SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 5, 2003 LENNOX INTERNATIONAL INC. (Exact name of registrant as specified in its charter) Registrant's telephone number, including area code: (972) 497-5000
Delaware 001-15149 42-0991521 (State or other jurisdiction (Commission File Number) (IRS Employer Identification No.) of incorporation) 2140 Lake Park Blvd. Richardson, Texas 75080 (Address of principal executive offices) (Zip Code) Item 9. Regulation FD Disclosure. On February 5, 2003, Lennox International Inc. (the "Company") issued a press release reporting its financial results for the quarter and year ended December 31, 2002. A copy of the Company's press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. LENNOX INTERNATIONAL INC. Date: February 7, 2003 By: /s/ Richard A. Smith --------------------------------- Name: Richard A. Smith Title: Executive Vice President, Chief Financial Officer and Treasurer INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 99.1 -- Press release dated February 5, 2003 issued by Lennox International Inc.
EXHIBIT 99.1 LENNOX INTERNATIONAL REPORTS Q4 AND FULL-YEAR 2002 EARNINGS IN LINE WITH GUIDANCE (Dallas, TX - February 5, 2003) -- Lennox International Inc. (NYSE: LII) announced today its fourth quarter and full-year 2002 earnings, in line with previous guidance. FOURTH QUARTER 2002 RESULTS LII's net sales for the fourth quarter of 2002 decreased 3% to $704 million. Excluding the effects of the heat transfer joint venture and the activities of other non-core operations, company-wide sales, in constant currencies, were up 2%. Operating income was $13 million, contrasted with an operating loss of $43 million last year, reflecting improvements in all of LII's business segments. Operating margins expanded to 1.8%. Net income was $5 million, or $0.08 per diluted share, compared with a loss in the prior year of $40 million, or $0.72 per diluted share. Changes in foreign exchange rates benefited earnings per share in the fourth quarter by $0.01. The prior year fourth quarter net loss included restructuring charges of $28 million, net of tax, or $0.50 per share. FULL-YEAR 2002 RESULTS Sales for full-year 2002 were $3 billion, down 3% from 2001, with changes in foreign exchange rates benefiting revenues by less than 1%. Sales in the company's core businesses, in constant currencies, were down less than 1%. Favorable weather supported LII's domestic residential businesses in 2002, while demand from commercial customers for heating, cooling, and refrigeration equipment and services remained soft. Sales outside the U.S. and Canada accounted for 13% of total LII revenues. Operating income for the year increased to $126 million from an operating loss of $1 million in 2001. Higher volumes in LII's Heating & Cooling and Refrigeration businesses, along with lower cost structures across all LII operations, contributed to improved operating margins of 4.2% in 2002. Including the $249 million goodwill impairment charge the company recorded in the first quarter, LII reported a net loss of $190 million, or $3.23 per diluted share, in 2002, compared with a loss in the previous year of $42 million, or $0.75 per diluted share. This full-year loss per share included restructuring charges; gains, losses, and other items; and FAS 142 impairment of goodwill, totaling a diluted loss per share of $4.19. Excluding these items, LII's diluted earnings per share of $0.96 were in line with the company's previously stated guidance of $0.90-$1.00, as reconciled in the table below. LENNOX INTERNATIONAL INC. - PRO FORMA NET INCOME RECONCILIATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE TWELVE MONTHS ENDED DILUTED EARNINGS DEC. 31, 2002 PER SHARE -------------- ---------------- Net Loss, as Reported $ (190,423) $ (3.23) Cumulative Effect of Accounting Change 249,224 4.23 Restructurings, Net of Income Tax 6,121 0.10 (Gains) Losses and Other Expenses, Net of Income Tax (5,210) (0.09) Adjustment to Prior Year Taxes (3,000) (0.05) -------------- ---------------- Pro Forma Net Income $ 56,712 $ 0.96 ============== ================ LII generated full-year free cash flow of $191 million, allowing the company to reduce its total debt by $138 million from the end of 2001. As historically defined by LII, free cash flow is cash from operations less capital expenditures, before dividends, asset securitizations, restructurings and gains, losses and other items. Reflecting its continued focus on the balance sheet, LII has lowered debt by over $310 million in the past 24 months. "Despite a challenging global economic environment, LII made dramatic progress improving financial performance in 2002," said Bob Schjerven, chief executive officer. "We performed in line with our recent guidance, while forging the structure of a strong, focused company poised to deliver enhanced shareholder value going forward." FOURTH QUARTER AND FULL-YEAR 2002 RESULTS: SEGMENT PERFORMANCE The following tables show LII's operating performance. Segment operating income is defined as income from operations as reported in the company's statement of operations, adjusted to exclude restructuring charges; other operating gains, losses and expenses; and amortization of goodwill. LENNOX INTERNATIONAL INC. - SEGMENT OPERATING INCOME RECONCILIATION (IN THOUSANDS)
GOODWILL & SEGMENT THREE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING DECEMBER 31, 2002: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME - ------------------ ----------- ------------ -------------- ------------------ --------- Residential $ 27,392 $ -- $ 112 $ -- $ 27,504 Commercial 6,086 -- -- -- 6,086 ----------- ------------ -------------- ------------------ --------- Heating and Cooling 33,478 -- 112 -- 33,590 Service Experts (2,055) -- -- -- (2,055) Refrigeration 8,726 -- (207) -- 8,519 Corporate and other (27,255) -- (693) 1,039 (26,909) Eliminations (86) -- -- -- (86) ----------- ------------ -------------- ------------------ --------- Income from Operations $ 12,808 $ -- $ (788) $ 1,039 $ 13,059 =========== ============ ============== ================== =========
GOODWILL & SEGMENT THREE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING DECEMBER 31, 2001: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME - ------------------ ----------- ------------ -------------- ------------------ --------- Residential $ 2,392 $ 742 $ 7,183 $ -- $ 10,317 Commercial (293) 81 4,720 4,508 ----------- ------------ -------------- ------------------ --------- Heating and Cooling 2,099 823 11,903 -- 14,825 Service Experts (8,880) 2,959 -- -- (5,921) Refrigeration 3,960 304 305 -- 4,569 Corporate and other (41,051) 425 18,502 -- (22,124) Eliminations 531 -- -- -- 531 ----------- ------------ -------------- ------------------ --------- Income from Operations $ (43,341) $ 4,511 $ 30,710 $ -- $ (8,120) =========== ============ ============== ================== =========
GOODWILL & SEGMENT TWELVE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING DECEMBER 31, 2002: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME - ------------------- ----------- ------------ -------------- ------------------ --------- Residential $ 111,466 $ -- $ 1,582 $ -- $ 113,048 Commercial 19,127 -- -- -- 19,127 ----------- ------------ -------------- ------------------ --------- Heating and Cooling 130,593 -- 1,582 -- 132,175 Service Experts 24,114 -- -- -- 24,114 Refrigeration 32,276 -- 2,275 -- 34,551 Corporate and other (60,555) -- 3,972 (7,892) (64,475) Eliminations (783) -- -- -- (783) ----------- ------------ -------------- ------------------ --------- Income from Operations $ 125,645 $ -- $ 7,829 $ (7,892) $ 125,582 =========== ============ ============== ================== ========= To facilitate comparisons of operating performance in the fourth quarter, the segment data below are adjusted for restructuring, other non-recurring charges, and the new goodwill accounting standard. HEATING & COOLING revenues rose 6% in the fourth quarter of 2002 to $398 million. Segment operating income more than doubled to $33.6 million from $14.8 million last year. Operating margins for the quarter rose to 8.4% from 3.9% in 2001. In the Residential Heating & Cooling segment, revenues rose 8% during the quarter to $284 million. Operating income increased to $27.5 million from $10.3 million last year, with operating margins expanding 580 basis points to 9.7%. Seasonally favorable weather and strong performances by Lennox Industries' Dave Lennox Signature(TM) Collection product line, along with exceptionally strong performances from LII's Ducane and Advanced Distributor Products (ADP) units, led the residential segment. Revenues in the Commercial Heating & Cooling segment were flat at $114 million, and were down 4% when adjusted for changes in foreign exchange rates. Operating income increased 35% to $6.1 million, while operating margins expanded 140 basis points to 5.3%. Paring back of unprofitable operations in Asia and Australia during 2002 and an improved domestic product mix contributed to strong commercial business improvements. SERVICE EXPERTS revenues declined 3% when compared to the previous year, primarily because there was one fewer week of operations included in this year's quarter. Excluding the effects of the additional week of operations in the previous year and the effect of centers closed in 2001, same-store sales increased 2%. Service Experts posted an operating loss of $2.1 million for the quarter, with results negatively impacted by approximately $4.6 million in increased expenses due to a change in estimates in self-insured insurance costs. These results mark a substantial improvement over the segment operating loss of $5.9 million reported a year ago. REFRIGERATION segment revenue rose 8%, or 3% in constant currencies. Segment operating income was $8.5 million, up 86% from last year. Operating margins increased to 9.4% from 5.4% in fourth quarter 2001. Every LII global refrigeration operation achieved improved performance for the quarter.
GOODWILL & SEGMENT TWELVE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING DECEMBER 31, 2001: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME - ------------------- ----------- ------------ -------------- ------------------ --------- Residential $ 74,480 $ 3,178 $ 7,183 $ -- $ 84,841 Commercial 18,193 395 4,720 -- 23,308 ----------- ------------ -------------- ------------------ --------- Heating and Cooling 92,673 3,573 11,903 -- 108,149 Service Experts (48,802) 12,231 34,631 -- (1,940) Refrigeration 24,519 1,274 305 -- 26,098 Corporate and other (69,003) 1,560 18,502 -- (48,941) Eliminations (83) -- -- -- (83) ----------- ------------ -------------- ------------------ --------- Income from Operations $ (696) $ 18,638 $ 65,341 $ -- $ 83,283 =========== ============ ============== ================== ========= OUTLOOK FOR 2003 After a record year for industry shipments of residential equipment and with the timing for economic recovery unclear, company revenues are expected to be relatively flat in 2003. However, earnings are anticipated to improve based on continued focus on cost reduction initiatives and the full-year effects of other actions taken in 2002. Earnings per share are anticipated to be in the range of $1.10 to $1.20, a 15-25% improvement over this year's result. Continued strength in free cash flow is expected, with 2003 free cash flow approximately equal to net income. "LII is well-positioned for the future," Schjerven said. "Continued improvements in our core businesses are generating the cash needed to take advantage of important opportunities down the road, while a stronger balance sheet provides more flexibility for growth initiatives. We are encouraged by our progress in 2002, and look forward to continued improvement this year." CONFERENCE CALL SCHEDULED LII has scheduled a conference call to discuss financial results for the fourth quarter and full-year 2002 on Thursday, February 6 at 9:30 a.m. Central time. All interested parties are invited to listen as Bob Schjerven, CEO and Rick Smith, CFO comment on the company's operating results. To listen, please call the conference call line at 612-326-1003 ten minutes prior to the scheduled start time and use reservation number 671379. The number of connections for this call is limited to 200. This conference call will be broadcast live on the Internet by PRNewswire and can be accessed at http://www.firstcallevents.com/service/ajwz372512125gf12.html. A link to the broadcast can also be found on the company's web site at http://www.lennoxinternational.com. If you are unable to participate in this conference call, a replay will be available from 1:00 p.m. February 06 through February 13, 2003 on the Internet or by dialing 800-475-6701, access code 671379. A Fortune 500 company operating in over 70 countries, Lennox International Inc. is a global leader in the heating, ventilation, air conditioning, and refrigeration markets. Lennox International stock is traded on the New York Stock Exchange under the symbol "LII." Additional information is available at: http://www.lennoxinternational.com or by contacting Bill Moltner, Vice President, Investor Relations, at 972-497-6670. This news release 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' publicly available filings with the Securities and Exchange Commission. Lennox disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. LENNOX INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Twelve Months Ended December 31, 2002 and 2001 (In thousands, except per share data) (a) Prior year's sales, cost of sales and operating expenses are restated to conform with current year treatment of certain promotional payments in line with the adoption of EITF 01-9 in 2002. (b) Twelve months ended December 31, 2001 restructurings totaled $73,173, of which $7,832 is included in Cost of Goods Sold.
For the For the Three Months Ended Twelve Months Ended December 31, December 31, -------------------------- -------------------------- 2002 2001(a) 2002 2001(a) ------------ ----------- ------------ ----------- NET SALES ............................................................ $ 704,364 $ 727,085 $ 3,025,767 $ 3,113,649 COST OF GOODS SOLD ................................................... 483,422 534,225 2,074,027 2,199,261 ------------ ----------- ------------ ----------- Gross profit .................................................. 220,942 192,860 951,740 914,388 OPERATING EXPENSES: Selling, general and administrative expense ....................... 207,883 205,491 826,158 849,743 Restructurings(b) ................................................. (788) 30,710 7,829 65,341 (Gains) Losses and other expenses ................................. 1,039 -- (7,892) -- ------------ ----------- ------------ ----------- Income (loss) from operations ............................... 12,808 (43,341) 125,645 (696) INTEREST EXPENSE, net ................................................ 6,756 8,536 31,842 43,144 OTHER ................................................................ (379) 146 (1,198) 431 MINORITY INTEREST .................................................... 117 (10) 321 125 ------------ ----------- ------------ ----------- Income (loss) before income taxes and cumulative effect of accounting change ................................... 6,314 (52,013) 94,680 (44,396) PROVISION FOR (BENEFIT FROM) INCOME TAXES ............................ 1,288 (11,695) 35,879 (1,998) ------------ ----------- ------------ ----------- Income (loss) before cumulative effect of accounting change ... 5,026 $ (40,318) 58,801 $ (42,398) ------------ ----------- ------------ ----------- CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................... -- -- 249,224 -- ------------ ----------- ------------ ----------- Net income (loss) ............................................. $ 5,026 $ (40,318) $ (190,423) $ (42,398) ============ =========== ============ =========== INCOME (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE: Basic .......................................................... $ 0.09 $ (0.72) $ 1.03 $ (0.75) Diluted ........................................................ $ 0.08 $ (0.72) $ 1.00 $ (0.75) CUMULATIVE EFFECT OF ACCOUNTING CHANGE PER SHARE: Basic ........................................................... $ -- $ -- $ (4.35) $ -- Diluted ......................................................... $ -- $ -- $ (4.23) $ -- NET INCOME (LOSS) PER SHARE: Basic ........................................................... $ 0.09 $ (0.72) $ (3.32) $ (0.75) Diluted ......................................................... $ 0.08 $ (0.72) $ (3.23) $ (0.75) LENNOX INTERNATIONAL INC. AND SUBSIDIARIES SEGMENT REVENUES AND OPERATING PROFIT For the Three Months and Twelve Months Ended December 31, 2002 and 2001 (In thousands)
For the Three Months Ended Dec. 31, For the Twelve Months Ended Dec. 31, ----------------------------------- ------------------------------------ NET SALES 2002 2001 2002 2001 - --------- ------------ ------------ ------------ ------------ Residential .................. $ 283,975 $ 262,499 $ 1,249,106 $ 1,195,110 Commercial ................... 114,276 114,603 442,357 469,965 ------------ ------------ ------------ ------------ Heating & Cooling ........... 398,251 377,102 1,691,463 1,665,075 Service Experts .............. 235,726 243,164 943,779 1,002,564 Refrigeration ................ 90,642 84,312 363,794 348,087 Corporate and other(a) ....... 1,156 43,639 129,306 200,505 Eliminations ................. (21,411) (21,132) (102,575) (102,582) ------------ ------------ ------------ ------------ $ 704,364 $ 727,085 $ 3,025,767 $ 3,113,649 ============ ============ ============ ============ (a) In the third quarter of 2002, the Company formed a joint venture with Outokumpu ("Outokumpu") Oyj of Finland by selling to Outokumpu a 55 percent interest in the Company's heat transfer business segment for approximately $55 million. The net sales and results of operations for the current periods and all prior periods of the Company's former heat transfer business segment are now included in Corporate and other. (b) To facilitate comparisons, the reported segment Income (Loss) from Operations amounts for the three and twelve months ended December 31, 2001 have been adjusted to reflect the discontinuation of goodwill and trademark amortization under SFAS 142.
INCOME (LOSS) FROM OPERATIONS - For the Three Months Ended Dec. 31, For the Twelve Months Ended Dec. 31, BEFORE RESTRUCTURINGS, ---------------------------------------- ---------------------------------------- (GAINS) LOSSES & OTHER EXPENSES 2002 2001 2001 Adj.(b) 2002 2001 2001 Adj.(b) - ------------------------------- ---------- ---------- ------------ ---------- ---------- ------------ Residential ................... $ 27,504 $ 9,575 $ 10,317 $ 113,048 $ 81,663 $ 84,841 Commercial .................... 6,086 4,427 4,508 19,127 22,913 23,308 ---------- ---------- ------------ ---------- ---------- ------------ Heating & Cooling ............ 33,590 14,002 14,825 132,175 104,576 108,149 Service Experts ............... (2,055) (8,880) (5,921) 24,114 (14,171) (1,940) Refrigeration ................. 8,519 4,265 4,569 34,551 24,824 26,098 Corporate and other(a) ........ (26,909) (22,549) (22,124) (64,475) (50,501) (48,941) Eliminations .................. (86) 531 531 (783) (83) (83) ---------- ---------- ------------ ---------- ---------- ------------ $ 13,059 $ (12,631) $ (8,120) $ 125,582 $ 64,645 $ 83,283 ========== ========== ============ ========== ========== ============ LENNOX INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2002 and December 31, 2001 (In thousands, except share data) ###
ASSETS December 31, December 31, 2002 2001 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents ......................................... $ 76,369 $ 34,393 Accounts and notes receivable, net ................................ 307,334 291,485 Inventories ....................................................... 219,682 281,170 Deferred income taxes ............................................. 33,270 42,662 Other assets ...................................................... 38,400 63,655 ------------ ------------ Total current assets ........................................ 675,055 713,365 PROPERTY, PLANT AND EQUIPMENT, net ................................... 231,042 291,531 GOODWILL, net ........................................................ 420,802 704,713 OTHER ASSETS ......................................................... 194,819 84,379 ------------ ------------ TOTAL ASSETS ................................................ $ 1,521,718 $ 1,793,988 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt ................................................... $ 9,255 $ 23,701 Current maturities of long-term debt .............................. 13,871 28,895 Accounts payable .................................................. 247,598 242,534 Accrued expenses .................................................. 253,929 249,546 Income taxes payable .............................................. 12,808 9,870 ------------ ------------ Total current liabilities ................................... 537,461 554,546 LONG-TERM DEBT ....................................................... 356,747 465,163 DEFERRED INCOME TAXES ................................................ -- 673 POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS ......................... 13,472 14,014 OTHER LIABILITIES .................................................... 159,648 103,301 ------------ ------------ Total liabilities ........................................... 1,067,328 1,137,697 MINORITY INTEREST .................................................... 1,591 1,651 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, 63,039,254 shares and 60,690,198 shares issued for 2002 and 2001, respectively ................................ 630 607 Additional paid-in capital ........................................ 404,723 372,877 Retained earnings ................................................. 171,316 383,566 Accumulated other comprehensive loss .............................. (79,636) (68,278) Deferred compensation ............................................. (13,518) (3,710) Treasury stock, at cost, 3,009,656 and 2,980,846 shares for 2002 and 2001, respectively ............................... (30,716) (30,422) ------------ ------------ Total stockholders' equity .................................. 452,799 654,640 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 1,521,718 $ 1,793,988 ============ ============