Release Details

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2016

2015

2016

2015

Net sales

$

1,019.2

$

992.5

$

1,734.4

$

1,678.3

Cost of goods sold

704.2

709.1

1,235.8

1,231.9

Gross profit

315.0

283.4

498.6

446.4

Operating Expenses:

Selling, general and administrative expenses

159.4

152.9

299.7

286.2

Losses and other expenses, net

0.4

3.3

4.7

8.9

Restructuring charges

0.8

1.8

0.6

2.1

Income from equity method investments

(6.3)

(5.5)

(10.8)

(8.8)

Operating income

160.7

130.9

204.4

158.0

Interest expense, net

6.8

6.4

12.7

12.2

Other income, net

(0.2)

—

(0.3)

—

Income from continuing operations before income taxes

154.1

124.5

192.0

145.8

Provision for income taxes

42.9

42.9

55.9

50.2

Income from continuing operations

111.2

81.6

136.1

95.6

Discontinued Operations:

Loss from discontinued operations before income taxes

(0.8)

(0.7)

(0.8)

(0.8)

Benefit from income taxes

(0.3)

(0.3)

(0.3)

(0.3)

Loss from discontinued operations

(0.5)

(0.4)

(0.5)

(0.5)

Net income

$

110.7

$

81.2

$

135.6

$

95.1

Earnings per share – Basic:

Income from continuing operations

$

2.55

$

1.81

$

3.11

$

2.13

Loss from discontinued operations

(0.01)

(0.01)

(0.01)

(0.01)

Net income

$

2.54

$

1.80

$

3.10

$

2.12

Earnings per share – Diluted:

Income from continuing operations

$

2.52

$

1.79

$

3.07

$

2.10

Loss from discontinued operations

(0.01)

(0.01)

(0.01)

(0.01)

Net income

$

2.51

$

1.78

$

3.06

$

2.09

Weighted Average Number of Shares Outstanding - Basic

43.6

45.0

43.8

44.9

Weighted Average Number of Shares Outstanding - Diluted

44.1

45.6

44.4

45.6

Cash dividends declared per share

$

0.43

$

0.36

$

0.79

$

0.66

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2016

2015

2016

2015

Net sales

Residential Heating & Cooling

$

574.5

$

555.1

$

951.8

$

917.7

Commercial Heating & Cooling

252.9

253.6

423.3

413.5

Refrigeration

191.8

183.8

359.3

347.1

$

1,019.2

$

992.5

$

1,734.4

$

1,678.3

Segment Profit (Loss) ⁽¹⁾

Residential Heating & Cooling

$

115.9

$

99.9

$

154.1

$

131.2

Commercial Heating & Cooling

47.4

43.0

61.7

50.7

Refrigeration

21.3

13.3

30.3

17.2

Corporate and other

(23.5)

(22.0)

(38.4)

(33.7)

Total segment profit

161.1

134.2

207.7

165.4

Reconciliation to Income from continuing operations before income taxes:

Special product quality adjustments

—

(1.1)

(0.4)

(1.4)

Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) ⁽¹⁾

(0.4)

2.6

3.1

6.7

Restructuring charges

0.8

1.8

0.6

2.1

Operating income

$

160.7

$

130.9

$

204.4

$

158.0

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of June 30,
2016

As of December 31,
2015

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

54.7

$

38.9

Accounts and notes receivable, net of allowances of $7.4 and $6.3 in 2016 and 2015, respectively

643.5

422.8

Inventories, net

505.7

418.8

Other assets

66.3

57.7

Total current assets

1,270.2

938.2

Property, plant and equipment, net of accumulated depreciation of $707.5 and $706.2 in 2016 and 2015, respectively

345.2

339.6

Goodwill

198.5

195.1

Deferred income taxes

145.0

145.7

Other assets, net

65.3

58.8

Total assets

$

2,024.2

$

1,677.4

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

225.4

$

204.1

Current maturities of long-term debt

230.8

31.0

Accounts payable

399.8

320.1

Accrued expenses

256.5

242.6

Income taxes payable

10.2

26.0

Total current liabilities

1,122.7

823.8

Long-term debt

619.0

506.0

Post-retirement benefits, other than pensions

2.9

4.1

Pensions

122.2

120.8

Other liabilities

126.0

121.1

Total liabilities

1,992.8

1,575.8

Commitments and contingencies

Stockholders' equity:

Preferred stock, $.01 par value, 25,000,000 shares authorized, no shares issued or outstanding

—

—

Common stock, $.01 par value, 200,000,000 shares authorized, 87,170,197 shares issued

0.9

0.9

Additional paid-in capital

979.1

1,002.4

Retained earnings

1,247.9

1,146.7

Accumulated other comprehensive loss

(186.6)

(204.7)

Treasury stock, at cost, 43,508,910 shares and 42,491,910 shares as of June 30, 2016 and December 31, 2015, respectively

(2,010.3)

(1,844.1)

Noncontrolling interests

0.4

0.4

Total stockholders' equity

31.4

101.6

Total liabilities and stockholders' equity

$

2,024.2

$

1,677.4

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Six Months Ended
June 30,

2016

2015

Cash flows from operating activities:

Net income

$

135.6

$

95.1

Adjustments to reconcile net income to net cash used in operating activities:

Income from equity method investments

(10.8)

(8.8)

Dividends from affiliates

3.9

3.4

Restructuring (gains) expenses, net of cash paid

(1.0)

1.2

Provision for bad debts

2.7

1.6

Unrealized (gains) losses on derivative contracts

(1.9)

0.3

Stock-based compensation expense

14.8

10.8

Depreciation and amortization

28.5

30.6

Deferred income taxes

(1.9)

(0.9)

Other items, net

0.3

0.2

Changes in assets and liabilities, net of effects of divestitures:

Accounts and notes receivable

(216.2)

(199.2)

Inventories

(80.6)

(85.3)

Other current assets

(6.7)

(0.1)

Accounts payable

82.6

87.3

Accrued expenses

20.1

6.7

Income taxes payable and receivable

(14.2)

(1.4)

Other

3.8

6.2

Net cash used in operating activities

(41.0)

(52.3)

Cash flows from investing activities:

Purchases of property, plant and equipment

(41.7)

(33.0)

Net cash used in investing activities

(41.7)

(33.0)

Cash flows from financing activities:

Short-term borrowings, net

0.5

0.4

Asset securitization borrowings

40.0

40.0

Asset securitization payments

(20.0)

(40.0)

Long-term debt payments

(8.2)

(23.0)

Borrowings from credit facility

1,184.5

999.0

Payments on credit facility

(864.0)

(845.5)

Proceeds from employee stock purchases

1.3

1.1

Repurchases of common stock

(200.0)

—

Repurchases of common stock to satisfy employee withholding tax obligations

(21.4)

(21.8)

Excess tax benefits related to share-based payments

15.7

17.3

Cash dividends paid

(31.8)

(26.9)

Net cash provided by financing activities

96.6

100.6

Increase in cash and cash equivalents

13.9

15.3

Effect of exchange rates on cash and cash equivalents

1.9

(5.3)

Cash and cash equivalents, beginning of period

38.9

37.5

Cash and cash equivalents, end of period

$

54.7

$

47.5

Supplemental disclosures of cash flow information:

Interest paid

$

12.4

$

12.3

Income taxes paid (net of refunds)

$

55.8

$

34.4

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) Measures

(Unaudited, in millions, except per share and ratio data)

Use of Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements and segment net sales and profit presented in accordance with U.S. GAAP, additional non-GAAP financial measures are provided and reconciled in the following tables.  In addition to these non-GAAP measures, the Company also provides rates of revenue change at constant currency on a consolidated and segment basis if different than the reported  measures. The Company believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results.  The Company believes that these non-GAAP financial measures enhance the ability of investors to analyze the Company's business trends and operating performance.

Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure

For the Three Months Ended June 30,

2016

2015

Pre-Tax

Tax Impact ^(c)

After Tax

Pre-Tax

Tax Impact ^(c)

After Tax

Income from continuing operations, a GAAP measure

$

154.1

$

(42.9)

$

111.2

$

124.5

$

(42.9)

$

81.6

Restructuring charges

0.8

(0.3)

0.5

1.9

(0.6)

1.3

Special product quality adjustments ^(b)

—

—

—

(1.2)

0.4

(0.8)

Special legal contingency charges ^(a)

(1.7)

0.6

(1.1)

0.8

(0.3)

0.5

Asbestos-related litigation ^(a)

1.1

(0.4)

0.7

0.4

(0.1)

0.3

Net change in unrealized losses (gains) on unsettled future contracts ^(b)

(0.3)

0.1

(0.2)

0.1

—

0.1

Environmental liabilities^(a)

0.5

(0.1)

0.4

(0.2)

—

(0.2)

   Contractor tax payments ^(a)

—

—

—

1.6

(0.5)

1.1

Adjusted income from continuing operations, a non-GAAP measure

$

154.5

$

(43.0)

$

111.5

$

127.9

$

(44.0)

$

83.9

Income per share from continuing operations - diluted, a GAAP measure

$

2.52

$

1.79

Restructuring charges

0.01

0.03

Special product quality adjustments ^(b)

—

(0.02)

Special legal contingency charges^(a)

(0.03)

0.01

Asbestos-related litigation^(a)

0.02

0.01

Net change in unrealized losses (gains) on unsettled future contracts ^(a)

—

—

Environmental liabilities ^(a)

0.01

—

   Contractor tax payments ^(a)

—

0.02

Adjusted earnings per share from continuing operations - diluted, a non-GAAP measure

$

2.53

$

1.84

(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations

(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(c) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

For the Six Months Ended June 30,

2016

2015

Pre-Tax

Tax Impact ^(c)

After Tax

Pre-Tax

Tax Impact ^(c)

After Tax

Income from continuing operations, a GAAP measure

$

192.0

$

(55.9)

$

136.1

$

145.8

$

(50.2)

$

95.6

Restructuring charges

0.6

(0.2)

0.4

2.2

(0.7)

1.5

Special product quality adjustments ^(b)

(0.4)

0.1

(0.3)

(1.4)

0.5

(0.9)

Special legal contingency charges ^(a)

—

0.1

0.1

4.2

(1.6)

2.6

Asbestos-related litigation ^(a)

1.9

(0.7)

1.2

0.5

(0.2)

0.3

Net change in unrealized losses (gains) on unsettled future contracts ^(b)

(0.7)

0.2

(0.5)

—

—

—

Environmental liabilities ^(a)

1.1

(0.2)

0.9

0.4

—

0.4

   Contractor tax payments ^(a)

0.5

(0.2)

0.3

1.6

(0.5)

1.1

Other items ^(a)

0.4

(0.1)

0.3

—

—

—

Adjusted income from continuing operations, a non-GAAP measure

$

195.4

$

(56.9)

$

138.5

$

153.3

$

(52.7)

$

100.6

Income per share from continuing operations - diluted, a GAAP measure

$

3.07

$

2.10

Restructuring charges

0.01

0.03

Special product quality adjustments ^(b)

(0.01)

(0.02)

Special legal contingency charges ^(a)

—

0.06

Asbestos-related litigation ^(a)

0.02

0.01

Net change in unrealized losses (gains) on unsettled future contracts ^(a)

(0.01)

—

Environmental liabilities ^(a)

0.02

0.01

   Contractor tax payments ^(a)

0.01

0.02

Other items, net ^(a)

0.01

—

Adjusted earnings per share from continuing operations - diluted, a non-GAAP measure

$

3.12

$

2.21

(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations

(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(c) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2016

2015

2016

2015

Components of Losses and other expenses, net (pre-tax):

Realized losses on settled future contracts (a)

$

0.4

$

0.3

$

0.9

$

0.7

Foreign currency exchange losses (a)

0.3

0.4

0.5

1.5

Loss on disposal of fixed assets (a)

0.1

—

0.1

—

Net change in unrealized (gains) losses on unsettled futures contracts (b)

(0.3)

0.1

(0.7)

—

Special legal contingency (gains) charges (b)

(1.7)

0.7

—

4.1

Asbestos-related litigation (b)

1.1

0.4

1.9

0.6

Environmental liabilities (benefits) (b)

0.5

(0.2)

1.1

0.4

Contractor tax payments (b)

—

1.6

0.5

1.6

Acquisition costs (b)

—

—

0.4

—

Losses and other expenses, net (pre-tax)

$

0.4

$

3.3

$

4.7

$

8.9

   (a) Included in both segment profit (loss) and Adjusted income from continuing operations

   (b) Excluded from both segment profit (loss) and Adjusted income from continuing operations

Reconciliation of Estimated Adjusted Income per Share from Continuing Operations - Diluted, a Non-GAAP measure, to Income per Share from Continuing Operations - Diluted, a GAAP measure

For the Year
Ended
December 31,
2016
ESTIMATED

 Adjusted income per share from continuing operations - diluted, a Non-GAAP measure

$6.50 - $6.90

Special loss contingencies and other items

(0.05)

 Income per share from continuing operations - diluted, a GAAP measure

$6.45-$6.85

Reconciliation of Net Cash Provided by Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure (dollars in millions)

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2016

2015

2016

2015

Net cash provided by (used in) operating activities, a GAAP measure

$

72.4

$

69.9

$

(41.0)

$

(52.3)

 Purchases of property, plant and equipment

(17.9)

(15.0)

(41.7)

(33.0)

 Free cash flow, a Non-GAAP measure

$

54.5

$

54.9

$

(82.7)

$

(85.3)

Calculation of Debt to EBITDA Ratio (dollars in millions):

Trailing
Twelve
Months to
June 30, 2016

 Adjusted EBIT (a)

$

420.0

 Depreciation and amortization expense (b)

60.7

 EBITDA (a + b)

$

480.7

 Total debt at June 30, 2016 (c)

1,075.1

 Total Debt to EBITDA ratio ((c / (a + b))

2.2

Reconciliation of Adjusted EBIT, a Non-GAAP measure, to Income From Continuing Operations Before Income Taxes, a GAAP measure (dollars in millions)

Trailing
Twelve
Months to
June 30, 2016

 Adjusted EBIT per above, a Non-GAAP measure

$

420.0

 Special product quality adjustments

(1.1)

 Items in Losses (gains) and other expenses, net that are excluded from segment profit

12.1

 Restructuring charges

1.6

 Interest expense, net

24.1

 Special inventory write down

5.6

Goodwill impairment

5.5

Asset impairment

44.5

 Other expenses, net

(1.1)

 Income from continuing operations before income taxes, a GAAP measure

$

328.8