UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2003MARCH 31, 2004

OR

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

Commission file number 001-15149

LENNOX INTERNATIONAL INC.

Internal Revenue Service Employer Identification No. 42-0991521

2140 LAKE PARK BLVD.
RICHARDSON, TEXAS
75080
(972-497-5000)

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 past 90 days.

Yes x[   ]   No o[X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes x[X]   No o[   ]

As of November 6, 2003,March 31, 2004, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was 58,820,867.60,122,292.

LENNOX INTERNATIONAL INC.

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3.4. Reportable Business Segments:

     Financial information about the Company’s reportable business segments is as follows (in millions):

(a)

In the third quarter of 2002, the Company formed joint ventures with Outokumpu Oyj by selling to Outokumpu Oyj a 55% interest in the Company’s heat transfer business segment for approximately $55 million in cash and notes. The Company accounts for its remaining 45% interest using the equity method of accounting and includes such amounts in the Corporate and other segment. The historical net sales, results of operations and total assets of the Corporate and other segment have been restated to include the portions of the heat transfer business segment that was sold to Outokumpu Oyj. The results of operations of the heat transfer business segment now presented in the Corporate and other segment were $(0.4) million and $(1.8) million for the three months and nine months ended September 30, 2003, respectively. The historical net sales and results of operations were $33.1 million and $(1.7) million for the three months ended September 30, 2002 and $128.2 million and $(2.8) million for the nine months ended September 30, 2002, respectively.

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5. Inventories:

4. Inventories:

     Components of inventories are as follows (in millions):

8. Cash, Lines of Credit and Financing Arrangements:

     The Company has bank lines of credit aggregating $255.1$263.4 million, of which $6.0$9.9 million was borrowed and outstanding and $57.9$77.7 million was committed to standby letters of credit at September 30, 2003. TheMarch 31, 2004. Of the remaining $191.2$175.8 million, the entire amount was available for future borrowings subject toafter consideration of covenant limitations. Included in the lines of credit is an internationalare several regional facilities and a multi-currency facility in the amount of $205$225 million governed by agreements between the Company and a syndicate of banks. In September 2003, the Company amended its former domestic facility to, among other things, base covenants on the financials of both domestic and foreign subsidiaries, extend the facility maturity date to September 2006 and reduce capacity from $270 million to $205 million. In October 2003, the facility capacity was increased to $225 million. The facility contains certain financialincludes restrictive covenants and bears interest, at the Company’s option, at a rate equal to either (a) the greater of the bank’s prime rate or the federal funds rate plus 0.5% or (b) the London Interbank Offered Rate plus a margin equal to 1.0% to 2.5%, depending upon the ratio of total funded debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the facility. The Company pays a facility fee, depending upon the ratio of total funded debt to EBITDA, equal to 0.25% to 0.50% of the capacity. The agreements place restrictions onthat limit the Company’s ability to incur additional indebtedness, encumber its assets, sell its assets, or pay dividends. There are no required payments prior to the expiration of the facility. The Company’s facility and promissory notes are secured by the stock of the Company’s major subsidiaries. The facility requires that LII annually and quarterly deliver financial statements, as well as compliance certificates, to the banks within a specified period of time. As a result of Septemberthe delay in filing of LII’s Annual Report on Form 10-K for the year ended December 31, 2003 and Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2004 and June 30, 2004, LII requested and received waivers from its banks through December 31, 2004, of any breach under the facility due to a delay in the delivery of its annual and quarterly financial statements, as well as compliance certificates. Upon filing the Annual Report on Form 10-K for the year ended December 31, 2003 and LII’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 with the SEC and delivering a copy of these filings to the Administrative Agent under the facility, LII was in compliancewill comply with all covenant requirements andthe terms of the facility. LII believes that cash flow from operations, as well as available borrowings under its revolving credit facility, will be sufficient to fund its operations for the foreseeable future. The Company has included in cash and cash equivalents in the accompanying consolidated balance sheet,unaudited Consolidated Balance Sheet as of September 30, 2003, $34.8March 31, 2004, $30.2 million of restricted cash related to letters of credit.

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8.9. Accounts and Notes Receivable:

     Accounts and Notes Receivable have been shown net of allowance for doubtful accounts of $21.3$18.5 million and $23.1$15.6 million, and net of accounts receivable sold under a revolvingan ongoing asset securitization arrangement of $86.0$65.0 million and $99.0 millionzero as of September 30, 2003March 31, 2004 and December 31, 2002,2003, respectively. In addition, approximately $170.3$119 million and $106.2$224 million of accounts receivable as reported in the accompanying consolidated balance sheetsConsolidated Balance Sheets at September 30, 2003March 31, 2004 and December 31, 2002,2003, respectively, represent retained interests in securitized receivables that have restricted disposition rights per the terms of the asset securitization agreement and would not be available to satisfy obligations to creditors. The change since December 31, 2002 is a function of seasonally higher sales in the second and third quarters. The Company has no significant concentration of credit risk within its accounts and notes receivable.

9.10. Divestitures:

     In August 2003,During the first fiscal quarter of 2004, the Company’s Board of Directors approved a plan to realign Service Experts dealer service centers to focus on service and replacement opportunities in the residential and light commercial markets. The Company soldidentified 130 dealer service centers that will comprise the assetsongoing Service Experts business segment and is in the process of its Electrical Products Division business for $4.5 milliondivesting the remaining 48 centers (47 existing centers plus a branch of an ongoing center), in cash.addition to previous closures of four centers. The sale resulted in a pre-tax gain of approximately $2.4 million that is included in (gains) losses and other expenses. The revenues and results of operations of the 48 centers that will no longer be part of the Service Experts business segment have been classified as a discontinued operation in the accompanying Statements of Operations. The related assets and liabilities for these centers are classified as “Assets Held For Sale” and “Liabilities Held For Sale” in the accompanying Consolidated Balance Sheets. The long-lived assets of these centers have been written down to estimated fair value less costs to sell. The Company has recorded in the loss from discontinued operations non-cash pre-tax impairment losses of $3.1 million related to property, plant and equipment and $13.3 million related to goodwill (see Note 13 for further discussion of goodwill), as a result of its decision to sell these service centers.

     A summary of net trade sales and pre-tax operating results for the three months ended March 31, 2004 and 2003, and the major classes of assets and liabilities presented as held for sale at March 31, 2004, are detailed below (in millions):

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     The following table details the Company’s pre-tax loss from discontinued operations for the three months ended March 31, 2004, as well as the total estimated loss to be incurred by the end of 2004 (in millions):

     The Company’s estimate of the total loss to be incurred could change based on the actual performance of the remaining discontinued centers, the timing of divestiture of the remaining discontinued centers and other factors. No specific reserves were immaterialcreated as a result of the turnaround plan. All costs related to the divestiture of the discontinued centers are being expensed as incurred.

     The income tax benefit on discontinued operations was $3.7 million for all prior periods.the three months ended March 31, 2004, which includes a $1.5 million tax benefit related to the goodwill impairment. Cash proceeds from the sale of these centers and related tax effects are expected to more than offset the cash expenses of divestiture.

     In March 2003, the Company sold the net assets of a heating, ventilation and air conditioning (“HVAC”) distributor included in the residential heatingResidential Heating and coolingCooling segment for $4.6 million in cash and notes. The sale resulted in a pre-tax loss of approximately $0.8 million that is included in (gains) losses and other expenses.million. The revenues and results of operations of the distributor were immaterial for all prior periods.

10.11. Earnings per Share:

     Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income by the sum of the weighted average number of shares and the number of equivalent shares assumed outstanding, if dilutive, under the Company’s stock-based compensation plans. As of September 30, 2003,March 31, 2004, the Company had 61,738,16663,166,208 shares outstanding of which 3,043,916 were held as treasury shares. Diluted earnings per share are computed as follows (in millions, except per share data):

     All potentially dilutive securities were excluded because their effects were anti-dilutive for the three months ended March 31, 2004. Options to purchase 2,597,448 and 1,993,1815,512,539 shares of common stock respectively, at prices ranging from $16.21$13.21 to $49.63 per share were outstanding for the three months ended March 31, 2003 but were not included in the year-to-date diluted earnings per share calculation because the assumed exercise of such options would have been anti-dilutive. The Company’s convertible notes were not considered in the diluted earnings per share calculation because the required trading prices of either the Company’s common stock or the convertible notes to allow conversion of such notes had not been met as of the reporting period. The notes are convertible into approximately 8 million shares.

912. Comprehensive (Loss) Income:

11.     Comprehensive Income (Loss):

     Comprehensive(loss) income (loss), net of income taxes, is computed as follows (in millions):