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Mail Stop 0510
April 4, 2005
Via U.S. mail and facsimile
Mr. Robert E. Schjerven
Chief Executive Officer, Lennox International Inc.
2140 Lake Park Blvd.
Richardson, TX 75080
RE: Form 10-K for the fiscal year ended December 31, 2004
File No. 1-15149
Dear Mr. Schjerven:
We have reviewed this filing and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
Comment applicable to your overall filing
1. Where a comment below requests additional disclosures or other
revisions to be made, please provide to us your intended
disclosure.
These revisions should be included in your future filings.
Selected Financial Data, page 14
2. Explain any unusual or non-recurring items that materially
affect
the comparability of the information reflected in selected
financial
data. In this regard, include explanations of the significant
goodwill impairment that occurred in 2004 and the accounting
change
that occurred in 2002. See Regulation S-K, Item 301 Instruction 2
for guidance.
Management`s Discussion and Analysis, page 15
3. It appears from Note 11 of your financial statements that the
projected benefit obligation for your pension plans is increasing
and
significantly exceeds the fair value of the plan assets. In the
event this condition is expected to lead to increases in your
pension
expense, discuss this negative trend in management`s discussion
and
analysis in accordance with Regulation S-K, Item 303(a)(3)(ii).
See
also Section II.H. of our March 4, 2005 Current Accounting and
Disclosure Issues in the Division of Corporation Finance, which is
available on our website, for other pension related disclosures
that
you should consider including in your filing.
Liquidity, Capital Resources and Off-Balance Sheet Arrangements,
page
25
4. With regard to the significant unfunded portion of your
postretirement benefit plan, please discuss management`s
expectations
with respect to future funding of this plan in the liquidity
section
of your MD&A.
5. Please revise your table of contractual obligations to include
estimated interest payments on your debt. Because the table is
aimed
at increasing transparency of cash flow, we believe these payments
should be included in the table. Please also disclose any
assumptions you made to derive these amounts.
Financial Statements
Note 2 - Summary of Significant Accounting Policies, page 39
6. Please disclose the types of expenses that you include in the
cost
of goods sold line item and the types of expenses that you include
in
the selling, general and administrative expense line item. In
doing
so, please disclose whether you include inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing
costs,
internal transfer costs, and the other costs of your distribution
network in the cost of goods sold line item. With the exception
of
warehousing costs, if you currently exclude a portion of these
costs
from cost of goods sold, please disclose:
* in a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented, and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of sales and others like you
exclude a portion of them from gross margin, including them
instead
in a line item, such as selling, general and administrative
expense.
7. If you pay slotting fees, engage in cooperative advertising
programs, have buydown programs, or make other payments to
resellers,
please disclose your accounting policy for each of these types of
arrangements, including the statement of operations line item that
each type of arrangement is included in. For each expense line
item
that includes these types of arrangements, please disclose the
related amounts included in that line item. For each type of
arrangement treated as an expense rather than as a reduction of
revenues, please tell us how this type of arrangement meets the
requirements in EITF 01-9. Please also discuss in MD&A any
significant estimates resulting from these arrangements.
Cash and Cash Equivalents, page 39
8. You had restricted cash of $19.8 million as of December 31,
2004
and $28.6 million as of December 31, 2003 due to outstanding
letters
of credit related to your captive insurance plan. Please disclose
where these amounts are reflected on your balance sheet and the
specific nature and duration of the restrictions. If you are
including your restricted cash in your cash and cash equivalents,
please also tell us how you reached the conclusion that they
qualified for this treatment. Refer to paragraphs 7 to 9 of SFAS
95,
including footnote 1.
Inventories, page 40
9. Please disclose the types of inventory that you use each
inventory
method for. Please disclose whether you use both methods for any
similar types of inventory. If so, please disclose your basis for
doing this as well. In a portion of these instances, this may be
due
to the LIFO method being used for similar types of inventory in
countries that permit the LIFO method and the FIFO method may be
used
in countries that do not permit the use of the LIFO method. If
this
is the case for some of your inventory, please also disclose the
foreign countries with similar inventory categories that you use
the
FIFO method in.
Note 6 - Divestitures and Acquisitions
Service Experts Discontinued Operations, page 48
10. We note the disclosure on page 49 that cash proceeds from the
sale of these centers and related tax effects are expected to more
than offset the cash expenses of divestiture. Disclose how many
of
the 48 service centers have been sold and the amount of the
related
proceeds. Also, disclose the expected proceeds from the remaining
service centers.
Note 13 - Commitments and Contingencies
Operating Leases, page 65
11. Please disclose how you account for (a) step rent provisions
and
escalation clauses and (b) capital improvement funding and other
lease concessions, which may be present in your leases. Paragraph
5.n. of SFAS 13, as amended by SFAS 29, discusses how lease
payments
that depend on an existing index or rate, such as the consumer
price
index or the prime interest rate, should also be included in your
minimum lease payments. If, as we assume, they are taken into
account in computing your minimum lease payments and the minimum
lease payments are recognized on a straight-line basis over the
minimum lease term, the note should so state. If our assumption
is
incorrect, please tell us how your accounting complies with SFAS
13
and FTB 88-1.
Note 14 - Earnings Per Share, page 65
12. Specifically state the number of potentially dilutive shares
for
2004 that would have resulted from conversion of the Notes. See
paragraph 40c of SFAS 128. Also, include a reference to the Notes
in
your caption to the reconciling item in the denominator of your
calculation of diluted earnings per share. Please also disclose
the
number of shares issuable upon conversion of the Notes that were
not
included because they were anti-dilutive in each period presented.
Note 15 - Quarterly Financial Information, page 66
13. Explain any unusual or non-recurring items that materially
affect
the comparability of the information reflected in selected
quarterly
financial data. For example, explain the significant net loss
that
occurred in the first quarter of 2004. See Regulation S-K, Item
302(a)(3) for guidance.
Exhibit 12.1 - Computation of Ratio of Earnings to Fixed Charges
14. Please disclose the dollar amount of the deficiency for 2004
pursuant Regulation S-K, Item 503(d).
* * * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Marie Trimeloni, Staff Accountant, at (202) 942-
1860
or, in her absence, to the undersigned at (202) 942-1774.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. Robert E. Schjerven
April 4, 2005
Page 5 of 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE