces
private label replacement coils for use in other manufacturers' HVACR equipment.
The Company believes that the engineering expertise of its sales force, combined
with its flexible manufacturing processes and systems, provide it with an
advantage in the application engineering, designing and manufacturing of these
products for its customers. Advanced computer software enables the Company to
predict with a high degree of accuracy the performance of complete air
conditioning and refrigeration systems.

In addition to supplying the original equipment manufacturer market, the
Company also produces replacement coils for large commercial air conditioning,
heating and industrial processing systems. Many of these coils are specially
designed for particular systems and in the event of a failure may need to be
replaced quickly. The Company is the industry leader in this market and has
designed its manufacturing processes and systems in North America so that it can
deliver custom coils within 48 hours of receipt of an order. This premium
service enables the Company to receive superior prices and generate attractive
margins.

The Company also designs and manufactures the equipment and tooling
necessary to produce coils. The Company uses such equipment and tooling in its
manufacturing facilities and sells it to third parties. Typically, there is a
long lead time between the initial order and receipt for this type of equipment
and tooling from third parties. Since the Company has the ability to quickly
produce the equipment and tooling necessary to manufacture heat transfer
products and systems, it can accelerate the international growth of its heat
transfer products segment. The Company also supplies heat transfer manufacturing
equipment to the automotive industry through Livernois.

In addition to manufacturing heat transfer products in the North American
market, the Company produces coils in the Czech Republic for the European
market. The Company's joint venture in Mexico produces evaporator and condenser
coils for use in that country and for export to the Caribbean and the United
States. The Company's Brazilian joint venture manufactures heat transfer coils
that are sold to both HVACR manufacturers and automotive original equipment
manufacturers in Brazil.

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MARKETING AND DISTRIBUTION

The Company manages numerous distribution channels for its products in
order to better penetrate the HVACR market. Generally, the Company's products
are sold through a combination of distributors, independent and company-owned
dealers, wholesalers, manufacturers' representatives, original equipment
manufacturers and national accounts. The Company has also established separate
distribution networks in each country in which it conducts operations. The
Company deploys dedicated sales forces across all its business segments and
brands in a manner designed to maximize the ability of each sales force to
service its particular distribution channel. To maximize enterprise-wide
effectiveness, the Company has active cross-functional and cross-organizational
teams working on issues such as pricing and coordinated approaches to product
design and national account customers with interests cutting across business
segments.

A principal example of the competitive strength of the Company's marketing
and distribution strategy is in the North American residential heating and air
conditioning market, in which it uses three distinctly different distribution
approaches -- the one-step distribution system, the two-step distribution system
and sales made directly to consumers through Company-owned dealers. The Company
markets and distributes its "Lennox" and "Aire-Flo" brands of heating and air
conditioning products directly to approximately 6,500 independent dealers that
install these products.

The Company distributes its "Armstrong Air", "Air-Ease", "Concord,"
"Ducane" and "Magic-Pak" brands of residential heating and air conditioning
products through the traditional two-step distribution process whereby it sells
its products to distributors who, in turn, sell the products to a local
installing dealer. Accordingly, by using multiple brands and distribution
channels, the Company is able to better penetrate the North American residential
heating and air conditioning market. In addition, the Company has begun to
acquire or establish distributors in key strategic areas when a satisfactory
relationship with an independent distributor is not available.

In addition, the Company provides heating and air conditioning products and
services directly to consumers through Company-owned dealers.

Through the years, the "Lennox" brand has become synonymous with the "Dave
Lennox" image, which is utilized in national television and print advertising as
well as in numerous locally produced dealer ads, open houses and trade events,
and is easily the best recognized advertising icon in the heating and air
conditioning industry.

MANUFACTURING

The Company operates 18 manufacturing facilities in the United States and
Canada and 21 outside the United States and Canada. These plants range from
small manufacturing facilities to large 1,000,000 square foot facilities in
Grenada, Mississippi and Marshalltown, Iowa. In its facilities most impacted by
seasonal demand, the Company manufactures both heating and air conditioning
products to smooth seasonal production demands and maintain a relatively stable
labor force. The Company is generally able to hire temporary employees to meet
changes in demand.

PURCHASING

The Company relies on various suppliers to furnish the raw materials and
components used in the manufacture of its products. To maximize its buying power
in the marketplace, the Company utilizes a "purchasing council" that
consolidates purchases of its entire domestic requirements of particular items
across all business segments. The purchasing council generally concentrates its
purchases for a given material or component with one or two suppliers, although
the Company believes that there are alternative suppliers for all of its key raw
material and component needs. Compressors, motors and controls constitute the
Company's most significant component purchases, while steel, copper and aluminum
account for the bulk of the Company's raw material purchases. Although most of
the compressors used by the Company are purchased directly from major compressor
manufacturers, the Company owns a 24.5% interest in a joint venture to
manufacture compressors in the one and one-half to seven horsepower range. The
Company expects that this

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joint venture, which began limited production in April 1998, will be capable of
providing the Company with a substantial portion of its compressor requirements
in the residential air conditioning market after achieving full production
levels, which is expected in 2001.

The Company attempts to minimize the risk of price fluctuations in key
components by entering into contracts, typically at the beginning of the year,
which generally provide for fixed prices for its needs throughout the year. In
instances where the Company is unable to pass on to its customers increases in
the costs of copper and aluminum, the Company enters into forward contracts for
the purchase of such materials. Increases in the prices of raw materials or
components or problems in their availability could depress the Company's sales
or increase the costs of the Company's products.

INFORMATION SYSTEMS

The Company's North American operations are supported by enterprise
business systems which support all core business processes. Enterprise business
systems are designed to enhance the continuity of operations, ensure appropriate
controls, and support timely and efficient decision making. The Company's two
largest operating divisions, Lennox Industries and Heatcraft, have installed the
SAP enterprise business software system. A version of ROI Manage 2000 was
implemented for Armstrong.

TECHNOLOGY AND RESEARCH AND DEVELOPMENT

The Company supports an extensive research and development program focusing
on the development of new products and improvements to its existing product
lines. The Company spent an aggregate of $39.1 million, $33.3 million and $25.4
million on research and development during 1999, 1998 and 1997, respectively. As
of December 31, 1999, the Company employed approximately 440 persons dedicated
to research and development activities. The Company has a number of research and
development facilities located around the world, including a limited number of
"centers for excellence" that are responsible for the research and development
of particular core competencies vital to its business, such as combustion
technology, vapor compression, heat transfer and low temperature refrigeration.

The Company uses advanced, commercially available computer-aided design,
computer-aided manufacturing, computational fluid dynamics and other
sophisticated software not only to streamline the design and manufacturing
processes, but also to give it the ability to run complex computer simulations
on a product design before a working prototype is created. The Company operates
a full line of metalworking equipment and advanced laboratories certified by
applicable industry associations.

PATENTS AND TRADEMARKS

The Company holds numerous patents that relate to the design and use of its
products. The Company considers these patents important, but no single patent is
material to the overall conduct of its business. The Company's policy is to
obtain and protect patents whenever such action would be beneficial to it. No
patent which the Company considers material will expire in the next five years.
The Company owns several trademarks that it considers important in the marketing
of its products, including Lennox(R), Heatcraft(R), CompleteHeat(R), Raised
Lance(TM), Larkin(TM), Climate Control(TM), Chandler Refrigeration(R), Bohn(R),
Advanced Distributor Products(R), Armstrong Air(TM), Aire-Flo(TM), Air-Ease(R),
Concord(R), Magic-Pak(R), Superior(TM), Marco(R), Whitfield(R), Security
Chimneys(R), Janka(TM), Alcair(TM), Ducane(TM) and Friga-Bohn(TM). These
trademarks have no fixed expiration dates and the Company believes its rights in
these trademarks are adequately protected.

COMPETITION

Substantially all of the markets in which the Company participates are
highly competitive. The most significant competitive factors facing the Company
are product reliability, product performance, service and price, with the
relative importance of these factors varying among its product lines. In
addition, the Company faces competition from independent dealers and dealers
owned by consolidators and utility companies. The Company's competitors may have
greater financial and marketing resources than it has. Listed below are some

8
11

of the companies that the Company views as its main manufacturing competitors in
each segment the Company serves, with relevant brand names, when different than
the company name, shown in parentheses.

- North American residential -- United Technologies Corporation (Carrier);
Goodman Manufacturing Company (Janitrol, Amana); American Standard
Companies Inc. (Trane); York International Corporation; Hearth
Technologies Inc. (Heatilator); and CFM Majestic, Inc. (Majestic).

- Commercial air conditioning -- United Technologies Corporation (Carrier);
American Standard Companies Inc. (Trane); York International Corporation;
Daikin Industries, Ltd.; and McQuay International.

- Commercial refrigeration -- United Technologies Corporation (Ardco
Group); Tecumseh Products Co.; Copeland Corporation; and Hussmann
International Inc. (Krack).

- Heat transfer -- Modine Manufacturing Company and Super Radiator Coils.

EMPLOYEES

As of March 1, 2000, the Company employed approximately 22,650 employees,
approximately 3,950 of which were represented by unions. The number of hourly
workers the Company employs during the course of the year may vary in order to
match its labor needs during periods of fluctuating demand. The Company believes
that its relationships with its employees are generally good.

Within the United States, the Company has eight manufacturing facilities
and five distribution centers, along with its North American Parts Center in Des
Moines, Iowa, with collective bargaining agreements ranging from three to eight
years in length. The five distribution centers are covered by a single contract
that expires in 2001. Two collective bargaining agreements expire in
2000 -- Burlington, Washington and Atlanta, Georgia -- and three expire in
2002 -- Bellevue, Ohio, Danville, Illinois and Union City, Tennessee. Outside of
the United States, the Company has 13 significant facilities that are
represented by unions. The four agreements for Lennox France have no fixed
expiration date. The agreement at the Company's facility in Burgos, Spain
expires in 2000, the agreement at its facility in Toronto, Ontario expires in
2001, and the agreement at its facility in Laval, Quebec expires in 2002. The
Company believes that its relationships with the unions representing its
employees are generally good, and does not anticipate any material adverse
consequences resulting from negotiations to renew these agreements.

REGULATION

The Company's operations are subject to evolving and often increasingly
stringent federal, state, local and international laws and regulations
concerning the environment. Environmental laws that affect or could affect the
Company's domestic operations include, among others, the Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Occupational Safety
and Health Act, the National Environmental Policy Act, the Toxic Substances
Control Act, any regulations promulgated under these acts and various other
Federal, state and local laws and regulations governing environmental matters.
The Company believes it is in substantial compliance with such existing
environmental laws and regulations. The Company's non-United States operations
are also subject to various environmental statutes and regulations. Generally,
these statutes and regulations impose operational requirements that are similar
to those imposed in the United States. The Company believes it is in substantial
compliance with applicable non-United States environmental statutes and
regulations.

Refrigerants. In the past decade, there has been increasing regulatory and
political pressure to phase out the use of certain ozone depleting substances,
including hydrochlorofluorocarbons, which are sometimes referred to as "HCFCs".
This development is of particular importance to the Company and its competitors
because of the common usage of HCFCs as refrigerants for air conditioning and
refrigeration equipment. As discussed below, the Company does not believe that
implementation of the phase out schedule for HCFCs contained in the current
regulations will have a material adverse effect on its financial position or
results of operations. The Company does believe, however, that there will likely
be continued pressure by the
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international environmental community for the United States and other countries
to accelerate the phase out schedule. The Company has been an active participant
in the ongoing international dialogue on these issues and believes that it is
well positioned to react to any changes in the regulatory landscape.

In September 1987, the United States became a signatory to an international
agreement titled the Montreal Protocol on Substances that Deplete the Ozone
Layer. The Montreal Protocol requires its signatories to phase out HCFCs on an
orderly basis. All countries in the developed world have become signatories to
the Montreal Protocol. The manner in which these countries implement the
Montreal Protocol and regulate HCFCs differs widely.

The 1990 U.S. Clean Air Act amendments implement the Montreal Protocol by
establishing a program to limit the production, importation and use of specified
ozone depleting substances, including HCFCs currently used as refrigerants by
the Company and its competitors. Under the Clean Air Act and implementing
regulations, all HCFCs must be phased out between 2010 and 2030. The Company
believes that these regulations as currently in effect will not have a material
adverse effect on its operations. Nonetheless, as the supply of virgin and
recycled HCFCs falls, it will be necessary to address the need to substitute
permitted substances for HCFCs. Further, the United States is under pressure
from the international environmental community to accelerate the current 2030
deadline for phase out of HCFCs. An accelerated phase out schedule could
adversely affect the Company's future financial results and the industry
generally.

The Company, together with major chemical manufacturers, are continually in
the process of reviewing and addressing the potential impact of refrigerant
regulations on its products. The Company believes that the combination of
products that presently utilize HCFCs, and products in the field which can be
retrofitted to alternate refrigerants, provide a complete line of commercial and
industrial products. Therefore, the Company does not foresee any material
adverse impact on its business or competitive position as a result of the
Montreal Protocol, the 1990 Clean Air Act amendments or their implementing
regulations. However, the Company believes that the implementation of severe
restrictions on the production, importation or use of refrigerants the Company
employs in larger quantities or acceleration of the current phase out schedule
could have such an impact on the Company and its competitors.

The Company is subject to appliance efficiency regulations promulgated
under the National Appliance Energy Conservation Act of 1987, as amended, and
various state regulations concerning the energy efficiency of its products. The
Company has developed and is developing products which comply with National
Appliance Energy Conservation Act regulations, and does not believe that such
regulations will have a material adverse effect on its business. The United
States Department of Energy began in 1998 its review of national standards for
comfort products covered under National Appliance Energy Conservation Act. It is
anticipated that the National Appliance Energy Conservation Act regulations
requiring manufacturers to phase in new higher efficiency products will not take
effect prior to 2006. The Company believes it is well positioned to comply with
any new standards that may be promulgated by the Department of Energy and does
not foresee any adverse material impact from a National Appliance Energy
Conservation Act standard change.

Remediation Activity. In addition to affecting the Company's ongoing
operations, applicable environmental laws can impose obligations to remediate
hazardous substances at its properties, at properties formerly owned or operated
by the Company and at facilities to which it sent or sends waste for treatment
or disposal.

The Company's Grenada facility is subject to an administrative order issued
by the Mississippi Department of Environmental Quality under which the Company
will conduct groundwater remediation. The Company has established a $1.7 million
reserve to cover costs of remediation at the Grenada facility and possible costs
associated with remediation activities at the Company's Danville facility. The
Company is aware of contamination at some of its other facilities, however, the
Company does not believe that future remediation costs, if any, at such
facilities will be material.

During environmental due diligence for a plant the Company acquired in 1999
in Blackville, South Carolina, the Company learned of soil and groundwater
contamination at the site which requires further assessment and possible
remediation. These projects are being conducted and funded by the prior owner of
the

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13

facility, under contractual obligations pursuant to which the Company acquired
the facility. The Company has no reason to believe that the prior owner will not
continue to conduct and pay for the required assessments and remediation.
However, if the prior owner refuses to meet its contractual obligations, the
Company would be required to complete the remediation. The prior owner of the
Blackville site has provided a letter of credit in the amount of $700,000 to
secure its obligations for assessment and remediation.

From time to time the Company has received notices that it is a potentially
responsible party along with other potentially responsible parties in Superfund
proceedings for cleanup of hazardous substances at certain sites to which the
potentially responsible parties are alleged to have sent waste. Based on the
facts presently known, the Company does not believe that environmental cleanup
costs associated with any Superfund sites where the Company has received notice
that it is a potentially responsible party will have a material adverse effect
on its financial position or results of operations.

Dealer operations. The heating and air conditioning dealers acquired in the
United States and Canada will be subject to various federal, state and local
laws and regulations, including:

- permitting and licensing requirements applicable to service technicians
in their respective trades;

- building, heating, ventilation, air conditioning, plumbing and electrical
codes and zoning ordinances;

- laws and regulations relating to consumer protection, including laws and
regulations governing service contracts for residential services; and

- laws and regulations relating to worker safety and protection of the
environment.

A large number of state and local regulations governing the residential and
commercial maintenance services trades require various permits and licenses to
be held by individuals. In some cases, a required permit or license held by a
single individual may be sufficient to authorize specified activities for all of
the Company's service technicians who work in the geographic area covered by the
permit or license.

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company, their present positions and their
ages are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John W. Norris, Jr. .............. 64 Chairman of the Board and Chief Executive Officer
H. E. French...................... 58 President and Chief Operating Officer, Heatcraft
Inc.
Robert E. Schjerven............... 57 President and Chief Operating Officer, Lennox
Industries Inc.
Michael G. Schwartz............... 41 President and Chief Operating Officer, Armstrong
Air Conditioning Inc.
Harry J. Ashenhurst............... 51 Executive Vice President, Human Resources and
Administration
Scott J. Boxer.................... 49 Executive Vice President, Lennox Global Ltd. and
President, European Operations
Carl E. Edwards, Jr. ............. 58 Executive Vice President, General Counsel and
Secretary
W. Lane Pennington................ 44 Executive Vice President, Lennox Global Ltd. and
President, Asia Pacific Operations
Clyde W. Wyant.................... 61 Executive Vice President, Chief Financial Officer
John J. Hubbuch................... 57 Vice President, Controller and Chief Accounting
Officer
Scott E. Messel................... 41 Vice President and Corporate Treasurer
</TABLE>

The following biographies describe the business experience of the Company's
executive officers.

John W. Norris, Jr. was elected Chairman of the board of directors of the
Company in 1991. He has served as a director of the Company since 1966. After
joining the Company in 1960, Mr. Norris held a variety of key positions
including Vice President of Marketing, President of Lennox Industries (Canada)
Ltd., a

11
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subsidiary of the Company, and Corporate Senior Vice President. He became
President of the Company in 1977 and was appointed President and Chief Executive
Officer of the Company in 1980. Mr. Norris is on the board of directors of the
Air-Conditioning & Refrigeration Institute of which he was chairman in 1986. He
is also an active board member of the Gas Appliance Manufacturers Association,
where he was Chairman from 1980 to 1981. He also serves as a director of AmerUs
Life Holdings, Inc., a life insurance and annuity company, and Metroplex
Regional Advisory Board of Chase Bank of Texas, NA.

H. E. French is the President and Chief Operating Officer of Heatcraft
Inc., a subsidiary of the Company. Mr. French joined the Company in 1989 as Vice
President and General Manager of the Refrigeration Products division for
Heatcraft Inc. In 1995 he was named President and Chief Operating Officer of
Armstrong Air Conditioning Inc., a subsidiary of the Company. Mr. French was
appointed to his current role in 1997. Prior to joining the Company, Mr. French
spent 11 years in management with Wickes/Larkin, Inc.

Robert E. Schjerven was named President and Chief Operating Officer of
Lennox Industries Inc., a subsidiary of the Company, in 1995. In 1986, he joined
the Company as Vice President of Marketing and Engineering for Heatcraft Inc.
From 1988 to 1991 he held the position of Vice President and General Manager of
that subsidiary. From 1991 to 1995 he served as President and Chief Operating
Officer of Armstrong Air Conditioning Inc. Mr. Schjerven spent the first 20
years of his career with the Trane Company, a HVACR manufacturer, and
McQuay-Perfex Inc.

Michael G. Schwartz became the President and Chief Operating Officer of
Armstrong Air Conditioning Inc. in 1997. He joined Heatcraft in 1990 when the
Company acquired Bohn Heat Transfer Inc. and served as Director of Sales and
Marketing, Original Equipment Manufacturer Products. Prior to his current
appointment, he served as Vice President of Commercial Products for Heatcraft
Inc. where his responsibilities included the development of Heatcraft's position
in the A-Coil market. Mr. Schwartz began his career with Bohn Heat Transfer Inc.
in 1981.

Harry J. Ashenhurst was appointed Executive Vice President, Human Resources
and Administration in 1994. He joined the Company in 1989 as Vice President of
Human Resources. Dr. Ashenhurst was named Executive Vice President, Human
Resources for the Company in 1990 and in 1994 moved to his current position and
assumed responsibility for the Public Relations and Communications and Aviation
departments. Prior to joining the Company, he worked as an independent
management consultant with the consulting firm of Roher, Hibler and Replogle.
While at Roher, Hibler and Replogle, Dr. Ashenhurst was assigned to work as a
corporate psychologist for the Company.

Scott J. Boxer joined the Company in 1998 as Executive Vice President,
Lennox Global Ltd., a subsidiary of the Company, and President, European
Operations. Prior to joining the Company, Mr. Boxer spent 26 years with York
International Corporation, a HVACR manufacturer, in various roles, most recently
as President, Unitary Products Group Worldwide, where he reported directly to
the Chairman of that company and was responsible for directing that company's
residential and light commercial heating and air conditioning operations
worldwide.

Carl E. Edwards, Jr. joined the Company in February 1992 as Vice President
and General Counsel. He became the Secretary of the Company in April 1992 and
was also named Executive Vice President and General Counsel in December 1992.
Prior to joining the Company, he was Vice President, General Counsel and
Secretary for Elcor Corporation. He also serves as a director of Kentucky
Electric Steel Inc.

W. Lane Pennington was appointed to his current position of Executive Vice
President, Lennox Global Ltd. and President, Asia Pacific Operations in 1998. He
joined the Company in 1997 as Vice President, Asia Pacific Operations. From 1988
until 1997, Mr. Pennington was with Hilti International Corp., a European
headquartered worldwide supplier of specialized building products and
engineering services for the commercial construction industry, where he most
recently served as President, Hilti Asia Limited, based in Hong Kong.

Clyde W. Wyant joined the Company in 1990 and was appointed Executive Vice
President, Chief Financial Officer. Prior to joining the Company, he served as
Executive Vice President, Chief Financial Officer and Director of Purolator
Products Co. (formerly Facet Enterprises, Inc.), a manufacturer of filtration
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15

equipment, from 1985 to 1990. In 1965, Mr. Wyant began his career with Helmerich
& Payne Inc., an oil service company, where he last served as Vice President,
Finance.

John J. Hubbuch was named Vice President, Controller and Chief Accounting
Officer of the Company in 1998. Mr. Hubbuch joined the Company in 1986 as the
Division Controller for Heatcraft Inc. In 1989 he became Heatcraft's Group
Controller. From 1982 to 1986, Mr. Hubbuch was the Division Controller for
McQuay-Perfex Inc./SynderGeneral. In 1992 he became Corporate Controller of the
Company.

Scott E. Messel joined the Company as Vice President and Corporate
Treasurer in 1999. Prior to joining the Company, he was the Corporate Treasurer
for Flowserve Corporation, a provider of industrial flow management services,
from 1998 to 1999. From 1983 to 1998, Mr. Messel held various treasury and
finance positions with Ralston Purina Company, a producer of pet foods,
including Vice President and Director, International Treasury, from 1991 to
1998.

ITEM 2. PROPERTIES

REAL PROPERTY AND LEASES

The following chart lists the Company's major domestic and international
manufacturing, distribution and office facilities and whether such facilities
are owned or leased:

DOMESTIC FACILITIES

<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/LEASED
- -------- -------------------------------- ---------------------------- ------------
<S> <C> <C> <C>
Richardson, TX World headquarters and offices; N/A Owned and
Lennox Industries headquarters; Leased
302,000 square feet
Bellevue, OH Armstrong headquarters, factory Residential furnaces, Owned and
and distribution center; 800,000 residential and light Leased
square feet commercial air conditioners
and heat pumps
Grenada, MS Heatcraft Heat Transfer Division Coils and copper tubing; Owned and
headquarters and factory, evaporator coils, gas-fired Leased
1,000,000 square feet; Advanced unit heaters and residential
Distributor Products factory, air handlers; and custom
300,000 square feet; commercial order replacement coils
products factory, 217,000 square
feet
Stone Mountain, GA Heatcraft Refrigeration Products Commercial and industrial Owned
Division headquarters, R&D and condensing units, packaged
factory; 145,000 square feet chillers and custom
refrigeration racks
Marshalltown, IA Lennox Industries heating and Residential heating and Owned and
air conditioning products cooling products, gas Leased
factory, 1,000,000 square feet; furnaces, split-system
distribution center, 300,000 condensing units,
square feet split-system heat pumps and
CompleteHeat
Des Moines, IA Lennox Industries distribution Central supplier of Lennox Leased
center and light manufacturing; repair parts
352,000 square feet
</TABLE>

13
16

<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/LEASED
- -------- -------------------------------- ---------------------------- ------------
<S> <C> <C> <C>
Carrollton, TX Lennox Industries heating and N/A Owned
air conditioning products
development and research
facility; 130,000 square feet
Stuttgart, AR Lennox Industries light Commercial rooftop equipment Owned and
commercial heating and air and accessories Leased
conditioning factory; 500,000
square feet
Union City, TN Superior Fireplace Company Gas and wood burning Owned
factory; 294,690 square feet fireplaces
Lynwood, CA Marco Mfg. Inc. headquarters and Gas and wood burning Leased
factory; 200,000 square feet fireplaces
Blackville, SC Excel Comfort Systems Inc. Residential heating and Owned
headquarters and factory; cooling products
375,000 square feet
</TABLE>

INTERNATIONAL FACILITIES

<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/ LEASED
- -------- -------------------------------- ---------------------------- -------------
<S> <C> <C> <C>
Genas, France Friga-Bohn headquarters and Heat exchangers for *
factory; 16,000 square meters refrigeration and air
conditioning; refrigeration
products, condensers, fluid
coolers, pressure vessels,
liquid receivers and
refrigeration components
Mions, France HCF-Lennox headquarters and Air cooled chillers, water *
factories; 12,000 square meters cooled chillers, reversible
chillers and packaged
boilers
Burgos, Spain Lennox-Refac factory; 8,000 Comfort air conditioning *
square meters equipment, packaged and
split units (cooling or heat
pump); small and medium
capacity water cooled
chillers
Krunkel, Germany European headquarters and Process cooling systems *
factories for HYFRA GmbH
products; 6,000 square meters
Prague, Janka and Friga-Coil factories; Air handling equipment; heat *
Czech Republic 30,000 square meters transfer coils
Sydney, Australia Lennox Australia Pty. Ltd. Rooftop packaged and split Leased
headquarters and factory; 40,000 commercial air conditioners
square feet
Sydney, Australia James N. Kirby Pty. Ltd. Refrigeration condensing Owned
headquarters and factory; units and condensers; heat
412,000 square feet transfer coils; machine
tools
</TABLE>

14
17

<TABLE>
<CAPTION>
LOCATION DESCRIPTION AND APPROXIMATE SIZE PRINCIPAL PRODUCTS OWNED/ LEASED
- -------- -------------------------------- ---------------------------- -------------
<S> <C> <C> <C>
San Jose dos Campos, Heatcraft do Brasil headquarters Refrigeration condensing *
Brazil and factory; 160,000 square feet units, unit coolers and heat
transfer coils
Etobicoke, Canada Lennox-Canada factory; 212,000 Multi-position gas furnaces, Owned
square feet gas fireplaces and
commercial unit heaters
</TABLE>

- ---------------

* Facilities owned or leased by a joint venture in which the Company has an
interest.

In addition to the properties described above and excluding dealer
facilities, the Company leases over 55 facilities in the United States for use
as sales offices and district warehouses and a limited number of additional
facilities worldwide for use as sales and service offices and regional
warehouses. The vast majority of Company-owned dealer facilities are leased and
the remainder are owned. The Company believes that its properties are in good
condition and adequate for its requirements. The Company also believes that its
principal plants are generally adequate to meet its production needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of the Company's management, these claims and suits in
the aggregate will not have a material adverse effect on its business, financial
condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to page
51 and the inside back cover of the Company's 1999 Annual Report to
Stockholders.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this Item is incorporated by reference to page
1 of the Company's 1999 Annual Report to Stockholders.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information required by this Item is incorporated by reference to pages
20 through 30 of the Company's 1999 Annual Report to Stockholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is incorporated by reference to page
29 of the Company's 1999 Annual Report to Stockholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is incorporated by reference to pages
31 through 52 of the Company's 1999 Annual Report to Stockholders.

15
18

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information contained under the caption "Proposal 1: Election of Directors"
in the Company's Proxy Statement is incorporated herein by reference in response
to this item. See Item 1 above for information concerning executive officers.

ITEM 11. EXECUTIVE COMPENSATION

Information required by Item 11 is incorporated herein by reference from
pages 6 through 18 and page 21 of the Company's Proxy Statement. Such
incorporation by reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information contained under the captions "Proposal 1: Election of
Directors" and "Ownership of Lennox Common Stock" in the Proxy Statement is
incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by Item 13 is incorporated herein by reference from
page 18 of the Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules and Exhibits

(1) The following financial statements of Lennox International Inc.
and subsidiaries are incorporated herein by reference to pages 31 through
52 of the Company's 1999 Annual Report to Stockholders:

Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999, 1998 and 1997

(2) The following financial statement schedule for Lennox
International Inc. and subsidiaries is included herein:

Report of Independent Accountants on Financial Statement Schedule
(page 20 of Form 10-K) Schedule II -- Valuation and Qualifying
Accounts and Reserves (page 21 of Form 10-K)

(3) Exhibits:

The exhibits listed in the accompanying Index to Exhibits on pages 22
through 24 of this Form 10-K are filed or incorporated by reference
as part of this Form 10-K.

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19

(b) Reports on Form 8-K:

A report on Form 8-K dated October 26, 1999 was filed by the Company
on October 29, 1999. The report includes information under Items 5 and 7
concerning the Agreement and Plan of Merger with Service Experts, Inc. and
LII Acquisition Corporation.

A report on Form 8-K dated November 2, 1999 was filed by the Company
on November 3, 1999. The report includes information under Items 5 and 7
concerning the announcement of the Registrant's two-phase stock buy-back
plan.

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20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

LENNOX INTERNATIONAL INC.

By: /s/ JOHN W. NORRIS, JR.
----------------------------------
John W. Norris, Jr.
Chairman of the Board
and Chief Executive Officer

March 27, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JOHN W. NORRIS, JR. Chairman of the Board and Chief March 27, 2000
- ----------------------------------------------------- Executive Officer (Principal
John W. Norris, Jr. Executive Officer)

/s/ CLYDE W. WYANT Executive Vice President, Chief March 27, 2000
- ----------------------------------------------------- Financial Officer (Principal
Clyde W. Wyant Financial Officer)

/s/ JOHN J. HUBBUCH Vice President, Controller and March 27, 2000
- ----------------------------------------------------- Chief Accounting Officer
John J. Hubbuch (Principal Accounting
Officer)

/s/ LINDA G. ALVARADO Director March 27, 2000
- -----------------------------------------------------
Linda G. Alvarado

/s/ DAVID H. ANDERSON Director March 27, 2000
- -----------------------------------------------------
David H. Anderson

/s/ RICHARD W. BOOTH Director March 27, 2000
- -----------------------------------------------------
Richard W. Booth

/s/ THOMAS W. BOOTH Director March 27, 2000
- -----------------------------------------------------
Thomas W. Booth

/s/ DAVID V. BROWN Director March 27, 2000
- -----------------------------------------------------
David V. Brown
</TABLE>

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21

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES J. BYRNE Director March 27, 2000
- -----------------------------------------------------
James J. Byrne

/s/ JANET K. COOPER Director March 27, 2000
- -----------------------------------------------------
Janet K. Cooper

/s/ JOHN E. MAJOR Director March 27, 2000
- -----------------------------------------------------
John E. Major

/s/ DONALD E. MILLER Director March 27, 2000
- -----------------------------------------------------
Donald E. Miller

/s/ TERRY D. STINSON Director March 27, 2000
- -----------------------------------------------------
Terry D. Stinson

/s/ RICHARD L. THOMPSON Director March 27, 2000
- -----------------------------------------------------
Richard L. Thompson
</TABLE>

19
22

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To: The Stockholders and Board of Directors of Lennox International Inc.

We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of Lennox International Inc. and
subsidiaries included in this Annual Report on Form 10-K and have issued our
report thereon dated February 18, 2000. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II, Valuation and Qualifying Accounts and Reserves, is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated statements taken as a whole.

ARTHUR ANDERSEN LLP

Dallas, Texas
February 18, 2000

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LENNOX INTERNATIONAL INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
---------- ---------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts................ $12,115 $8,997 $(4,164) $16,948
1998:
Allowance for doubtful accounts................ $16,948 $6,224 $(4,647) $18,525
1999:
Allowance for doubtful accounts................ $18,525 $6,979 $(4,329) $21,175
</TABLE>

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(1) Uncollectible accounts charged off, net of recoveries.

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INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of Lennox
(incorporated by reference to Exhibit 3.1 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
3.2 -- Amended and Restated Bylaws of Lennox (incorporated by
reference to Exhibit 3.2 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
4.1 -- Specimen Stock Certificate for the Common Stock, par
value $.01 per share, of Lennox (incorporated by
reference to Exhibit 4.1 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
10.1 -- Agreement of Assumption and Restatement, dated as of
December 1, 1991 between Lennox and identified
Noteholders relating to Lennox's 9.53% Series F
Promissory Note due 2001 (incorporated by reference to
Exhibit 10.1 to Lennox's Registration Statement on Form
S-1 (Registration No. 333-75725)).
10.2 -- Note Purchase Agreement, dated as of December 1, 1993,
between Lennox and identified Noteholders relating to
Lennox's 6.73% Senior Promissory Notes due 2008
(incorporated by reference to Exhibit 10.2 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.3 -- Note Purchase Agreement, dated as of July 6, 1995,
between Lennox and Teachers Insurance and Annuity
Association of America relating to Lennox's 7.06% Senior
Promissory Note due 2005 (incorporated by reference to
Exhibit 10.3 to Lennox's Registration Statement on Form
S-1 (Registration No. 333-75725)).
10.4 -- Note Purchase Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 6.56% Senior Notes due 2005 and 6.75% Senior
Notes due 2008 (incorporated by reference to Exhibit 10.4
to Lennox's Registration Statement on Form S-1
(Registration No. 333-75725)).
10.5 -- Note Amendment Agreement, dated as of April 3, 1998,
between Lennox and identified Noteholders relating to
Lennox's 9.53% Senior Promissory Notes due 2001, 7.06%
Senior Promissory Note due 2005 and 6.73% Senior
Promissory Notes due 2008 (incorporated by reference to
Exhibit 10.5 to Lennox's Registration Statement on Form
S-1 (Registration No. 333-75725)).
10.6 -- Note Amendment Agreement, dated as of February 28, 2000,
between Lennox and identified Noteholders relating to
Lennox's 9.53% Senior Promissory Notes due 2001, 7.06%
Senior Promissory Notes due 2005 and 6.73% Senior
Promissory Notes due 2008 (filed herewith).
10.7 -- Revolving Credit Facility Agreement, dated as of July 29,
1999, among Lennox, Chase Bank of Texas, National
Association, as administrative agent, Wachovia Bank,
N.A., as syndication agent, The Bank of Nova Scotia, as
documentation agent, and the other lenders named therein
(incorporated by reference to Exhibit 10.25 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.8 -- Second Amendment, dated as of January 25, 2000, to the
Revolving Credit Facility Agreement dated as of July 29,
1999, among Lennox, Chase Bank of Texas, National
Association, as administrative agent, Wachovia Bank,
N.A., as syndication agent, The Bank of Nova Scotia, as
documentation agent, and the other lenders named therein
(filed herewith).
</TABLE>

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25

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.9 -- 364 Revolving Credit Facility Agreement, dated as of
January 25, 2000, among Lennox, Chase Bank of Texas,
National Association, as administrative agent, Wachovia
Bank, N.A., as syndication agent, The Bank of Nova
Scotia, as documentation agent, and the other lenders
named therein (filed herewith).
10.10 -- Master Shelf Agreement, dated as of October 15, 1999,
between Lennox and The Prudential Insurance Company of
America relating to Senior Notes to be issued in a
maximum principal amount of $100,000,000 (incorporated by
reference to Exhibit 10.1 to Lennox's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1999).
10.11 -- Letter Amendment No. 1, dated as of February 28, 2000, to
Master Shelf Agreement, dated as of October 15, 1999,
between Lennox and The Prudential Insurance Company of
America (filed herewith).
10.12* -- 1998 Incentive Plan of Lennox International Inc.
(incorporated by reference to Exhibit 10.8 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.13* -- Lennox International Inc. Profit Sharing Restoration Plan
(incorporated by reference to Exhibit 10.9 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.14* -- Lennox International Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit
10.10 to Lennox's Registration Statement on Form S-1
(Registration No. 333-75725)).
10.15 -- Letter of Intent, dated as of June 23, 1998, between
Jean-Jacques Brancher and Lennox Global Ltd.
(incorporated by reference to Exhibit 10.11 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.16 -- First Amendment to the Amended and Restated Venture
Agreement, dated as of December 27, 1997, between Ets.
Brancher S.A. and Lennox Global Ltd. (incorporated by
reference to Exhibit 10.12 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
10.17 -- Amended and Restated Venture Agreement, dated as of
November 10, 1997, by and among Lennox Global Ltd.,
Lennox International Inc., Ets. Brancher S.A. and Fibel
S.A. (incorporated by reference to Exhibit 10.13 to
Lennox's Registration Statement on Form S-1 (Registration
No. 333-75725)).
10.18 -- Shareholder Restructure Agreement, dated as of September
30, 1997, by and among Jean Jacques Brancher, Ets.
Brancher S.A., AFIBRAL S.A., Parifri S.A. and Lennox
International Inc. (incorporated by reference to Exhibit
10.14 to Lennox's Registration Statement on Form S-1
(Registration No. 333-75725)).
10.19* -- Form of Indemnification Agreement entered into between
Lennox and certain executive officers and directors
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution)
(incorporated by reference to Exhibit 10.15 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.20* -- Form of Employment Agreement entered into between Lennox
and certain executive officers (includes a schedule
identifying the various parties to such agreement and the
applicable dates of execution) (incorporated by reference
to Exhibit 10.16 to Lennox's Registration Statement on
Form S-1 (Registration No. 333-75725)).
</TABLE>

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26

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.21* -- Form of Change of Control Employment Agreement entered
into between Lennox and certain executive officers
(includes a schedule identifying the various parties to
such agreement and the applicable dates of execution)
(incorporated by reference to Exhibit 10.17 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.22 -- Stock Disposition Agreement, dated as of June 2, 1997,
among Lennox, A.O.C. Corporation and compass Bank
(incorporated by reference to Exhibit 10.18 to Lennox's
Registration Statement on From S-1 (Registration No.
333-75725)).
10.23 -- Stock Disposition Agreement, dated as of January 22,
1998, among Lennox, A.O.C. Corporation and Compass Bank
(incorporated by reference to Exhibit 10.19 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.24 -- Stock Disposition Agreement, dated as of May 7, 1998,
among Lennox and Northern Trust Bank of Florida, N.A.
(incorporated by reference to Exhibit 10.20 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
10.25 -- Master Stock Disposition Agreement, dated as of August
10, 1998, among Lennox, Chase Bank of Texas, N.A., and
various executive offices and directors (incorporated by
reference to Exhibit 10.21 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
13.1 -- Pages 1, 20 through 52, and the inside back cover of the
Company's 1999 Annual Report to Stockholders (filed
herewith).
21.1 -- Subsidiaries of Lennox (filed herewith).
23.1 -- Consent of Arthur Andersen LLP (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
</TABLE>

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* Management compensatory plan or arrangement required to be filed as an exhibit
pursuant to Item 14(c) of the requirements for Form 10-K reports.

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