Ladies and gentleman thank you for standing by and welcome to the Lennox International Q1 2008 Earnings Conference Call. At the request of the host, all lines are in a listen-only mode. There will be a question-and-answer session at the end of the presentation. As a reminder, this call is being recorded. I would like to turn the conference over to Karen Fugate, Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for a review of Lennox International's financial performance for the first quarter of 2008. I am here today with Todd Bluedorn, our CEO, and Sue Carter, our CFO. Todd will review highlights for the quarter and Sue will take you through the company's financial performance. In the earnings release we issued this morning, we have included the necessary reconciliations, the financial metrics that will be discussed to generally accepted accounting principle measures. You can find a direct link to the webcast of today's conference call on our corporate website at www.lennoxinternational.com, will archive to website on the site and make it available for replay. I'd also like to remind everyone that in the course of this call to give you a better understanding of our operations. We will be making certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. A list of this risks and uncertainties is included in our recent 10-K filing with the SEC, includes the impact of higher raw material prices, our ability to implement price increases for our products and services. The impact of unfavorable weather and a possibility that a decline in new construction activity will depress the demand for our products and services. These risks and uncertainties could cause our actual results to differ materially from those we express to you today. I will now turn the call over to Todd Bluedorn.

Thanks Karen. Good morning and thank you for joining us. As we expected, difficult residential new construction in replacement markets challenged our first quarter results. However, disciplined cost reductions, combined with strong performance on our North America Commercial and Refrigeration businesses, helped offset the headwinds. Total company revenue for the quarter was $767 million, 3% below prior year. EBIT loss was 2%, down 40 basis points. And our earnings per share on an adjusted and GAAP basis were $0.10. Our focus on cost containment across enterprise remains a priority and is reflected in a 40% reduction in our corporate expenses. We made progress in our restructuring initiatives launched last year. The refrigeration facility in Danville made significant progress to date. And our refrigeration facility in New Zealand and the heart facility in Linwood were substantially completed in the first quarter. Annual pretax costs savings associated with these closures are expected to yield $10 million annually beginning in 2009.We are not done on right sizing our factory footprint. And you can expect to hear more from us in this area in the future. Cashes and operations of $33 million is a significant improvement over prior year usage of $75 million. If you recall, due to the seasonal nature of our business, we consumed cash in the first half of the year and generate cash in the back half. We continue to buyback shares to our 500 million share repurchase program and during the quarter spend $173 million for a program to-date completion of 75%. We now anticipate we will complete the program in the second quarter of 2008, a full quarter ahead of schedule. Our balance sheet remains strong, with debt of $402 million for debt-to-EBITDA ratio of 1.2. We continue to have significant capacity to utilize our balance sheet strength of expense to sustain our premium position. Before I turn it over to Sue, I'd like to wrap with our thoughts on the remainder of the year. Given the continued softness in the residential market, we are revising our full year revenue growth assumptions from 2% to 5% to flat to 2%. By accelerating plans to increase operational efficiencies and reduce cost, we believe these volume challenges can be addressed. We expect to meet our full year earnings expectations and reaffirm our guidance of $2.85 to $3 on an adjusted basis and $2.73 to $2.88 on a GAAP basis. Now I will turn it over to Sue.

Thank you Todd. Good morning everyone. I will provide some additional commentary on the business segments for the quarter, starting with Residential Heating and Cooling. Revenue in our Residential Heating and Cooling business decreased 9% to $329 million. While our volume was down 15%, price was flat and mix improved by 4%. Sales mix to our higher efficiency premium product grew 6% or 6 points sequentially, offsetting some of the volume pressure. Segment profit was $13 million, down $7 million with a margin of 4%. Contributing to lower segment profit we wrote off customer accounts receivable of $3 million more in the first quarter of 2008 as compared to 2007 due to weakness in the sector and overall U.S. economy. Although the residential new construction and replacement markets continue to soften, the business is aggressively reducing its cost structure. Now turning to our Commercial Heating and Cooling business. Our commercial segment results were mixed. Revenue for the total business reached $165 million, growth of 2%. Excluding favorable foreign currency, revenue would have declined 3%. Segment profit was down 27% to $6 million. For the total segment, we realized mix and price of 2% and 3% respectively with volume down 9%. Our European business plays a significant drag on overall segment results. Soft markets in Southern Europe and planned infrastructure investments to support our cost reduction efforts drove the segment profit down year-over-year. Recent data point suggests orders are stabilizing in Europe, however, our primary focus is in right sizing the business. In North America, the business had strong segment profit growth of approximately 30%. Much like the residential business, our mix of sales to the higher efficiency product improved sequentially. Orders from our retail national accounts were soft in the first quarter, however, orders from our non national account as…

[Operator Instructions]. Okay our first question is from the line of Jeff Hammond, KeyBanc. Please go ahead.

Hi, good morning.

Hi Jeff.

Hey. Just really want to drill into this European issue, I remember I think it was last year or the year before you there were European issues, the market started to get better, you started to fix some of the change some of the issues. So, this comes as a bit of surprise. I just want to understand, what's going on there, how quick of a fix is it? What really needs to be done from your perspective?

Okay. Let me sort of give you a little bit more color Jeff. If you look on a year-over-year basis where are decrease in profitability was in Europe, about half of it on a year-over-year basis I would say has to do with our revenue being down almost 10% year-over-year and I think a large part that was the market softened on us in first quarter, really the backlog going in the first quarter, the orders that we took at the end of the year were soft, driven in large part to one of our largest market, which is Spain, was down significantly. We also had a little bit of bad debt, that I put underneath that category of half of being I would attribute it to softer markets. About a quarter of the miss on the year-over-year basis I will put on under the category of one timers, things that won't repeat, some accounting sort of correction sort of tight things that you see in the numbers. Then about a quarter of it which we refer to a little bit more than a quarter of it, we refer to on our script and in the earnings release, has to do with what we called infrastructure investments and the enterprise undertook an SAP implementation in Europe a few years ago. We are now seeing the depreciation cost associated with that. In many ways our business in Europe was an accumulation of acquisition that hadn't been integrated. To really shrink the footprint in Europe, we needed to have an infrastructure put in place that allowed us to that and I think SAP was a precondition to do that. High level message on Europe in terms of what's in front of us, I like you share the disappointment on our first quarter performance there, what I would say is we're early in the second quarter but the order rates in Europe appear to have stabilized and so we don't see the bad news that we saw earlier but of course markets come and go. More importantly, we are committed to accelerating what we have said. We have already started in Europe, but now need to accelerate which is taking our cost in right sizing the business.

This other half of one time expenses and infrastructure investment, is that carryover into the remainder of the year or --?

The infrastructure investments will, because again its depreciation off IT systems, SAP. The one timers, we don't expect to repeat.

Okay. And then just a little bit you mentioned the Spanish exposure. What are your bigger exposures in Europe?

Our biggest end markets in Europe are France, which is number one, Germany and Spain. I believe are our top three business markets and we have factories in our commercial HVAC business, both in Spain and France, and in Eastern Europe.

Okay. And then so moving over to guidance, you're cutting it looks like your cutting at the mid-point your revenue assumptions by about $60 million. Where are you making that up, or have you found new cost savings, is it just you had some contingency and now some of that's come up, maybe just a little color on how to make up that this the lower sales?

Yeah. We obviously knew when we entered the year that we're facing uncertain markets and really a challenging time for this industry. So we entered the year with some contingency, and so we're recognizing that contingency. We also have realized over the last few months that markets were softening on us and so we've aggressively accelerated our pace of cost reduction on discretionary spending, and I think you see some of that in corporate expenses and you'll see that during the balance of the year.

Great. And then just you gave some good color on commercial orders. Can you just is there a way to quantify your commercial order? You write in the first quarter and you made and maybe within there the differentiation between the national accounts and the other?

Yeah. On this one I won't put exact numbers around it but I will give you some color which is, if at the highest level of logic you fragment our business into national accounts, which as you know are large degree retail, and then the balance of our order book, which are more general contractor type business. What we saw was the national account, the retail business down, which I don't think surprised anybody given what we hear what everyone sees is going on in the retail business. Down, quiet frankly, a little bit more, or down more than what we thought in December, when we first gave guidance when we talked to you. The good news is the other part of the business, which is the contractor business, we continue to see strength in that segment of the business. In fact it was up year-over-year, and so what we see there is backlogs or contractor customers, at least as far as we can see continue to remain solid. And the other point I'd make is, while some of our major customers people who you all know, who are in the paper everyday talking about pushing out their stores, we've been able to offset that to some degree by winning in the market place which is the new national accounts that we signed last year, and 10 new national accounts that we signed already in first quarter of '08.

Okay. Good color, thanks.

[Operator instructions]. Our next question is from the line of Chris Summers [ph] Green light Capital. Please go ahead.

My question is answered, thank you.

Yeah. thanks Chris. Hopefully it was answered well.

One moment please for the next question. Our next question is from the line of David Rumhouse [ph], Wachovia Capital [ph]. Please go ahead.

Good morning. A couple of questions for you. Can you you talked a little bit about obviously what you have seen in housing, but can you give us a sense of what you are sort of baking in in terms of housing starts for this year and your guidance?

Yeah. Let me just sort of restate a couple of things. We talked about residential new construction being out 26% that tied to the NAHB guidance that's out and what they are forecasting on their most recent forecast, I don't have the exact numbers in front of me, but they have their housing starts under $1 million for a full year. I think its 980,000 bottoming out in second or third quarter on annualized run rates of 950,000. Now that includes multi-family housing starts. And then what we've baked into our guidance on the residential side that sort of reiterate some of things you talked about is, we're saying that we now reflect that on the RNC market which is being down 26%. And if you recall, back in December when we first gave guidance we thought it'd be mid-teens and February we thought it'd be 20%, now we think 26%, now done under 950,000 annualized start second or third quarter which our lowest numbers as you all know that we've seen since the early 70's. On the replacement market for residential, we've seen a softening in that market and when we were together, many of us back in December New York, we talked about a flattish market to slightly down. In Sue's guidance, she talked about it now being down mid-single digits year-over-year. And as you know, in a market where 70% is replacement, that's actually the variable that's most important as you should think about the risks on the business. And so we now see a residential market that's down high single digits, ten-ish type number for 2008 and that's what reflected in our guidance.

Okay, that's helpful. And then a second question. Just steel prices obviously running rampant, how you are dealing with that? How easily it is to get past through on that and what you're sort of thinking about that for the rest of year?

Yeah, and maybe I will even broaden it to copper and aluminum

Yeah.

The whole commodity thing. We're fairly well hedged on copper and aluminum. In fact, for full year 2008 we're hedged at 65% for copper, and 60% for aluminum. So we have a pretty good hedge position there. On steel, as we all know, which you can't hedge, we have LTAs, long term agreement, with our suppliers through the balance of 2008. But having said that, commodity prices, specifically steel, we're seeing the kind of spikes that we saw four or five years ago, we've been very disciplined as a company that when our cost increase go up on commodities we pass that on in the market place. Right now we are again we have long term agreements on steel, we expect our supplier to honor them.

And so when you say long term agreements you mean fixed price contracts?

Yes.

Yes.

Okay. And so you are basically locked on that through 2008?

We're locked on at 2008, but again I'll put color around that, as you can imagine, which is, in the past that hasn't always stop the steel integrated mills from passing our price increases.

Okay.

And again and I would restate, we've been disciplined as a company, as our cost have gone up on commodities and passing it on our own price and we'll continue to do that.

Okay. And is that generally true that most of your competitor's that they would have longer term contract as well?

I don't want to speak for everyone.

Okay, all right. That's helpful, thanks for the time.

Thanks.

Your next question is from the line of Michael Coleman with Sterne, Agee. Please go ahead. Michael Coleman - Sterne, Agee & Leach: Hi, good morning.

Hi Michael. Michael Coleman - Sterne, Agee & Leach: The reduction in the corporate overhead in the quarter, looks like it was what you were previously planning for the full year. How do we think about the on going year-over-year declines in the corporate overhead for the balance of the year?

Good morning Michael, its Sue. Let me take this one on. As I look at the first quarter and the $8 million expense reduction from the first quarter of 2007, I would characterize that as a combination of timing items and just overall cutting. In February, when we talk to you, we said that we knew that the first half of the year was going to be difficult and so as we planned for our expenses, particularly those that we could control, we push them out to later in the year. To give you some parameters around that and what to do with that, when we talk to you in December and in February, we talked about corporate expenses being about $75 million for the year. We now think that corporate expenses will be just south of $70 million for the year and so that of kind gives you a baseline for the timing versus the actual expense reductions. Michael Coleman - Sterne, Agee & Leach: Okay. And the $3 million increase in the SG&A, is that to be viewed as one time or do you think you will see more that in the balance of the year?

No, I think we'll discontinue to monitor that.

And then I think the additional color I would give, Michael, as what Sue said earlier, you adjust for FX increasing, on a cost and FX basis SG&A was actually down year-over-year, by about 3%. Michael Coleman - Sterne, Agee & Leach: Okay. Great thank you.

Our next question is actually a follow up question from the line Jeff Hammond, KeyBanc. Please go ahead.

Hi guys. So, just to follow up on the raw material. Have you seen any of your steel providers come back with surcharges to this point?

We have not accept and I'm parsing my words. We have not accepted any surcharges from our suppliers.

Okay. And then have you announced any price increases in any of your businesses near terms, or may be just run through?

The last price increase that we announced publicly was in our commercial business back in December. And I will look around there and I'm going to have someone correct me if I misstate this, 5% to 8% price increase on our commercial business. Michael Coleman - Sterne, Agee & Leach: Okay, so giving your earlier comment and the run in commodities, how should we be thinking about price increase is going forward?

Again I am going to just be very precise on my words, as our commodity cost increase, we will be disciplined as we have in the past on passing on price to our customers. Michael Coleman - Sterne, Agee & Leach: Okay. Sue, can you just update us on the tax rate for the year, did it come in a little bit higher for 1Q?

Our tax guidance will remain the same at 36% to 37% for the year. Michael Coleman - Sterne, Agee & Leach: Okay and then final follow up. What do you as you get through this share repurchase at the end of this quar... end of 2Q on a accelerated basis. How should we think of capital allocation on a go forward basis?

I think the way that I would think about it is, we'll finish the share repurchase in the second quarter, we'll stop and we'll assess what's next and in our second quarter earnings call, we'll come back to you with some outlook for what's next.

And I think the color that I would add to that, Jeff, is, it is our stated intent and that's just been Lennox's stated intent for many for several years has been, is to continue to return cash to our shareholders in the absence of beneficial acquisition or expansion opportunities. Michael Coleman - Sterne, Agee & Leach: Okay, great. Thanks guys.

Thanks.

[Operator Instructions]. We have a question from line of Dev Naigison [ph], [indiscernible]. Please go ahead.

Hey guys. Thanks for taking my question.

Hi.

With regards to the projections that you guys have made to achieve your revenue guidance of flat to up 2%.

Yes.

What kind of haircut is implicit in the backlog number that you're receiving through your national accounts?

I am not sure I understand the question; I think maybe I would answer it this way. Our current guidance reflects both our backlog and our order rate history and our projected expectations from our national accounts. So our guidance reflects what our current understanding is of our national account business.

Yes, I guess that's what I mean. I mean your national accounts give you a certain number of they've budgeted for the year. Do you haircut that in order to come up with your guidance?

If your point is, do we take what our customers give us at face value, we make adjustments and sort of put our own wisdom on top of numbers that we give and we have operational numbers that we've prepare to build to and then we have financial forecast that we've submit and on both those, we obviously put common sense and our own understanding of market dynamic.

Yes and I am trying to get a sense for the magnitude of that number?

I am not going to give that to you.

Okay. The EPS guidance for the year, what's the share count that's implicit in that?

In December, we turn to about having between 60 million and 61 million shares, with completing the program in the second quarter, I would take that to 58 million to 59 million shares.

Okay. Thanks very much, good luck for the rest of the year.

Thanks.

Thank you. And with no further question in queue, I would now turn the call back over to Mr. Bluedorn for closing remarks.

Thanks operator. As we expected difficult residential new construction and replacement markets challenged our first quarter results. We helped offset these headwinds with disciplined cost reductions and strong performance in our North America Commercial and Refrigeration businesses. And though the markets remain tough, 2008 is about execution; we have accelerated cost reduction actions and reaffirm our 2008 earnings outlook. Thank you all for joining us.

And ladies and gentlemen that does conclude the conference. We do thank you for joining while using AT&T Executive Teleconference. You may now disconnect, have a good day.