Release Details

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2019

2018

2019

2018

Net sales

$

1,032.9

$

1,030.2

$

2,922.2

$

3,040.4

Cost of goods sold

734.6

728.3

2,090.3

2,153.8

Gross profit

298.3

301.9

831.9

886.6

Operating Expenses:

Selling, general and administrative expenses

143.4

149.4

441.6

466.1

Losses (gains) and other expenses, net

2.2

2.7

5.3

10.0

Restructuring charges

6.1

0.5

6.5

1.9

Loss (gain), net on sale of businesses and related property

0.2

6.2

9.1

25.8

(Gain) loss from insurance recoveries, net of losses incurred

(7.1)

0.3

(85.4)

0.3

Income from equity method investments

(3.3)

(2.4)

(10.5)

(10.8)

Operating income

156.8

145.2

465.3

393.3

Pension settlement

—

—

60.6

—

Interest expense, net

12.5

10.3

36.5

28.5

Other expense (income), net

0.6

1.1

1.7

2.4

Income from continuing operations before income taxes

143.7

133.8

366.5

362.4

Provision for income taxes

29.0

25.8

71.5

77.3

Income from continuing operations

114.7

108.0

295.0

285.1

Discontinued Operations:

(Loss) income from discontinued operations before income taxes

—

—

(0.4)

0.4

Income tax expense

—

—

(0.1)

2.1

Loss from discontinued operations

—

—

(0.3)

(1.7)

Net income

$

114.7

$

108.0

$

294.7

$

283.4

Earnings per share – Basic:

Income from continuing operations

$

2.97

$

2.68

$

7.54

$

6.98

Loss from discontinued operations

—

—

(0.01)

(0.04)

Net income

$

2.97

$

2.68

$

7.53

$

6.94

Earnings per share – Diluted:

Income from continuing operations

$

2.94

$

2.65

$

7.46

$

6.90

Loss from discontinued operations

—

—

—

(0.04)

Net income

$

2.94

$

2.65

$

7.46

$

6.86

Weighted Average Number of Shares Outstanding - Basic

38.6

40.3

39.1

40.8

Weighted Average Number of Shares Outstanding - Diluted

39.0

40.7

39.5

41.3

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Adjusted Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2019

2018

2019

2018

Adjusted Net Sales

Residential Heating & Cooling

$

637.6

$

594.7

$

1,792.2

$

1,764.4

Commercial Heating & Cooling

253.3

236.9

687.9

668.1

Refrigeration ⁽¹⁾

142.0

145.0

407.8

409.8

$

1,032.9

$

976.6

$

2,887.9

$

2,842.3

Adjusted Segment Profit (Loss) ⁽²⁾

Residential Heating & Cooling

$

126.5

$

113.0

$

366.6

$

317.9

Commercial Heating & Cooling

47.1

44.8

116.0

117.6

Refrigeration ⁽¹⁾

19.8

22.1

48.3

57.4

Corporate and other

(18.1)

(28.1)

(54.3)

(61.8)

Total adjusted segment profit

175.3

151.8

476.6

431.1

Reconciliation to Operating Income:

Special inventory write down

—

—

—

0.2

Special product quality adjustment

(0.5)

—

(1.0)

—

Loss (gain), net on sale of businesses and related property

0.2

6.2

9.1

25.8

Loss (gain) from insurance recoveries, net of losses incurred

1.2

0.3

(11.6)

0.3

Prior quarter partial advance of insurance recoveries related to lost profits

8.0

—

—

—

Items in losses (gains) and other expenses, net that are excluded from segment profit (loss) ⁽²⁾

3.5

2.4

7.3

9.3

Restructuring charges

6.1

0.5

6.5

1.9

Operating loss (income) from non-core businesses ⁽¹⁾

—

(2.8)

1.0

0.3

Operating income

$

156.8

$

145.2

$

465.3

$

393.3

⁽¹⁾

Excludes the non-core business results related to Kysor Warren, which was sold in March 2019 and the Company's business operations in Australia, Asia and South America, which were sold in 2018.

⁽²⁾

We define segment profit (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:

•    The following items in Losses (gains) and other expenses, net:

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

     ◦    Special legal contingency charges,

     ◦    Asbestos-related litigation,

     ◦    Environmental liabilities,

     ◦    Other items, net,

•     Special inventory write down,

•     Special product quality adjustment,

•     Loss (gain), net on sale of businesses and related property,

•     Prior quarter partial advance of insurance recoveries related to lost profits,

•     Loss (gain) from insurance recoveries, net of losses incurred,

•     Operating loss (income) from non-core businesses; and

•     Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of September 30,
2019

As of December 31,
2018

 (Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

46.1

$

46.3

Short-term investments

2.4

—

Accounts and notes receivable, net of allowances of $7.1 and $6.3 in 2019 and 2018, respectively

622.2

472.7

Inventories, net

585.3

509.8

Other assets

61.3

60.6

Total current assets

1,317.3

1,089.4

Property, plant and equipment, net of accumulated depreciation of $807.0 and $778.5 in 2019 and 2018, respectively

418.8

408.3

Right-of-use assets from operating leases

172.9

—

Goodwill

186.4

186.6

Deferred income taxes

47.6

67.0

Other assets, net

71.8

65.9

Total assets

$

2,214.8

$

1,817.2

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt

394.3

300.8

Current operating lease liabilities

51.6

—

Accounts payable

393.0

433.3

Accrued expenses

271.0

272.3

Income taxes payable

—

2.1

Total current liabilities

1,109.9

1,008.5

Long-term debt

1,056.8

740.5

Long-term operating lease liabilities

123.0

—

Pensions

72.5

82.8

Other liabilities

129.9

135.0

Total liabilities

2,492.1

1,966.8

Commitments and contingencies

Stockholders' deficit:

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

1,090.0

1,078.8

Retained earnings

2,064.4

1,855.0

Accumulated other comprehensive loss

(127.2)

(188.8)

Treasury stock, at cost, 48,642,428 shares and 47,312,248 shares for 2019 and 2018, respectively

(3,305.4)

(2,895.5)

Total stockholders' deficit

(277.3)

(149.6)

Total liabilities and stockholders' deficit

$

2,214.8

$

1,817.2

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Nine Months Ended
September 30,

2019

2018

Cash flows from operating activities:

Net income

$

294.7

$

283.4

Adjustments to reconcile net income to net cash provided by operating activities:

Loss (gain), net on sale of businesses and related property

9.1

25.8

Gain from insurance recoveries, net of losses incurred

(11.6)

—

Income from equity method investments

(10.5)

(10.8)

Dividends from Affiliates

9.3

6.6

Restructuring charges, net of cash paid

6.0

0.5

Provision for bad debts

4.0

3.8

Unrealized losses on derivative contracts

(0.1)

1.4

Stock-based compensation expense

15.6

21.0

Depreciation and amortization

53.1

49.4

Deferred income taxes

17.0

(5.6)

Pension expense

65.9

6.5

Pension contributions

(1.7)

(20.3)

Other items, net

(0.4)

0.3

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

Accounts and notes receivable

(178.2)

(114.0)

Inventories

(107.0)

(73.7)

Other current assets

1.5

(8.6)

Accounts payable

(24.5)

46.9

Accrued expenses

7.6

35.6

Income taxes payable and receivable

(8.2)

(1.4)

Other

(17.1)

(15.5)

Net cash provided by operating activities

124.5

231.3

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

1.2

0.1

Purchases of property, plant and equipment

(77.0)

(60.9)

Net proceeds from sale of businesses

43.5

115.9

Purchases of short-term investments

(2.4)

—

Insurance recoveries received for property damage incurred from natural disaster

11.6

4.2

Net cash (used in) provided by investing activities

(23.1)

59.3

Cash flows from financing activities:

Short-term debt payments

(5.3)

(41.1)

Short-term debt proceeds

5.3

39.6

Asset securitization borrowings

155.5

155.0

Asset securitization payments

(58.0)

(53.7)

Long-term debt payments

(35.0)

(32.9)

Borrowings from credit facility

1,938.5

1,820.0

Payments on credit facility

(1,608.5)

(1,766.5)

Proceeds from employee stock purchases

2.5

2.5

Repurchases of common stock

(400.0)

(350.2)

Repurchases of common stock to satisfy employee withholding tax obligations

(16.9)

(21.1)

Cash dividends paid

(80.9)

(68.2)

Net cash used in financing activities

(102.8)

(316.6)

Decrease in cash and cash equivalents

(1.4)

(26.0)

Effect of exchange rates on cash and cash equivalents

1.2

3.9

Cash and cash equivalents, beginning of period

46.3

68.2

Cash and cash equivalents, end of period

$

46.1

$

46.1

Supplemental disclosures of cash flow information:

Interest paid

$

31.5

$

25.9

Income taxes paid (net of refunds)

$

78.7

$

87.2

Insurance recoveries received

$

138.0

$

45.0

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. During the first quarter of 2019, the Company completed the sale of its Kysor Warren business. In the first quarter of 2018, the Company announced the planned sales of its businesses in Australia, Asia, and South America. The sale of the Company's business in Australia and Asia and the related property was completed in the second quarter of 2018 and sale of the Company's business in South America was completed in the third quarter of 2018. The results from operations for these businesses have been shown in the tables below as "Non-core business results". The prior period results have been updated to provide period-over-period comparability.

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

For the Three Months Ended September 30,

(Unaudited)

2019

2018

Pre-Tax

    Tax
Impact (e)

After Tax

Pre-Tax

    Tax
Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

143.7

$

(29.0)

$

114.7

$

133.8

$

(25.8)

$

108.0

Restructuring charges

6.1

(1.3)

4.8

0.5

(0.1)

0.4

Special product quality adjustments (b)

(0.5)

0.1

(0.4)

—

—

—

Special legal contingency charges (a)

0.3

(0.1)

0.2

0.1

—

0.1

Asbestos-related litigation (a)

1.5

(0.3)

1.2

1.4

(0.4)

1.0

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

0.1

(0.1)

—

0.2

(0.1)

0.1

Environmental liabilities (a)

1.1

(0.2)

0.9

0.2

—

0.2

Excess tax benefits from share-based compensation (c)

—

(1.7)

(1.7)

—

(1.7)

(1.7)

Other tax items, net (c)

—

2.7

2.7

—

(1.4)

(1.4)

Loss on sale of businesses

0.2

—

0.2

6.2

(3.8)

2.4

Prior quarter partial advance of insurance recoveries related to lost profits (g)

8.0

(2.1)

5.9

—

—

—

Loss (gain) from insurance recoveries, net of losses incurred

1.2

(0.2)

1.0

0.3

(0.1)

0.2

Other items, net (a)

0.6

(0.1)

0.5

0.5

—

0.5

Non-core business results (f)

—

—

—

(2.3)

0.5

(1.8)

Adjusted income from continuing operations, a non-GAAP measure

$

162.3

$

(32.3)

$

130.0

$

140.9

$

(32.9)

$

108.0

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

$

2.94

$

2.65

Restructuring charges

0.12

0.01

Special product quality adjustments (b)

(0.01)

—

Special legal contingency charges (a)

0.01

—

Asbestos-related litigation (a)

0.03

0.02

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

—

—

Environmental liabilities (a)

0.02

0.01

Excess tax benefits from share-based compensation (c)

(0.04)

(0.04)

Other tax items, net (c)

0.07

(0.03)

Loss on sale of businesses

0.01

0.06

Prior quarter partial advance of insurance recoveries related to lost profits (g)

0.15

—

Loss (gain) from insurance recoveries, net of losses incurred

0.03

0.01

Other items, net (a)

0.01

0.01

Non-core business results (f)

—

(0.05)

Change in share counts from share-based compensation (d)

—

0.01

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

$

3.34

$

2.66

(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)

Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d)

The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts.  The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this document.

(e)

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

(f)

Non-core business results represent activity related to the Company's business operations in South America and the Kysor Warren business, not included elsewhere in the reconciliation.

(g)

During the second quarter of 2019, the Company received a partial advance of $8 million related to lost profits incurred in the second quarter. The Company included this amount in adjusted income in the third quarter now that the lost profits related to the second quarter are collected in full.

For the Nine Months Ended September 30,

(Unaudited)

2019

2018

Pre-Tax

   Tax
Impact (e)

After Tax

Pre-Tax

   Tax
Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

366.5

$

(71.5)

$

295.0

$

362.4

$

(77.3)

$

285.1

Restructuring charges

6.5

(1.4)

5.1

1.9

(0.5)

1.4

Pension settlement

60.6

(15.1)

45.5

—

—

—

Special product quality adjustments (b)

(1.0)

0.2

(0.8)

—

—

—

Special legal contingency charges (a)

0.5

(0.1)

0.4

1.8

(0.4)

1.4

Asbestos-related litigation (a)

3.3

(0.7)

2.6

3.3

(0.8)

2.5

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

(0.2)

—

(0.2)

1.4

(0.3)

1.1

Inventory write down (b)

—

—

—

0.2

—

0.2

Environmental liabilities (a)

2.4

(0.5)

1.9

1.4

(0.3)

1.1

Excess tax benefits from share-based compensation (c)

—

(7.0)

(7.0)

—

(6.6)

(6.6)

Other tax items, net (c)

—

3.3

3.3

—

(4.7)

(4.7)

Loss (gain), net on sale of businesses and related property

9.1

(3.5)

5.6

25.8

0.3

26.1

(Gain) loss from insurance recoveries, net of losses incurred

(11.6)

2.9

(8.7)

0.3

(0.1)

0.2

Other items, net (a)

1.3

(0.2)

1.1

1.4

(0.7)

0.7

Non-core business results (f)

1.3

(0.3)

1.0

1.7

(0.3)

1.4

Adjusted income from continuing operations, a non-GAAP measure

$

438.7

$

(93.9)

$

344.8

$

401.6

$

(91.7)

$

309.9

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

$

7.46

$

6.90

Restructuring charges

0.13

0.03

Pension settlement

1.15

—

Special product quality adjustments (b)

(0.02)

—

Special legal contingency charges (a)

0.01

0.03

Asbestos-related litigation (a)

0.07

0.06

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

(0.01)

0.03

Inventory write down (b)

—

—

Environmental liabilities (a)

0.05

0.03

Excess tax benefits from share-based compensation (c)

(0.18)

(0.16)

Other tax items, net (c)

0.08

(0.11)

Loss (gain), net on sale of businesses and related property

0.14

0.64

(Gain) loss from insurance recoveries, net of losses incurred

(0.22)

—

Other items, net (a)

0.03

0.02

Non-core business results (f)

0.03

0.03

Change in share counts from share-based compensation (d)

0.02

0.03

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

$

8.74

$

7.53

(a)

 Recorded in Losses and other expenses, net in the Consolidated Statements of Operations

(b)

Recorded in Cost of goods sold in the Consolidated Statements of Operations

(c)

Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d)

The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts.  The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this document.

(e)

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

(f)

Non-core business results represent activity related to the Company's business operations in Australia, Asia, and South America and the Kysor Warren business, not included elsewhere in the reconciliation.

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2019

2018

2019

2018

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

Realized losses (gains) on settled future contracts ^(a)

$

0.1

$

0.2

$

0.4

$

(0.6)

Foreign currency exchange (gains) losses ^(a)

(0.3)

0.1

(1.0)

1.2

(Gain) loss on disposal of fixed assets ^(a)

—

—

(0.2)

0.1

Other operating (gains) losses ^(a)

(1.2)

—

(1.2)

—

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

0.1

0.2

(0.2)

1.4

Special legal contingency charges ^(b)

0.3

0.1

0.5

1.8

Asbestos-related litigation ^(b)

1.5

1.4

3.3

3.3

Environmental liabilities ^(b)

1.1

0.2

2.4

1.4

Other items, net ^(b)

0.6

0.5

1.3

1.4

Losses (gains) and other expenses, net (pre-tax)

$

2.2

$

2.7

$

5.3

$

10.0

(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 Earnings per Share from Continuing Operations - Diluted, a GAAP measure, to Estimated Adjusted Earnings per Share from Continuing Operations - Diluted, a Non-GAAP measure

For the Year Ended
December 31, 2019
ESTIMATED

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

$10.65-$10.95

Insurance recovery from tornado impact for damaged property, net of other non-core EBIT charges, and fourth quarter non-cash pension settlement charge

0.50

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

$11.15-$11.45

Reconciliation of Average Shares Outstanding - Diluted, a GAAP measure, to Adjusted Average Shares Outstanding - Diluted, a Non-GAAP measure (shares in millions):

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2019

2018

2019

2018

Average shares outstanding - diluted, a GAAP measure

39.0

40.7

39.5

$

41.3

Impact on diluted shares from excess tax benefits from share-based compensation

(0.1)

(0.1)

—

(0.1)

Adjusted average shares outstanding - diluted, a Non-GAAP measure

38.9

40.6

39.5

41.2

Reconciliation of Net Sales, a GAAP measure, to Adjusted Net Sales, a Non-GAAP measure (dollars in millions)

Refrigeration Segment

Consolidated

For the Three Months
Ended September 30,

For the Three Months
Ended September 30,

2019

2018

2019

2018

Net sales, a GAAP measure

$

142.0

$

198.6

$

1,032.9

$

1,030.2

Net sales from non-core businesses (a)

—

53.6

—

53.6

Adjusted net sales, a Non-GAAP measure

$

142.0

$

145.0

$

1,032.9

$

976.6

(a) Non-Core businesses represent the Company's business operations in South America and the Kysor Warren business.

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2019

2018

2019

2018

Net sales, a GAAP measure

$

442.1

$

607.9

$

2,922.2

$

3,040.4

Net sales from non-core businesses (a)

34.3

198.1

34.3

198.1

Adjusted net sales, a Non-GAAP measure

$

407.8

$

409.8

$

2,887.9

$

2,842.3

(a) Non-Core businesses represent the Company's business operations in Australia, Asia, and South America and the Kysor Warren business.

Reconciliation of Gross Profit, a GAAP measure, to Adjusted Gross Profit, a Non-GAAP measure (dollars in millions)

Refrigeration Segment

Consolidated

For the Three Months
Ended September 30,

For the Three Months
Ended September 30,

2019

2018

2019

2018

Gross profit, a GAAP measure

$

47.4

$

58.6

$

298.3

$

301.9

Non-GAAP adjustments to gross profit

—

—

0.5

—

Gross profit from non-core businesses (a)

—

9.1

—

9.1

Adjusted Gross profit, a Non-GAAP measure

$

47.4

$

49.5

$

297.8

$

292.8

(a) Non-Core businesses represent the Company's business operations in South America and the Kysor Warren business.

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2019

2018

2019

2018

Gross profit, a GAAP measure

$

135.6

$

175.0

$

831.9

$

886.6

Non-GAAP adjustments to gross profit

—

(0.2)

1.0

(0.2)

Gross profit from non-core businesses (a)

3.6

34.0

3.6

34.0

Adjusted Gross profit, a Non-GAAP measure

$

132.0

$

141.2

$

827.3

$

852.8

(a) Non-Core businesses represent the Company's business operations in Australia, Asia, and South America and the Kysor Warren business.

Reconciliation of Segment Profit, a GAAP measure, to Adjusted Segment profit, a Non-GAAP measure (dollars in millions)

Refrigeration Segment

Consolidated

For the Three Months
Ended September 30,

For the Three Months
Ended September 30,

2019

2018

2019

2018

Segment profit, a GAAP measure

$

19.8

$

24.9

$

175.3

$

154.6

(Loss) profit from non-core businesses (a)

—

2.8

—

2.8

Adjusted Segment profit, a Non-GAAP measure

$

19.8

$

22.1

$

175.3

$

151.8

(a) Non-Core businesses represent the Company's business operations in South America and the Kysor Warren business.

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2019

2018

2019

2018