Lennox International Inc. - Company Profile, Information, Business Description, History, Background Information on Lennox International Inc.

2100 Lake Park Boulevard
Richardson, Texas 75080

Company Perspectives:

The companies that make up the Lennox International family--Lennox Industries, Heatcraft, Armstrong, and Lennox Global Ltd.--have consistently led the industry in four core businesses: unitary commercial air conditioning, residential air conditioning, commercial refrigeration, and heat transfer. Lennox also leads in the development of innovative, high-quality heating and cooling solutions for virtually every environment imaginable. We manufacture giant coils that help maintain consistent temperatures within buildings of every size and description. We make possible the precise cooling of small freezing systems that preserve the flavor, texture, and nutrients of just-picked vegetables. And we design refrigeration systems that meet the wide-ranging needs of grocers, shipping and storage companies, health care professionals, and restaurateurs&mdashø name just a few. We have a growing list of manufacturing facilities, and sales and distribution sites on five continents.

History of Lennox International Inc.

Lennox International Inc., through its four main subsidiaries--Lennox Industries Inc., Heatcraft Inc., Armstrong Air Conditioning Inc., and Lennox Global Ltd.&mdash′oduces and markets a broad range of residential and commercial heating, air conditioning, and refrigeration equipment and components. Prior to a proposed initial public offering that the company announced in April 1999, Lennox International was owned almost entirely by members of the Norris family, which has controlled the company since 1904; John W. Norris, Jr., is chairman of the board and chief executive officer. About 110 descendants of founder D.W. Norris own shares of Lennox.

Lennox Industries Inc. is the core business of Lennox International. This subsidiary is a North American manufacturer of residential and commercial heating and air conditioning equipment. Lennox products are marketed directly to its network of 5,000 independent dealers located throughout the United States and Canada, a unique setup in the heating, ventilating, and air conditioning (HVAC) industry. Lennox Industries' facilities include three factories in Marshalltown, Iowa; Stuttgart, Arkansas; and Toronto, Canada, as well as numerous sales and distribution centers, dealer service centers, and a large research and development laboratory located in Carrollton, Texas. Lennox Industries is also the parent company of Hearth Products Inc., which was established in 1998 and produces fireplaces, fireplace inserts, and other hearth products. About half of the parent company's revenue is generated by Lennox Industries. Heatcraft Inc. has been part of Lennox International since 1973. Heatcraft, with headquarters in Grenada, Mississippi, has three divisions: the Heat Transfer Division, which produces heat transfer surfaces, including coils and copper tubing, as well as other components; the Refrigeration Products Division, which manufactures refrigeration conditioning units, unit coolers, air-cooled condensers, and cooling towers; and the Electrical Products Division, which makes electrical controls, package humidifiers, and electrical heating elements. Armstrong Air Conditioning Inc. is based in Bellevue, Ohio, and manufactures a broad range of residential furnaces and air conditioners. Lennox Global Ltd., based in Richardson, Texas, was formed in 1995 to expand Lennox's presence outside North America and has since formed several joint ventures that make and distribute HVAC products in Europe, Australia, Singapore, Mexico, and Brazil.

Coal Furnace Beginnings

Lennox got its start in Marshalltown, Iowa, in the last years of the 19th century. Two inventors, Ernest Bryant and Ezra Smith, patented a design for a riveted-steel sheet metal coal furnace, a significant improvement over the cast iron furnaces of that time. Bryant and Smith hired Dave Lennox, who operated a machine shop in Marshalltown, to build the equipment necessary to manufacture their furnace. Bryant and Smith did not have adequate financial backing for the project, however, and when they could not pay Lennox for his work, Lennox took over the furnace patents, altered the design, and set out to market the furnace himself. Shortly thereafter, Lennox decided to sell the furnace business. It was purchased in 1904 by D.W. Norris, editor and publisher of the local newspaper. He incorporated the operation as Lennox Furnace Company, and proceeded to sell 600 furnaces in the company's first year. The Lennox method of distribution, selling, and delivering products directly to authorized dealers was established in the company's first years of operation. Company president Norris established a direct link to dealers using newspaper advertising, his area of expertise.

The superiority of the Lennox sheet metal furnace over the cast iron models commonly in use quickly became apparent. Cast iron furnaces were prone to warping after years of continual heating and cooling. This often caused the shell to crack, and smoke and coal gas could leak into a living space. The Lennox model solved this problem, since no warping occurred. By 1923, the company had expanded enough to open a warehouse in Syracuse, New York. Two years later, a factory was built in that city. In 1927 Lennox acquired the Armstrong Furnace plant in London, Ohio. The Armstrong facility, which produced steel coal furnaces, was moved to Columbus, Ohio, the following year.

John W. Norris, son of company president D.W. Norris, went to work for Lennox in 1927 following his graduation from Massachusetts Institute of Technology. By the early 1930s, the younger Norris had set up a research department in the back part of a warehouse. Several important industry developments came about as a result of Norris's research. Among these developments was the addition of blowers to furnaces in the mid-1930s. Around the same time, oil- and gas-burning furnaces were introduced as well. The appearance of oil and gas forced-air furnaces completely changed the face of the residential heating market. During this period Norris developed a line of smooth, porcelain-enameled cabinets in which to house the furnaces, revolutionizing furnace design for years to come. This marked the first time aesthetics were taken into account in the design of heating equipment, in recognition of the increasing use of the American basement as a living area. A gas forced-air furnace specifically designed for attic or crawlspace installation went into production in 1939.

As the demand for Lennox equipment increased, new facilities were added. In 1940 a new and larger factory was built in Columbus. This plant was also a center for sales, distribution, and product service support for parts of the country that the Marshalltown and Syracuse facilities could not support. By the onset of World War II, Lennox held an important place in the heating industry. During the war the company's production included not only heating equipment for military use, but also parts for aircraft and bombs. A precision machine shop in Lima, Ohio, was purchased for that purpose in 1942. Demand for Lennox products soared when the war was over. By the end of the 1940s, several new divisions were added, including a factory in Fort Worth, Texas, and sales centers in Atlanta, Los Angeles, and Salt Lake City. In 1949 D.W. Norris died, and John W. Norris, Sr., became president of Lennox.

Expanded into Air Conditioning in the 1950s

Lennox continued to expand quickly in both its product line and geographical scope in the 1950s. In 1952 Lennox began manufacturing air conditioning systems. Its first model was a three-ton water-cooled air conditioner, produced at the newly expanded Fort Worth plant. Within the next couple of years, compressors and air conditioning systems for industrial and commercial use went into production as well. Lennox went international in 1952, with the creation of Lennox Industries (Canada) Ltd.

In 1955 the Lennox Furnace Co. changed its name to Lennox Industries Inc. in order to better reflect the broader range of products being manufactured. Further innovations created by Lennox during that decade included commercial air conditioning systems that saved energy by using outside air whenever possible; and modular systems for high-rise buildings, in which each floor was heated and cooled separately from the others.

Lennox expanded the scope of its operations in 1962 with the creation of an International Division. A full-production facility was established in Basingstoke, England (outside of London), and sales offices and warehouses serving most of Western Europe were opened in the Netherlands and in West Germany. By this time, the Canadian operation included a manufacturing plant in Toronto, Ontario, as well as a sales and distribution facility in Calgary, Alberta. Among the products introduced by Lennox during the 1960s were the Duracurve heat exchanger, which eliminated noise and cracking in gas furnaces, and multizone rooftop units for heating and cooling.

Acquired Heatcraft in 1973

In 1971 Norris was succeeded as president by Ray C. Robbins. Under Robbins, Lennox continued to expand at a rapid pace during the 1970s. In 1973 Lennox acquired the Tennessee-based Heatcraft Inc. from PEP Industries. Heatcraft, a manufacturer of electric heating and cooling components such as coils, condensing units, and copper tubing, became a wholly owned subsidiary of Lennox. The following year Lennox began construction of a new factory for the production of commercial heating and air conditioning equipment in Stuttgart, Arkansas. Later in the decade, Lennox began to outgrow some of its facilities, and a migration to the Dallas area began. The company's Marshalltown Research and Development Laboratory and the heat pump research facility in Fort Worth were consolidated into a larger, more modern location in Carrollton, Texas, in 1977.

The following year the company's corporate headquarters were relocated from Marshalltown to Dallas. The Midwest Division sales headquarters and manufacturing plant located in Marshalltown remained intact. The year 1978 also marked the debut of the LOGIC (Lennox Objective Guide to Installation Comparisons) computer program for the analysis of HVAC designs, and the opening of a computerized corporate data center. In 1979 testing was completed on a home-sized solar-powered air conditioning system, produced by Lennox in cooperation with Honeywell under government contract.

John W. Norris, Jr., became president and CEO of Lennox in 1980. Robbins stayed on as chairman of the board. By 1981, the company's unique distribution system boasted a total of 6,000 dealers throughout the United States and Canada, supplied by a network of 31 warehouses. That year, Lennox controlled 17 percent of the residential market for gas forced-air furnaces. The company did nearly as well in the central electric heating and unitary air conditioner markets, with 14 percent and 15 percent shares, respectively.

Introduced Pulse Furnace in 1982

In 1982 Lennox made a major gain in the home heating industry with the appearance of the first Pulse combustion gas furnace, a high-efficiency forced-air unit that marked the first major improvement in home heating in 20 years. The G14 Pulse furnace operated with no open flame, igniting tiny bursts of gas and air at a rate of about 60 bursts a second and at over 90 percent fuel efficiency, a significant improvement over the 55 percent energy efficiency of most furnaces in use at that time. With the introduction of the Pulse, sales at Lennox reached an estimated $600 million for 1982.

In 1983 Lennox built a copper tube plant in Bossier City, Louisiana. The following year, the company introduced the Power Saver air conditioner, the first two-speed air conditioner to achieve a 15.0 Seasonal Energy Efficiency Ratio (SEER). The expansion and consolidation of company facilities continued in the mid-1980s. In 1985 Lennox began an expansion program at its National Parts Distribution Center in Urbandale, Iowa, just outside of Des Moines. The compressor research lab in Fort Worth was integrated into the Carrollton research and development complex that year as well. A year later Lennox International Inc. was formed as the parent company for Lennox Industries and Heatcraft. Around the same time, Heatcraft acquired the Grenada, Mississippi, coil manufacturing and copper mill facility of SnyderGeneral Corp. This facility was expanded in 1987 to include the production of precision tools and dies for making heat transfer products. Lennox began offering limited lifetime warranties on its Pulse furnaces in 1987, prompting its competitors to come up with similar warranty programs of their own. In 1988 Heatcraft acquired another of SnyderGeneral's facilities, a refrigeration products manufacturing plant in Wilmington, North Carolina.

Two important technological developments occurred at Lennox in 1988: the introduction of the first heat pump to use a scroll-compressor; and a licensing agreement with Powell Energy Products to develop and market thermal energy storage systems using Powell technology. The year also marked the reacquisition of Armstrong Air Conditioning. Lennox had owned Armstrong from the mid-1920s into the 1950s, when it was sold off. Armstrong was purchased by Johnson Corporation in 1962, which was in turn acquired by Magic Chef in 1971. Magic Chef became a division of Maytag in 1986, and its name was lengthened to Magic Chef Air Conditioning. It was this division that Lennox International purchased from Maytag in 1988 and subsequently renamed Armstrong Air Conditioning Inc.

Reorganized in 1989 and 1990

Early in 1989, Lennox announced a reorganization of its corporate structure, in which each of its three operating subsidiaries would have its own president and chief operating officer. Donald W. Munson was named to head Lennox Industries; Robert L. Jenkins became president of Heatcraft; and Robert E. Johnson was named to lead Armstrong. Other developments that year included the opening of a new Lennox Industries sales and distribution center in Wilmington, Massachusetts, to serve dealers in New England and eastern New York. Also, the Research and Development Laboratory in Carrollton, Texas, was approved by the American Gas Association as an accredited lab for certification testing.

In 1990 work was completed on a new corporate headquarters for Lennox International and Lennox Industries in Richardson, Texas, a suburb of Dallas. The following year the company launched another reorganization plan, in which its sales management, marketing, and product ordering teams were united in the new headquarters, a change from the previous arrangement of five semi-autonomous regional divisions. At the same time, production was consolidated into four locations, meaning the closing of the Fort Worth facility. Also in 1991, Norris was voted in as chairman of the board. Robbins's title was elevated to chairman emeritus. Donald Munson retired in July 1992, and Thomas J. Keefe, a member of the Lennox International board, took over as president and chief operating officer of Lennox Industries. Later that year, a ten-year anniversary celebration for the Pulse furnace took place in Marshalltown, Iowa, the company's birthplace and furnace manufacturing location, during which the one millionth Pulse furnace was dedicated. Meanwhile in Europe, the company's Basingstoke, England, facility, operated by Lennox for over 30 years, was closed. Its operations were moved to a new, 100,000-square-foot plant in Northampton.

Lennox introduced its new "Diplomat" line of central air conditioners, heat pumps, and gas furnaces in early 1993. The Diplomat line was developed as a means of gaining a stronger foothold in the residential new construction market, an area that Lennox had often been priced out of in previous years. Also in 1993 the Columbus, Ohio, plant was closed, with the manufacturing operations there consolidated into the Marshalltown, Iowa, factory. In 1994 Lennox introduced CompleteHeat, the industry's first high-efficiency space heating/hot water system. Lennox also became the first HVAC company to manufacture gas fireplaces in North America that same year.

In 1995, the year the company celebrated its centennial anniversary, Robert Schjerven was named president and COO of Lennox Industries after having served as head of Armstrong Air Conditioning; Ed French took over as president of Armstrong, following a stint as head of Heatcraft's Refrigeration Products Division. That year Lennox announced its intention to ultimately go public, offering no more than a 20 percent interest through an IPO. This plan appeared to have been at least temporarily scuttled, however, after it became widely known that a possible flaw in a key component of the 400,000 Pulse furnaces made before 1988 could, in rare cases, lead the furnaces to leak poisonous carbon monoxide gas into the homes. In September 1995 a $1 billion class-action lawsuit was filed against Lennox in Dallas, a case that the company won in January 1998. Prior to that victory, Lennox began a furnace inspection program in late 1997, and had inspected 130,000 furnaces by early 1998. To pay for the program the company took a $140 million pretax charge in 1997, which led to a full-year net loss of $33.6 million (compared to net profits of $54.7 million in 1996). Although it appeared that the company would survive this setback, its reputation had suffered from being probed by the Consumer Product Safety Commission and being the subject of media scrutiny including coverage by a national prime-time news show.

Formed Lennox Global in 1995

Perhaps the most important event of 1995 came in May when Lennox added a fourth main subsidiary, Lennox Global Ltd., to its organizational chart. Lennox Global was created to expand the manufacturing and sales operations of Lennox Industries, Armstrong, and Heatcraft in areas outside the United States and Canada. In addition to its manufacturing facility in the United Kingdom, Lennox International had established joint ventures in France and Mexico which market refrigeration products and had gained full control of an Australian concern. These operations were consolidated under the banner of Lennox Global, which aimed for additional overseas growth through the formation of more joint ventures. The first of these came in 1996 when Lennox joined with the Brancher group of France to form HCF-Lennox, which combined several of the two companies operations into an entity with $160 million in annual sales and the number one position in Europe for rooftop air conditioners in addition to leading positions in chillers, precision air conditioners, process cooling, and commercial refrigeration systems. Other joint ventures were soon formed in Spain, with Refac, and in the Latin American region, with Strong. In September 1998 Lennox spent $20.5 million to acquire a majority interest in Brazil-based McQuay do Brasil S.A., a specialist in commercial refrigeration and heat transfer products, which it marketed in Brazil and surrounding countries. The addition of Lennox Global increased Lennox International's sales outside the United States and Canada from $28.5 million in 1996 to $244.5 million in 1998. The 1998 figure represented 13.4 percent of the company's overall sales of $1.82 billion, and the company aimed to increase that to 50 percent by 2005.

In September 1998 Lennox began a new strategy of acquiring heating and air conditioning dealers in the United States and Canada in order to distribute Lennox products directly to consumers and thereby gain a portion of the revenues and margins available at the retail level. Lennox also hoped to take advantage of the growth opportunities available in what was a highly fragmented market, with more than 30,000 dealers in the U.S. retail sales and service market alone. By the end of 1999's first quarter, Lennox had spent about $55 million to acquire 37 dealers in Canada and was making plans for U.S. acquisitions.

Having entered the hearth products market in 1994, Lennox expanded upon that initiative in 1998 when it formed Hearth Products Inc. as a Tustin, California-based wholly owned subsidiary of Lennox Industries. Following the 1998 acquisitions of Marco Mfg., Inc. of Lynwood, California; Pyro Industries Inc. of Burlington, Washington; and Superior Fireplace Company of Fullerton, California, and the early 1999 purchase of Security Chimneys International, Ltd.--for a total of $120 million--Hearth Products was one of the largest makers of hearth products in the United States and Canada, offering a full line of products including gas and wood-burning fireplaces, fireplace inserts, free-standing stoves, and gas logs. Also in 1998 Lennox International and Lennox Industries agreed to settle a lawsuit brought by 11 former sales managers, who charged they had been fired or demoted, at the ages of 41 to 58 years old, as a result of a practice or pattern of age discrimination at Lennox. Although the company admitted no wrongdoing, it agreed to pay the plaintiffs a total of $6.2 million, undergo 42 months of Equal Employment Opportunity Commission monitoring, and change its personnel practices.

By early 1999, Lennox had built up about $115 million in debt as a result of its hearth products acquisitions, its international expansion, and its dealer acquisition program. To pay down some of this debt&mdash well as to fund further expansion--Lennox decided to resurrect the idea of an initial public offering. In early April 1999 the company announced that it intended to sell an unspecified stake in the company to the public through an IPO. Following the offering, the 110 descendants of D.W. Norris who owned the company's stock would still be in firm control of the company, but they would have an increased ability to sell their stock holdings. It appeared that Lennox International was going public at a time of exciting company initiatives and excellent prospects for 21st-century growth.

Principal Subsidiaries: Armstrong Air Conditioning Inc.; Heatcraft Inc.; Lennox Global Ltd.; Lennox Industries Inc.

Additional Details

Further Reference

A Century of Comfort: Lennox: The First Hundred Years, 1895-1995, Richardson, Tex.: Lennox International Inc., n.d., 44 p.Consdorf, Arnold P., and Charles W. Behrens, "A Combination of Change and Stability," Appliance Manufacturer, November 1977, pp. 40--47.Duffy, Gordon, "Lennox Gears Up for Expansion in New Home and World Markets," Air Conditioning, Heating, and Refrigeration News, January 25, 1993, pp. 102--04.Dworkin, Andy, "Furnace Flaw Keeps Texas' Lennox Industries in Hot Seat," Dallas Morning News, March 2, 1998.------, "Texas-Based Heating, Cooling Firm Plans for Small Public Offering," Dallas Morning News, April 6, 1999."Gas Furnaces: Lennox Is Hot in Ownership Now and in the Future," Appliance Manufacturer, July 1983, p. 38.Kunde, Diana, "Richardson, Texas-Based Lennox Agrees to Settle Age Bias Suit," Dallas Morning News, May 12, 1998."Lennox Link to Dealers Thrives on Direct Communication," Appliance Manufacturer, October 1981, p. 54."Lennox Moving Corporate HQ to Dallas Area," Air Conditioning, Heating, and Refrigeration News, March 20, 1978, p. 1."Lennox Reorganizes," Air Conditioning, Heating, and Refrigeration News, April 8, 1991, pp. 1--2."The Lennox Story," Appliance, February 1982, special section."Lighting a Fire Under Furnace Sales," Business Week, October 25, 1982, p. 82.Mahoney, Thomas A., "Lennox Celebrates 100 Years in Business," Air Conditioning, Heating, and Refrigeration News, July 17, 1995, pp. 3+."Multifaceted Lennox International," Appliance Manufacturer, July 1996, special section."Special Section: Lennox International," Appliance Manufacturer, August 1990."Sun-Powered Home Air Conditioner," Machine Design, June 21, 1979, p. 8.

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