LII Investment Community Meeting - Lennox International

LII Investment Community MeetingNovember 7, 2006 • Millennium Broadway New York

ResidentialHeating & Cooling

CommercialHeating & Cooling RefrigerationService Experts

2

Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . Bill Moltner

Lennox International Overview . . . . . . . . . . . Bob Schjerven/Sue Carter

Residential Heating & Cooling . . . . . . . . . . . Doug Young

Commercial Heating & Cooling . . . . . . . . . . Harry Bizios

------- Break -------

Service Experts . . . . . . . . . . . . . . . . . . . . . . Scott Boxer

Refrigeration . . . . . . . . . . . . . . . . . . . . . . . . . David Moon

Corporate Initiatives . . . . . . . . . . . . . . . . . . . Linda Goodspeed

------- Q&A -------

Agenda



3

FORWARD-LOOKING STATEMENTS

This presentation contains forward-looking statements within the meaning of the Private

Securities Litigation Reform Act of 1995. These statements are subject to numerous

risks and uncertainties that could cause actual results to differ materially from such

statements. For information concerning these risks and uncertainties, see Lennox

International’s publicly available filings with the Securities and Exchange Commission.

LII disclaims any intention or obligation to update or revise any forward-looking

statements, whether as a result of new information, future events or otherwise.

A reconciliation of information presented to U.S. Generally Accepted Accounting

Principles (GAAP) is posted on the company’s website at www.lennoxinternational.com.

4

Lennox International OverviewBOB SCHJERVEN

Chief Executive OfficerSUE CARTER

Chief Financial Officer



5

Investment HighlightsLeading climate control solutions provider with 111-year history of product innovation operating in over 100 countries

Positive operating earnings growth trend with expected FY 06 adjusted EPS up 15%+

A strong balance sheet with Debt : Capitalization of 13% provides a solid foundation for growth

Mitigating $60 mil in estimated commodities headwinds in 2006

Successful transition to 13 SEER resulting in product mix benefits

Exposure to residential new construction limited to an estimated 20% of total sales

4.7 million shares repurchased in first 9 months of 2006

Dividend increased 10% in December 2005

CEO succession plan for smooth transition



6

14%

19%

18%49%

62%

5%

18%

15%

Packaged Rooftop Units, Split Systems

Cold Storage Applications, Primarily for Food Preservation

HVAC Equipment Sales, Installation, Maintenance, and Service

Central Air Conditioning, Furnaces, Heat Pumps, IAQ Equipment, Fireplaces

RefrigerationService ExpertsResidentialHeating & Cooling

Focused on Four Related BusinessesSTRONG BRANDS SOLD THROUGH MULTI-CHANNEL DISTRIBUTION

Revenue Segment Profit

Notes: Data is TTM to 09/30/06; segment profit is before unallocated corporate expense; residential is net of eliminations

CommercialHeating & Cooling



7

37%

63%

35%

65%

Business Mix

Customer

ResidentialCommercial

Source: Company estimates

8%

87%

AmericasEurope Asia Pacific

Geography

Replacement New Construction

End Market

5%



8

Macro Environment

1000

1100

1200

1300

1400

1500

2001 2002 2003 2004 2005 2006est

Cooling Degree Days

Commercial New ConstructionGDP

Residential New Construction

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2001 2002 2003 2004 2005 2006est

2007est

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2001 2002 2003 2004 2005 2006est

2007est

Single Family Multi-Family

0

400,000

800,000

1,200,000

1,600,000

2,000,000

2001 2002 2003 2004 2005 2006est

2007est

x 1,

000

sq ft

Income Properties Institutional Properites

Sources: GDP - Bloomberg, Commercial Construction - McGraw-Hill, RNC - NAHB, Cooling Degree Days - NOAA



9

5 Years of Sales & Profit Growth$ MILLIONS EXCEPT PER SHARE DATA

* Exclusive of restructuring, non-recurring items, non-operating gains/losses and goodwill impairment charges

0

1000

2000

3000

4000

2002

2003

2004

2005

2006

est

Adjusted Income From Continuing Operations*

0

50

100

150

200

2002

2003

2004

2005

2006

est

0

0.5

1

1.5

2

2.5

2002

2003

2004

2005

2006

est

Sales Adjusted EPS*



10

Solid First 9 Months Performance$ MILLIONS EXCEPT PER SHARE AND RATIO DATA

2006 2005 % ChgSales $ 2,808.7 $ 2,495.6 +13%Net Income 120.6 108.9

Discontinued Operations #… ---- 1.3 (Gains), losses & other expenses # * 3.1 (15.9)

Restructuring charge #… 8.5 1.6Tax items…… (8.8) ----

Cumulative effect of accounting change # … ---- (0.2)

Adjusted Income from Continuing Operations $123.4 $95.7 +29%Diluted EPS, as adjusted 1.65 1.37 +20%

Total Debt at 09/30 $120.0 $236.1 -49%Debt : Cap at 09/30 13% 27%

* Net of realized gains on settled futures contracts # Net of income tax



11

Segment Revenue Trends

0

200

400

600

800

1000

1200

1400

1600

1800

2002

2003

2004

2005

2006

Est

Net

Sal

es

Commercial Heating & Cooling

Service Experts

Refrigeration

Residential Heating & Cooling



12

Segment Profit Margin Trends

-2

0

2

4

6

8

10

12

14

2002

2003

2004

2005

2006

Est

Segm

ent P

rofit

Mar

gin

%


Service Experts

Refrigeration

Residential Heating & Cooling



13

-2

0

2

4

6

8

10

12

14

2002

2003

2004

2005

2006

Est

Segm

ent P

rofit

Mar

gin

%Long-term Segment Profit Margin Targets


Service Experts

Refrigeration

Residential Heating & Cooling12 – 14%

13 – 15%

11 – 13%

6 – 7%



14

Growth & Profit Improvement InitiativesResidential Heating & Cooling • Continue to invest in product leadership• Leverage cross-business synergies• Increase sales in under-penetrated sunbelt markets

Commercial Heating & Cooling• Solidify new construction position• Penetrate replacement market opportunities• Manufacturing excellence to support continued growth

Service Experts• Protection plans to strengthen relationship with homeowners• Customer contact center to improve conversion rates• Field automation to improve efficiency

Refrigeration• Extend successful domestic business model into developing markets• Leverage internal and external intellectual property to drive innovation• Explore acquisitions to enhance capabilities and extend product reach



15

Acquisitions Provide Upside for LII

Strategic acquisitions

Strong balance sheet

Disciplined acquisition process



16

Increased Focus Driving Productivity Gains

39

25

10

20

30

40

2001 2006*

* As of September 30, 2006

Factories

$222

$143

$100

$150

$200

$250

2001 2006*

Sales Per Employee ($000)

196

122

100

150

200

250

2001 2006*

Service Experts Centers



17

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006*

Tota

l Deb

t (Y

ear

End

in $

mill

ions

)

10

15

20

25

30

Ope

ratio

nal W

orki

ng C

apita

l(T

TM a

s a

% o

f Sal

es)

A Stronger Balance Sheet

Reduced Total Debt by $570 Million in Past 5 YearsReduced Total Debt by $570 Million in Past 5 Years

* As of September 30, 2006



18

Cash Usage2001 THROUGH Q3 2006 IN $MILLIONS

$427

$136

$144

$233Debt Reduction

Over $900 Million in Operating Cash Flow Since 2001Over $900 Million in Operating Cash Flow Since 2001

Cap Ex

Share Repurchase

Dividends



19

Cash DeploymentWe expect cash conversion to approximate net income over the long term

Continue capital investment on key capacity and process improvement initiatives

Dividend payouts that meaningfully contribute to shareholder value

Strategic acquisitions to support LII’s growth strategy

Return cash to shareholders in the absence of beneficial acquisition or expansion opportunities



20

Managing Profitable Growth

$1.25

$1.75

$2.25

$2.75

$3.25

$3.75

2005 AdjustedEPS*

Volume Growth Price/Mix MarginImprovement

Commodities OtherEscalations

Interest ShareRepurchase

2006 AdjustedEPS*

* Excludes restructuring, goodwill impairment & non-recurring items, 2006 guidance provided on 10/26/06

$1.83

$2.10+

2005 A

djusted E

PS

*

Volum

e G

rowth

Price/M

ix

Margin

Improvem

ent

Com

modities

Other

Escalations

Interest

Share

Repurchase

2006 A

djusted E

PS

*



21

$1.25

$1.75

$2.25

$2.75

$3.25

$3.75

2005 AdjustedEPS*

Volume Growth Price/Mix MarginImprovement

Commodities OtherEscalations

Interest ShareRepurchase

2006 AdjustedEPS*

$1.83

$2.10+

2005 A

djusted E

PS

*

Volum

e G

rowth

Price/M

ix

Margin

Improvem

ent

Com

modities

Other

Escalations

Interest

Share

Repurchase

2006 A

djusted E

PS

*

* Excludes restructuring, goodwill impairment & non-recurring items, 2006 guidance provided on 10/26/06

Expected 2007 Impact

Managing Profitable Growth



22

Financial ObjectivesFULL-YEAR 2006 GUIDANCE (provided 10/26/06)

GAAP EPS of $2.00 to $2.10; adjusted EPS exceeding this range

Revenue growth of approximately 10%

Capital expenditures of approximately $70 million

LONG-TERM

Annual revenue growth of 6 to 8% plus acquisition activity

10% segment profit margin…a minimum of 50 bps improvement per year

ROIC = 5% greater than cost of capital

Debt : Capitalization below 40%

23


DOUG YOUNGPresident & Chief Operating Officer



24

Financial SummaryRESIDENTIAL HEATING & COOLING

2003 2004 2005 2006 Est.

Sales $1,359 $1,420 $1,686

Segment Profit $152 $170 $207

Segment Profit Margin 11.3% 12.1% 12.3%

Sales CAGR* 12% Segment Profit CAGR* 13%


* CAGR from 2003 to 2006 estimate





25

Segment Profit TargetRESIDENTIAL HEATING & COOLING

2003 2004 2005 2006 Est.

Sales $1,359 $1,420 $1,686



Long-term Segment Profit Target12 - 14%






26

Residential Heating & Cooling Strengths

Participate in all channels and markets

Leverage cross-business strengths

Common initiatives to drive synergy

Strong customer relationships and loyalty





27

Residential Manufacturing Footprint9 PLANTS IN 2 COUNTRIES

Lynnwood, CA

Natchitoches, LA(JV)

Blackville, SC

Orangeburg, SC

Montreal, QC

Auburn, WA Union City, TN

Marshalltown, IA

Grenada, MS

Hearth Products





28

Industry Size and Mix18.3 MILLION UNITS – NORTH AMERICA

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

A/C

Con

dens

ing

Coi

ls

Gas

Fur

nace

s

Air

Han

dler

s

Hea

t Pum

p

Res

Pac

k

Oil

Furn

aces

Product Mix End Market

Replacement

70%

New Construction

30%

29%

22%21%

13%11%

3%1%

* Source: ARI, GAMA, HRAI





29

0%

20%

40%

60%

80%

100%

Industry Units Industry Revenue

Price Middle Premium Ultra

Source: LII estimates

Price

Value

Premium

Ultra

Brands Covering all Price Points





30

Multi-Channel DistributionOEM Distributor Dealer Home Owner

BY REVENUE BY UNIT

Generating $1.5 billion* Delivering 2.8M units*

1-Step 1-Step2-Step 2-Step

* 2005 company data





31

-10%

-5%

0%

5%

10%

15%

20%

Jan-

01

Apr

-01

Jul-0

1

Oct

-01

Jan-

02

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

% C

hg S

hipm

ents

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

Mar

ket S

hare

LII Residential HVAC Market Share

Source: ARI, GAMA, HRAI

Industry Shipments

LII Share - 12 month moving average





32

0%

20%

40%

60%

80%

100%

Jan-

04

Mar

-04

May

-04

Jul-0

4

Sep

-04

Nov

-04

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep

-05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep

-06

15+ SEER

14 SEER

13 SEER

12 SEER

11 SEER

10 SEER

Transition to 13 SEER Efficiency Standard

NAECA

14+ SEER is projected to represent20%+ of shipments in the future

14+ SEER is projected to represent20%+ of shipments in the futureSource: ARI





33

Strategic Drivers

WHAT:

Leadership

New construction

Cost emphasis

Growth platform

HOW:

Grow where it makes sense

Leverage assets

Rationalize/streamline costs

Generate cash to fund growth





34

4

4.5

5

5.5

6

6.5

7

7.5

8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Major CategoriesProduct quality & performanceMarketingWarranty & repair serviceAvailability

Independent Criteria

Scor

e

Source: Stevenson & Co.

What Factors Are Important in Selecting a Brand?Top 10 Reasons





35

Innovation Leadership

“Cleans the air in your home better than any other system your can buy”

“The industry’s first, truly integrated whole home dehumidification system”

“The quietest furnace you can buy”

“The quietest and most efficient furnace you can buy”

“The quietest and most efficient central air conditioner you can buy”

“The most efficient media filtration you can buy”





36

IAQ LeadershipTHE MOST COMPREHENSIVE IAQ SOLUTIONS PORTFOLIO

Leadership: • Media air cleaners• Air purifiers• Dehumidification

Complete product portfolio • Fresh air ventilators• Ventilation control systems• Humidifiers• HEPA• UV germicidal lamps





37

E-Business LeadershipScalable B2B platform

Leverage cross-business strength

Widespread adoption• 10,000 contractor/customers• 16,000 users• 100,000 logins each month

Industry leading usage• 25% orders entered online• 70% of warranties entered online





38

•0

•1,000,000

•2,000,000

•3,000,000

•4,000,000

•5,000,000

•6,000,000

•7,000,000

•8,000,000

•9,000,000

•198

0

•198

5

•199

0

•199

5

•200

0

•200

5

•Air Conditioners & Heat Pumps

•Gas Furnaces

•RNC Starts

Replacements Drive Residential GrowthNORTH AMERICA RESIDENTIAL UNIT SHIPMENTS VS HOUSING STARTS

Source: ARI, GAMA, NAHB, CMHC, HRAI

New Construction Fuels the Installed Base





39

The State of the RNC Industry

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Sources: NAHB, single and multi-family

Units

New Construction Market Forecast Remains Above Robust Years New Construction Market Forecast Remains Above Robust Years





40

Strong Position with 17 of Top 20 BuildersLENNOX SHARE % : █ 1-33% █ 34-66% █ 67-100%

Source: 2005 GIANTS Listing, Builder Magazine

Builder ’05 ClosingsDR Horton 51,383Pulte 45,630Lennar 36,204Centex 37,822KB 31,646Beazer 16,417Hovnanian 17,783Ryland 16,673MDC 15,387NVR 13,787

Builder ’05 Closings

Standard Pacific 11,694

TOUSA 9,435Meritage 9,406Toll Brothers 8,769Shea Homes 6,901Weyerhaeuser 5,274Morrison 4,422M/I Homes 4,303David Weekley 3,952Taylor Woodrow 3,635





41

Customer Satisfaction RecognitionLennox ranked highest in the first ever JD Power HVAC subcontractor satisfaction survey• Received the highest ranking

in 4 of the 7 features rated:

– Product

– Sales and marketing support

– Warranty and repair service

– Credit/billing





42

Addressing CostsConsolidate Allied operations into South Carolina • Annual savings of approximately $12 million• Reduce total square footage by 22%• Reduce salary headcount by 25%

Cost Reduction Team is qualifying and sourcing top 10 purchased components from low cost countries• Including compressors, motors, controls, and electronics• Targeting 22% total component cost reduction

Completed $1.5 million lab expansion for dedicated resources for alternate component testing

Product Standardization• Completed on cooling lines, reducing number of platforms

from 5 to 3





43

DistributionCURRENT

DistrictWarehouses

Limited Frequency

Opportunity to Leverage Distribution CapabilitiesOpportunity to Leverage Distribution Capabilities

FactoryDistribution





44

DistributionFUTURE

Benefits:

Improve inventory turns ~ 45 - 50%

Improve fill rate ~ 25 - 30%

Regional Distribution

Centers

Network Facility

Multiple Daily Truckloads

Daily Shipments

SupplierDistribution

FactoryDistribution

Network Facility

Network Facility

Customer Direct

Daily Shipments

Reduce inventory ~ 15 - 20%

Reduce freight cost ~ 5 - 10%

Reduce damage ~ 10 - 15%





45

Parts & Supplies AvailabilitySame Next 2 Day Day Days

Baseline 2% 19% 100%

Future 23% 71% 100%

370% Improvement in Next Day Availability370% Improvement in Next Day Availability





46

LII Market ShareGROWTH OPPORTUNITY IN LARGE AND GROWING SUNBELT MARKETS

At or above average market share

Lower than average market share

Sunbelt Market Focus





47

Sunbelt Opportunity

Top 5 states represent 40% of all shipments

Sunbelt states represent 60% of all shipments

Growth in sunbelt outpacing others

0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,000

1,750,000

2,000,000

TX FL CA GA IL

2005 U.S. Industry Shipments

Source: ARI, GAMA





48

Summary

Participate in all channels and markets

Leveraging cross-business strengths

Streamlining operations

Investing in future growth

Market leader



49

Commercial Heating & CoolingHARRY BIZIOS

President & Chief Operating Officer



50

Financial SummaryCOMMERCIAL HEATING & COOLING

2003 2004 2005 2006 Est.

Sales $508 $581 $652










51

Segment Profit TargetCOMMERCIAL HEATING & COOLING

2003 2004 2005 2006 Est.

Sales $508 $581 $652









52

Commercial Manufacturing Facilities5 PLANTS IN 4 COUNTRIES

Stuttgart, AR Burgos, SpainMions, France

Longvic, France

Prague,Czech Republic

North America Europe





53

Geographic Revenue Mix

Stuttgart, AR Burgos, SpainMions, France

Longvic, France

Prague,Czech Republic72% 28%

North America Europe





54

Commercial Heating & Cooling StrengthsNORTH AMERICA

Continued market share increase

5 year CAGR 13% revenue

5 year CAGR 26% EBIT

Strong position with national accounts provides a solid new construction base

Growing replacement opportunities

Industry leading products/continued focus on innovation

Manufacturing excellence/expanding capacity to support growth

EUROPELennox rooftops hold the #1 position in Europe• Unacceptable profitability





55

400,000

425,000

450,000

475,000

500,000

525,000

550,000Ja

n-00

Apr

-00

Jul-0

0

Oct

-00

Jan-

01

Apr

-01

Jul-0

1

Oct

-01

Jan-

02

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

10%

12%

14%

16%Industry Shipments (up to 30 ton)

LII Share - 12 month moving average

I ndu

stry

Shi

pmen

ts ( u

nit s

)LII M

arket Share

LII Market Share Growth

Source: ARI and company sources





56

Customer Segmentation

Purchasing

ConstructionManager

FacilityManager

Owner /Occupier /NationalAccount

Developer

Owners

OwnersEngineers

Architects

Design Build Plan / Spec Service

•Contactors

Contractors





57

Purchasing

ConstructionManager

FacilityManager

Owner /Occupier /NationalAccount

Developer

Owners

Design Build Plan / Spec Service

Contactors

Successful Business Model

OwnersEngineers

Architects

Contractors

National Accounts

Territory M

anagersCommercial Consultants





58

Successful Business Model

OwnersEngineers

Architects

Contractors

Technical Support

Customer Service





59

Rank Company 2003 2004 20051 Wal-Mart Stores 55.0 50.0 55.0 2 The Home Depot 18.7 19.4 18.63 Lowe's Companies 14.1 16.0 17.14 Target 13.8 14.1 15.25 Kohl's Department Stores 6.9 7.8 7.46 SUPERVALU 1.6 5.9 6.37 Dollar General 4.7 4.2 5.08 Walgreen 6.2 4.2 5.09 TJX 4.1 3.9 4.9

10 Family Dollar 4.0 3.7 4.011 CVS Corp. 1.7 1.5 3.312 Best Buy 3.1 2.2 3.313 Dollar Tree 4.9 3.6 3.114 Ross 1.7 2.5 2.515 Gap 0.5 1.6 2.416 May Department Stores 2.0 1.4 2.317 PetSmart 1.4 1.7 2.318 JCPenney 0.9 2.3 2.319 Costco 3.2 2.8 2.220 Publix 3.9 2.1 2.021 Bed, Bath & Beyond 2.1 2.3 1.922 Staples 1.7 3.4 1.923 Big Lots 2.4 3.4 1.924 Linens 'n Things 1.9 1.6 1.825 Kroger 4.0 3.5 1.2

National Account Focus

Millions of Square Feet

Source: Chain Store Age

12 of the top 25 National Accounts

representing approximately 75% of

the total square footage are Lennox

Customers

12 of the top 25 National Accounts

representing approximately 75% of

the total square footage are Lennox

Customers





60

Energy Star Manufacturing Partner of the Year 2003, 2004, 2005

L Series® wins Department of Energy lifecycle cost competition 2002

McDonald’s “Construction Vendor of the Year” 2003

Contracting Business “Innovation” Award for Humiditrol®

2004 ACHR News Gold Dealer Design Award of the L Series®

Wal*Mart’s “Vendor of the Year” May 2006

Outback Restaurants’ Purveyor of the Year 2004 & 2005

2006 ACHR News Gold Dealer Design Award for the S-Class

Buildings Magazine 2006 Editors' Choice –Top Product Picks L Connection® Network

Lennox ranked highest in the first ever JD Power HVAC subcontractor satisfaction survey

Rooftop Awards and Recognition





61

Key InitiativesAMERICAS

Solidify new construction market positionIncrease replacement market penetrationContinue manufacturing excellence and expansionMaintain product leadership

EUROPESales growth• Expand rooftop market• Focus on Eastern Europe

Focus on cost reduction and improve factory efficiencies Rationalize product offering





62

Commercial Regional Distribution CentersINCREASE PENETRATION IN REPLACEMENT MARKET

24 - 48 Hour Response24 - 48 Hour Response





63

2003 2004 2005 2006 Est

35

65

Replacement

New Construction

Total Market

Commercial End Market MixINCREASING MORE PROFITABLE REPLACEMENT SALES

LennoxReplacement Sales Growth

Source: Industry data and company estimates

36% CAGR





64

16% 19%

27%

12%

12%

14%

Commercial Market SegmentationNEW CONSTRUCTION (Square Footage)

Source: 2Q06 Dodge Analytics & company estimates

Retail

Parking Garage/Auto Svc

Education

Commercial Warehouses

Office and Bank

Other





65

14%

12%

12%

27%

19%16%

A Strong Base in RetailNEW CONSTRUCTION (Square Footage)

Retail


Education


Office and Bank

Other

Strengthen PositionStrengthen Position






66

16% 19%

27%

12%

12%

14%

New Segment OpportunitiesNEW CONSTRUCTION (Square Footage)

Retail


Education


Office and Bank

Other

New Focus/New ProductsNew Focus/New Products






67

Percent of High Efficiency SalesMEETING THE ENERGY STAR STANDARD

82%

27%

53%

0%

20%

40%

60%

80%

100%

Industry Lennox Lennox NationalAccounts

Source: ARI and company sources





68

Percent of R410A SalesWORLDWIDE COMMERCIAL LEADER

IN ENVIRONMENTALLY FRIENDLY REFRIGERANTS

7%20%

100%

0%

20%

40%

60%

80%

100%

Industry Today Lennox Today 2010

Source: Copeland and company sources





69

Stuttgart, Arkansas POSITIONED FOR CONTINUED GROWTH

Industry leading configure-to-order lead times of 3-4 weeks

Lean initiatives have increased productivity 40%

11 consecutive external ISO audits with zero findings

Non-finished goods turnover rate = 39

60% domestic sales growth in past 3 years • 250,000 sq ft building

addition to accommodate continued growth





70

Summary

Strengthen the core business

Focus on the replacement market

Maintain product leadership

Invest for future growth



71

Service ExpertsSCOTT J. BOXER

President & Chief Operating Officer



72

Financial SummarySERVICE EXPERTS

2003 2004 2005 2006 Est.

Sales $611 $612 $641

Segment Profit $1 ($2) $17

Segment Profit Margin 0.2% -0.4% 2.7%








73

Segment Profit TargetSERVICE EXPERTS

2003 2004 2005 2006 Est.

Sales $611 $612 $641

Segment Profit $1 ($2) $17

Segment Profit Margin 0.2% -0.4% 2.7%







74

Why is the Retail Business Attractive?Tremendous opportunity for growth• We are the largest player in $46B market with <1.5% market share

Completes the ultimate distribution channel for LII• 2-step, 1-step, and 0-step

Unique perspective into the mind of the customer

Establishes long-term relationship with key residential/commercial decision makers

Supports $80+ mil LII brand equipment revenue stream

Provides Good Profit Potential with Returns Well Above Cost of Capital

Provides Good Profit Potential with Returns Well Above Cost of Capital





75

$46 Billion Market Opportunity

Notes: Includes equipment. All figures are at retail level. Market size is for North America (US and Canada only).Source: Company estimates.

$81 billion

APPLIED & UNITARY29%

$24 billion

HVAC Industry

Commercial New Construction

UNITARY14%

$11 billion

Commercial Service & Replacement

11%$9 billion

Residential New Construction

32%$26 billion

Residential Service & Replacement

57%$46 billion

APPLIED14%

$11 billion





76

Tens of 1,000’sSmall Independents

Competitive Landscape

LOW

←

Con

trac

tor C

alib

er →

HIG

H

Sears

Utilities

Franchises

100’s of Large Local Dealers

Regional Operations

National Organizations

ARS

Big Box

LOW

←

Con

trac

tor C

alib

er →

HIG

H

Less Than 6% Market Share

Less Than 6% Market Share





77

Continuous Improvements at Service ExpertsOver 78% of sales focused on more profitable and stable service/replacement opportunities Common IT system, financial controls,and regional accounting centers deployedInventory Management & Replenishment programreducing working capital requirements to <8% of sales

$19 Million Segment Profit Improvement in 2005$19 Million Segment Profit Improvement in 2005

49 graduates of GM Fast Track development program adding bench strengthHome Health Report Card - IAQ revenue growing over 40% in 2006 Continued roll-out of common brandingProfitable IBS commercial business model growing over 20% CAGR since 2000Over 85% of service technicians are NATE certified





78

Standards of ExcellenceA UNIQUE SELLING PROPOSITION

Extensive consumer research identified five themes that create a superior experience in the mind of the homeowner

Customer Satisfaction Program • Follows up on maintenance and installation experience • Measures performance/loyalty against Standards of Excellence• Initial results from over 30,000 customer surveys

are very encouraging





79

Leveraging Growth InitiativesProtection Plan programs

Indoor Air Quality

Customer Contact Center (CCC)

2006 13 SEER mandate

Standards of Excellence

Leverage commercial service/replacement opportunities through IBS

Improve tech efficiency through wireless mobility solutions (FAST)

Big Box opportunity

Center tuck-ins

Alliance opportunities





80

Leveraging Growth InitiativesProtection Plan programs

Indoor Air Quality

Customer Contact Center (CCC)

2006 13 SEER mandate

Standards of Excellence

Leverage commercial service/replacement opportunities through IBS

Improve tech efficiency through wireless mobility solutions (FAST)

Big Box opportunity

Center tuck-ins

Alliance opportunities





81

RenewalsRenewals

Demand Service OPPORTUNITY


Replacement SalesReplacement Sales Accessories/IAQSales

Accessories/IAQSales

Protection Plans

Protection Plans

Tune-UpsTRUST

Tune-UpsTRUST

Protection Plan ProgramsONLY 1 IN 20 HOMEOWNERS HAS A SERVICE AGREEMENT





82

RenewalsRenewals



Replacement SalesReplacement Sales Accessories/IAQSales

Accessories/IAQSales

Protection Plans

Protection Plans

Tune-UpsTRUST

Tune-UpsTRUST

Protection Plan ProgramsONLY 1 IN 20 HOMEOWNERS HAS A SERVICE AGREEMENT

Closing Rate More Than Double for Protection Plan Customers

Closing Rate More Than Double for Protection Plan Customers





83

Protection Plan PortfolioBasic Good Better Best

Comfort System Inspection

Precision Tune-up Plus™ Maintenance Agreement

Platinum Plus™Protection Plan

Visual inspection of home comfort system

Helps detect safety problems

Home Health™ Report Card

All services performed by NATE Technicians

Multi-step maintenance & cleaning process

Helps reduce energy costs

Helps reduce likelihood of equipment breakdowns

Helps ensure safe equipment operation

Priority Service 24/7

No overtime charges

15% discount on all repairs & accessories

Complete coverage including of all major components

No charge for parts/labor

No deductible or service charges

Replacement allowance for purchase of new unit

Keeps your home comfort system operating efficiently with worry-free protection

Retail $39 Retail $89 Retail $159 Retail $480

Includes Basic Packagefeatures & benefits plus:

Includes Good Packagefeatures & benefits plus:

Includes Better Packagefeatures & benefits plus:





84

Customer Contact CenterGAME CHANGING INITIATIVE

Current situation:First contact is with a Customer Service Representative (CSR) located in one of our 122 centers

• High CSR turnover (45%)• Little or no marketing intelligence collected

on customers• Inability to consistently implement sales and

marketing initiatives

Net Result is Low Call Conversion Rates (52%) Net Result is Low Call Conversion Rates (52%)





85

Customer Contact CenterGAME CHANGING INITIATIVE

Future situation:Consolidate inbound and outbound into two outsourced locations to exclusively support Service ExpertsInbound calls• Receive, handle or route all customer/prospect calls• Warm transfer to local center

Outbound calls• Customer satisfaction survey• Maintenance appointment setting• Telemarketing





86

Improve Technician EfficiencyGAME CHANGING INITIATIVE

Project “FAST” (Field Automation for Service Technicians)• Deploy mobile wireless solution to improve the efficiency (cost

reduction) and effectiveness (revenue increase) of field technicians• Strengthen Service Experts control environment

Key Functionality• Early phases

– Electronic service work orders– Driving directions (with GPS)– Interactive time stamps and enhanced paging– Up-sell prompts – Credit card, check, cash transactions with signature capture

• Future phases– Full integration with business system– Immediate revenue recognition– Inventory management system with bar-coding– Equipment diagnostics





87

Improve Technician Efficiency

Partnership with Sprint Advanced Wireless Solutions • Offers a bundled solution with a monthly

recurring charge– Hardware

– Software

– Integration services

– Help desk and end-user support





88

Demand Enablers

Creating a World Class Service OrganizationCreating a World Class Service Organization

Customer Contact CenterDriving Demand


Field Application for Service Technicians

Exploiting Demand Efficiently







89

Demand Enablers

ConversionRate

Improvement

10%

20%

30%

Service Revenue

Opportunity

$18m

$36m

$54m

Additional Calls Per Tech

2/week

3/week

4/week

Service Revenue

Opportunity

$24m

$36m

$48m







Creating a World Class Service OrganizationCreating a World Class Service Organization





90

SummaryImplementation of game changing strategies (CCC and FAST) • Allows us to grow profitably above market rates

Supports LII brand equipment revenue stream

Provides good profit potential with returns well above cost of capital

Great growth opportunities in very fragmented market



91

Heatcraft Worldwide Refrigeration

DAVID MOONPresident & Chief Operating Officer



92

Financial SummaryREFRIGERATION

2003 2004 2005 2006 Est.

Sales $387 $445 $467










93

Segment Profit TargetREFRIGERATION

2003 2004 2005 2006 Est.

Sales $387 $445 $467









94

Refrigeration StrengthsSuccessful domestic business model• Leveraged worldwide• Similar technology globally

Culture (execution, customer intimacy)

Strong brands

Leverage global capabilities

Technology integration

Best practices





95

Worldwide Product Segments$17.5 BILLION TOTAL MARKET

($ BILLIONS)

$1.2 Walk-in Coolers

$2.9Refrigerated Cases/Display

$3.1 Transport Refrigeration

$2.3Industrial/Ammonia

$2.1Self Contained/Reach-In

$1.9 Vending Ice Machines

$0.8Specialty Chillers

$1.0Non-Food Ultra Low Temp

$2.2Commercial Systems


Sources: Fredonia, Census Bureau, Frost and Sullivan, company estimates





96

Others47%

A11%

B 5%

Heatcraft Worldwide

Refrigeration13%

C 3%D

6%E

4%F3%

G3%

H5%

Global Market Position$2.2 BILLION COMMERCIAL SYSTEMS

Compete GloballyCompete Globally

Compete RegionallyCompete

Regionally

Sources: company publications, internal estimates





97

Specialized ApplicationsInstitutionalNon-food Applications

Primary End-use Segments

Food ServiceRestaurants/FastFood/Pubs, etc.

Retail StoresSupermarketsConvenience Stores

Food ProductionCold StorageFood Processing





98

National/Global AccountsFood Retail Food Service Cold Storage





99

Stone Mountain, GATifton, GA

Danville, IL

Queretaro, MX (JV)

Sao Jose dos Campos, Brazil

Krunkel, Germany

Lyon, France

Barcelona, Spain

Wuxi, China

Bangkok, Thailand (JV)

Auckland, New Zealand

Sydney, Australia

Madrid, Spain

Refrigeration Manufacturing Footprint13 FACILITIES IN 10 COUNTRIES

Americas Operations Asia Pacific OperationsEurope Operations





100

Stone Mountain, GATifton, GA

Danville, IL

Queretaro, MX (JV)

Sao Jose dos Campos, Brazil

Krunkel, Germany

Lyon, France

Barcelona, Spain

Wuxi, China

Bangkok, Thailand (JV)

Auckland, New Zealand

Sydney, Australia

Madrid, Spain47%

Geographic Revenue Mix

18% 35%

Americas Operations Asia Pacific OperationsEurope Operations





101

Environmental OutlookMarkets/customers• Mature markets:

– Increased expectation of broader value proposition

– Competition extending value beyond traditional products and services

• Emerging markets:– Rising disposable income

– Increasing infrastructure development





102

Environmental OutlookTechnology• Key Drivers: food safety, efficiency, sound• Demand for real time product/service information

Regulatory• Refrigerant legislation impact • Continued lack of consistency at state, national

and global levels





103

Our Focus:ORGANIC EXCELLENCE

Product LeadershipCustomer IntimacyOperational Excellence

EMERGING MARKETSAsiaIndiaSouth America

INNOVATION

INORGANIC GROWTH





104

Organic RoadmapSTRATEGIC DRIVERS

Prod

uct

L ead

ersh

ip Product Development Strategy

• 3 year roadmap• Stage Gate®• Open innovation• Brand strategy

Plan development and execution

>8% revenue growth/year

2004 2005 2006 2007 2008

Customer Interface Strategy• Service alignment• Customer segmentation


Manufacturing Excellence Strategy• Low-cost product platforms• Open innovation

Cus

tom

e rIn

timac

yO

pera

t ion a

lE x

celle

nce

Unparalleled customer service

>15% cost reduction






105

20092005

$416M

Change in Sources of RevenueINCREASED FOCUS ON DEVELOPING MARKETS

Emerging11%

Mature89%

Emerging40%

Mature60%





106

Developing MarketsSTRATEGIC DRIVERS

Represent approximately 20-25% of global refrigeration market today• Developing refrigeration infrastructure• Development of retail food channels • Average per capita spend ~10% of developed markets

Emerging economies and infrastructure offer attractive market growth rates• China ~12-14%• India ~12-14%• Southeast Asia ~ 9-11%• South America ~6-9%

Heatcraft model in place in BrazilSource: McKinsey report, internal estimates





107

Brazil Results

1999 2006

16% CAGR

-$4

-$2

$0

$2

$4

$6

$8

$10

$12

$14

1999 2006

10%+

REVENUE EBIT





108

Developing Markets OpportunitiesChina• Expand local production product breadth and capacity• Target cold storage with extended geographic sales reach

India• Establish significant local presence• Build on Bohn brand reputation

Southeast Asia• Expand manufacturing in region• Leverage established distribution relationships

South America• Leverage existing infrastructure• Evaluate appropriate inorganic options





109

20092005

Change in Sources of RevenueBY PRODUCTS

New28%

Current72%

New40%

Current60%





110

Product Development & InnovationSTRATEGIC DRIVERS

Focus external technology experts on top needs• Target 50% of ideas from outside

Create development partnerships outside of our traditional industry• Evaluating informal and formal controls relationships

Leverage internal LII and external intellectual property to create innovative products• Reduced footprint• New materials• Efficiency improvements

Accelerate innovation capacity and time to market through concurrent development





111

Open Innovation NetworkOpen Innovation Forum Members:• IBM• Intel• Kraft Foods• Dupont• Heatcraft• Wipro• Novachem• SAP• Ricoh• Genentech

University Partners• University of Maryland • Penn State University • Dartmouth University • University of Illinois • University of California• Rutgers University• Florida International

University





112

Environmental StewardshipLower global warming impact• Higher efficiency

– NTC Condenser

• Alternative refrigerants– Hydrocarbon evaluation with ARI

• Reduced charge systems– CO2/glycol evaporators– Slurry systems– Micro-channel coils

Zero ozone depletion systems

Alternative cooling mediums• Phase change material • 2nd generation ice slurry

Carrefour Ice SlurryParis, France





113

Ice SlurryAN INNOVATIVE AND ENVIRONMENTALLY FRIENDLY

APPROACH TO REFRIGERATION

Pioneered in Europe

Carrefour Paris Installation• 15,000 square meter store• 75% reduction in refrigerant

charge• Off-peak cooling generates 30%

energy savings• Improved refrigeration effect and

food quality





114

Technology RealizedKit dramatically reduces number of defrosts in refrigeration system• 30 to 40% reduction in cost to defrost • Enhanced product integrity

Growth driver• Retrofit market is global and untapped• Heatcraft’s SDK is the only solution

In US alone could save 1.7B kWHs and reduce CO2

emissions by over 1.2 million metric tons

01234

Def

rost

s Pe

r Day

Actual ResultsSystem Turned On





115

Inorganic GrowthSTRATEGIC DRIVERS

Enhance our capabilities• Geographic base• Brands/channels• Local capabilities/talent

Extend our range of products and/or capabilities• Technology • Related product lines• Strong brands/channels• Extend global reach





116

Potential Adjacent Markets Common customer base and channels

Leverage technology and manufacturing processes

Supporting services and technology

Expands our influence to key end use sectors

Expands available market

Food Retail Food Production Food Service





117

Expand Influence

Heatcraft ProductsTotal Refrigeration Spend

15 – 35%

OtherEquipment

Cases, Controls, Machine Houses

Kitchen Equipment, Walk-ins, Controls

Coolers, Controls

Segment

Food Retail

Food Service

Food Production/ Storage (non-

ammonia)

10 – 25%

70 – 100%





118


$2.9RefrigeratedCases/Display









Sources Fredonia, Census Bureau, Frost and Sullivan, company estimates


($ BILLIONS)





119

$2.2 Commercial Systems

$9.5Expanded MarketOpportunity

$9.5Expanded MarketOpportunity

Sources Fredonia, Census Bureau, Frost and Sullivan, company estimates


$2.9RefrigeratedCases/Display








($ BILLIONS)





120

SummaryORGANIC EXCELLENCE

Product LeadershipCustomer IntimacyOperational Excellence

EMERGING MARKETSAsiaIndiaSouth America

INNOVATION

INORGANIC GROWTH



121

Cross Company InitiativesLINDA GOODSPEED

Chief Supply Chain Logistics & Technology Officer



122

Council-Matrix Organization Shared Service-Direct Report

Strategic Sourcing

Information Technology

Order Fulfillment

Engineering

Scope of Activities


CommercialHeating & Cooling Refrigeration Service Experts



123

LII’s Annual $2 Billion Buy

10%

7%7%

23%53%

Direct

Indirect

Finished Goods

Logistics

Service Experts

Source: 2005 company data



124

9%14%

44%

21%

12%

$1 Billion Direct Spend


Compressors

Copper andAluminum

SteelMotors

All Others



125

Low Cost Country Sourcing Targets

0

50

100

150

200

250

300

350

2006 est 2007 2008

20%

25%

30%

% o

f Dire

ct B

uy


On target to purchase $200M

from low cost countries

On target to purchase $200M

from low cost countries



126

Commodity Purchasing Banding StrategyHEDGE BANDS TO 18 MONTHS REDUCE VOLATILITY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Nov

-06

Dec

-06

Jan-

07

Feb-

07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb-

08

Mar

-08

Apr

-08

Based on price movements, commodity may be bought to mid or

upper band

Based on price movements, commodity may be bought to mid or

upper band

Monthly, commodity automatically bought to

minimum level

Monthly, commodity automatically bought to

minimum level



127

Core SAPTransaction

System

Product Development

HyperionFinancial

Management

SupplierManagement

SupplyChain

ManagementCustomer

RelationshipManagement

eBusiness &Collaboration

Platforms

EnterpriseData

Warehouse

35 %15 %

30 % 20 %

COGS

DPO

Best in Class in IT

12

34

5

Sales



128

Order Fulfillment TransformationON-GOING ACTIVITIES

Transportation consolidation

Real estate shared service

STEP+ program

OPPORTUNITIES

Regional distributionnetwork



129

STEP+ Program

Business Transformation

Strategic Improvement

Continuous Improvement

StrategyStrategy

OperationsOperations

ProjectsProjects

ToolsTools

PERFORMANCEEXCEPTIONAL

TOWARDSTRIVING



130

STEP+ Program

0

10000

20000

30000

40000

50000

2003 2004 2005 2006$0

$4,000,000

$8,000,000

$12,000,000

$16,000,000

$20,000,000

2003 2004 2005 2006

Cumulative Hours Trained Cumulative Dollar Savings

Source: Company data



131

Engineering TransformationON-GOING ACTIVITIES

Centers for excellence

Shared patents

Stage Gate® process

Design for Six Sigma

Data management

New innovation process

OPPORTUNITIES

Digital collaboration

Open innovation



132

No.

of I

nven

tion

Rec

ords

Sub

mitt

ed(1

2 M

onth

Rol

ling)

Invention Records

2002 2003 2004 2005 2006

84% YOY Increase

84% YOY Increase

133

Summary



134

SummaryFY 06 adjusted EPS projected to be up 15%+Each segment has identified and is pursuing initiatives to continue to profitably grow the businessStrategic acquisitions are part of LII’s growth strategy and ourstrong balance sheet provides financial strength and flexibilityCash conversion will approximate net income over the long-term • Invest to strengthen our operations• Return cash to shareholders in the absence of beneficial acquisition

or expansion opportunities

LONG-TERM FINANCIAL OBJECTIVESAnnual revenue growth of 6 to 8% plus acquisition activity10% segment profit margin…a minimum of 50 bps improvement per yearROIC = 5% greater than cost of capital Debt : Capitalization below 40%



135

Documents

LII Investment Community Meeting - Lennox International