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,

2020

2019

2020

2019

Net sales

$

1,055.0

$

1,032.9

$

2,720.1

$

2,922.2

Cost of goods sold

731.7

734.6

1,955.3

2,090.3

Gross profit

323.3

298.3

764.8

831.9

Operating Expenses:

Selling, general and administrative expenses

151.8

143.4

412.7

441.6

Losses (gains) and other expenses, net

3.4

2.2

5.6

5.3

Restructuring charges

0.1

6.1

10.6

6.5

Loss on sale of business

—

0.2

—

9.1

Loss (gain) from natural disasters, net of insurance recoveries

4.9

(7.1)

7.6

(85.4)

Income from equity method investments

(4.0)

(3.3)

(11.2)

(10.5)

Operating income

167.1

156.8

339.5

465.3

Pension settlements

0.3

—

0.3

60.6

Interest expense, net

6.5

12.5

22.2

36.5

Other expense (income), net

1.1

0.6

3.3

1.7

Income from continuing operations before income taxes

159.2

143.7

313.7

366.5

Provision for income taxes

27.5

29.0

68.8

71.5

Income from continuing operations

131.7

114.7

244.9

295.0

Discontinued Operations:

Loss from discontinued operations before income taxes

—

—

(0.9)

(0.4)

Income tax benefit

—

—

(0.6)

(0.1)

Loss from discontinued operations

—

—

(0.3)

(0.3)

Net income

$

131.7

$

114.7

$

244.6

$

294.7

Earnings per share – Basic:

Income from continuing operations

$

3.44

$

2.97

$

6.39

$

7.54

Loss from discontinued operations

—

—

(0.01)

(0.01)

Net income

$

3.44

$

2.97

$

6.38

$

7.53

Earnings per share – Diluted:

Income from continuing operations

$

3.42

$

2.94

$

6.35

$

7.46

Loss from discontinued operations

—

—

(0.01)

—

Net income

$

3.42

$

2.94

$

6.34

$

7.46

Weighted Average Number of Shares Outstanding - Basic

38.3

38.6

38.3

39.1

Weighted Average Number of Shares Outstanding - Diluted

38.6

39.0

38.6

39.5

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,

2020

2019

2020

2019

Adjusted Net Sales

Residential Heating & Cooling

$

722.0

$

637.6

$

1,808.8

$

1,792.2

Commercial Heating & Cooling

207.9

253.3

574.6

687.9

Refrigeration ⁽¹⁾

125.1

142.0

$

336.7

407.8

$

1,055.0

$

1,032.9

$

2,720.1

$

2,887.9

Adjusted Segment Profit (Loss) ⁽²⁾

Residential Heating & Cooling

$

153.0

$

126.5

$

312.8

$

366.6

Commercial Heating & Cooling

38.8

47.1

93.1

116.0

Refrigeration ⁽¹⁾

13.0

19.8

22.6

48.3

Corporate and other

(28.3)

(18.1)

(61.3)

(54.3)

Total adjusted segment profit

176.5

175.3

367.2

476.6

Reconciliation to Operating Income:

Special product quality adjustments

—

(0.5)

(1.0)

(1.0)

Loss on sale of business

—

0.2

—

9.1

Prior quarter partial advance of insurance recoveries related to lost profits

—

8.0

—

—

Loss (gain) from natural disasters, net of insurance recoveries

4.9

1.2

7.6

(11.6)

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

4.4

3.5

10.5

7.3

Restructuring charges

0.1

6.1

10.6

6.5

Operating loss from non-core business ⁽¹⁾

—

—

—

1.0

Operating income

$

167.1

$

156.8

$

339.5

$

465.3

(1)

Excludes the non-core business results related to Kysor Warren, which was sold in March 2019.

(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 (gains) losses on unsettled futures contracts,

°      Special legal contingency charges,

°      Asbestos-related litigation,

°      Environmental liabilities,

°      Charges incurred related to COVID-19 pandemic,

°      Other items, net,

•      Loss on sale of business,

•      Special product quality adjustments,

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

•      Loss (gain) from natural disasters, net of insurance recoveries,

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

•      Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of September 30,
2020

As of December 31,
2019

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

55.0

$

37.3

Short-term investments

4.1

2.9

Accounts and notes receivable, net of allowances of $7.3 and $6.1 in 2020 and 2019, respectively

542.7

477.8

Inventories, net

408.7

544.1

Other assets

53.5

58.8

Total current assets

1,064.0

1,120.9

Property, plant and equipment, net of accumulated depreciation of $862.3 and $824.3 in 2020 and 2019, respectively

444.9

445.4

Right-of-use assets from operating leases

196.0

181.6

Goodwill

186.7

186.5

Deferred income taxes

15.2

21.5

Other assets, net

74.4

79.0

Total assets

$

1,981.2

$

2,034.9

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt

7.0

321.9

Current operating lease liabilities

54.1

52.7

Accounts payable

361.0

372.4

Accrued expenses

287.8

255.7

Income taxes payable

1.1

—

Total current liabilities

711.0

1,002.7

Long-term debt

1,006.6

849.3

Long-term operating lease liabilities

144.5

131.0

Pensions

92.9

87.4

Other liabilities

141.9

134.7

Total liabilities

2,096.9

2,205.1

Commitments and contingencies

Stockholders' deficit:

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued or outstanding

—

—

Common stock, $0.01 par value, 200,000,000 shares authorized, 87,170,197 shares issued

0.9

0.9

Additional paid-in capital

1,109.4

1,093.5

Retained earnings

2,303.7

2,148.7

Accumulated other comprehensive loss

(114.9)

(103.8)

Treasury stock, at cost, 48,883,807 shares and 48,575,901 shares for 2020 and 2019, respectively

(3,414.8)

(3,309.5)

Total stockholders' deficit

(115.7)

(170.2)

Total liabilities and stockholders' deficit

$

1,981.2

$

2,034.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Nine Months Ended
September 30,

2020

2019

Cash flows from operating activities:

Net income

$

244.6

$

294.7

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

Loss on sale of business

—

9.1

Insurance recoveries received for property damage incurred from natural disaster

—

(11.6)

Income from equity method investments

(11.2)

(10.5)

Dividends from affiliates

9.3

9.3

Restructuring charges, net of cash paid

3.5

6.0

Provision for credit losses

5.0

4.0

Unrealized losses (gains), net on derivative contracts

0.5

(0.1)

Stock-based compensation expense

18.4

15.6

Depreciation and amortization

55.4

53.1

Deferred income taxes

5.6

17.0

Pension expense

7.7

65.9

Pension contributions

(2.8)

(1.7)

Other items, net

2.0

(0.4)

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

Accounts and notes receivable

(69.3)

(178.2)

Inventories

137.6

(107.0)

Other current assets

2.0

1.5

Accounts payable

(2.4)

(24.5)

Accrued expenses

29.6

7.6

Income taxes payable / receivable

6.8

(8.2)

Other, net

3.9

(17.1)

Net cash provided by operating activities

446.2

124.5

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

0.7

1.2

Purchases of property, plant and equipment

(55.9)

(77.0)

Net proceeds from sale of business

—

43.5

Purchases of short-term investments

(1.3)

(2.4)

Insurance recoveries received for property damage incurred from natural disaster

—

11.6

Net cash used in  investing activities

(56.5)

(23.1)

Cash flows from financing activities:

Short-term debt payments

(4.6)

(5.3)

Short-term debt borrowings

4.6

5.3

Asset securitization borrowings

91.0

155.5

Asset securitization payments

(376.0)

(58.0)

Long-term debt payments

(5.4)

(35.0)

Long-term debt borrowings

600.0

—

Borrowings from credit facility

1,509.5

1,938.5

Payments on credit facility

(1,980.5)

(1,608.5)

Payments of deferred financing costs

(7.1)

—

Proceeds from employee stock purchases

2.2

2.5

Repurchases of common stock

(100.0)

(400.0)

Repurchases of common stock to satisfy employee withholding tax obligations

(10.1)

(16.9)

Cash dividends paid

(88.6)

(80.9)

Net cash used in financing activities

(365.0)

(102.8)

Increase in cash and cash equivalents

24.7

(1.4)

Effect of exchange rates on cash and cash equivalents

(7.0)

1.2

Cash and cash equivalents, beginning of period

37.3

46.3

Cash and cash equivalents, end of period

$

55.0

$

46.1

Supplemental disclosures of cash flow information:

Interest paid

$

19.0

$

31.5

Income taxes paid (net of refunds)

$

55.1

$

78.7

Insurance recoveries received  

$

—

$

138.0

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. The results from operations for this business have been shown in the tables below as "Non-core business results".

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)

2020

2019

Pre-Tax

    Tax Impact (e)

After Tax

Pre-Tax

    Tax Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

159.2

$

(27.5)

$

131.7

$

143.7

$

(29.0)

$

114.7

Restructuring charges

0.1

—

0.1

6.1

(1.3)

4.8

Pension settlement

0.3

(0.1)

0.2

—

—

—

Special product quality adjustments (b)

—

—

—

(0.5)

0.1

(0.4)

Special legal contingency charges (a)

0.2

(0.1)

0.1

0.3

(0.1)

0.2

Asbestos-related litigation (a)

2.4

(0.6)

1.8

1.5

(0.3)

1.2

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

(1.4)

0.3

(1.1)

0.1

(0.1)

—

Environmental liabilities (a)

0.3

(0.1)

0.2

1.1

(0.2)

0.9

Excess tax benefits from share-based compensation (c)

—

(2.8)

(2.8)

—

(1.7)

(1.7)

Other tax items, net (c)

—

0.1

0.1

—

2.7

2.7

Loss on sale of business

—

—

—

0.2

—

0.2

Charges incurred related to COVID-19 pandemic (a)

3.0

(0.8)

2.2

—

—

—

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

—

—

—

8.0

(2.1)

5.9

Loss from natural disasters, net of insurance recoveries

4.9

(1.3)

3.6

1.2

(0.2)

1.0

Other items, net (a)

(0.1)

0.1

—

0.6

(0.1)

0.5

Adjusted income from continuing operations, a non-GAAP measure

$

168.9

$

(32.8)

$

136.1

$

162.3

$

(32.3)

$

130.0

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

$

3.42

$

2.94

Restructuring charges

—

0.12

Pension settlement

0.01

—

Special product quality adjustments (b)

—

(0.01)

Special legal contingency charges (a)

—

0.01

Asbestos-related litigation (a)

0.05

0.03

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

(0.03)

—

Environmental liabilities (a)

0.01

0.02

Excess tax benefits from share-based compensation (c)

(0.07)

(0.04)

Other tax items, net (c)

—

0.07

Loss on sale of business

—

0.01

Charges incurred related to COVID-19 pandemic (a)

0.05

—

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

—

0.15

Loss from natural disasters, net of insurance recoveries

0.09

0.03

Other items, net (a)

—

0.01

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

—

—

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

$

3.53

$

3.34

(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 amount..

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

(f) 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 as the lost profits related to the second quarter were collected in full.

For the Nine Months Ended September 30,

(Unaudited)

2020

2019

Pre-Tax

   Tax Impact (e)

After Tax

Pre-Tax

   Tax Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

313.7

$

(68.8)

$

244.9

$

366.5

$

(71.5)

$

295.0

Restructuring charges

10.6

(2.4)

8.2

6.5

(1.4)

5.1

Pension settlements

0.3

(0.1)

0.2

60.6

(15.1)

45.5

Special product quality adjustments (b)

(1.0)

0.2

(0.8)

(1.0)

0.2

(0.8)

Special legal contingency charges (a)

0.9

(0.2)

0.7

0.5

(0.1)

0.4

Asbestos-related litigation (a)

1.9

(0.4)

1.5

3.3

(0.7)

2.6

Net change in unrealized gains on unsettled futures contracts (a)

—

—

—

(0.2)

—

(0.2)

Environmental liabilities (a)

1.5

(0.3)

1.2

2.4

(0.5)

1.9

Excess tax benefits from share-based compensation (c)

—

(2.8)

(2.8)

—

(7.0)

(7.0)

Other tax items, net (c)

—

8.2

8.2

—

3.3

3.3

Loss on sale of business

—

—

—

9.1

(3.5)

5.6

Charges incurred related to COVID-19 pandemic (a)

6.4

(1.6)

4.8

—

—

—

Loss (gain) from natural disasters, net of insurance recoveries

7.6

(1.9)

5.7

(11.6)

2.9

(8.7)

Other items, net (a)

(0.2)

0.1

(0.1)

1.3

(0.2)

1.1

Non-core business results (f)

—

—

—

1.3

(0.3)

1.0

Adjusted income from continuing operations, a non-GAAP measure

$

341.7

$

(70.0)

$

271.7

$

438.7

$

(93.9)

$

344.8

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

$

6.35

$

7.46

Restructuring charges

0.21

0.13

Pension settlements

0.01

1.15

Special product quality adjustments (b)

(0.02)

(0.02)

Special legal contingency charges (a)

0.02

0.01

Asbestos-related litigation (a)

0.04

0.07

Net change in unrealized gains on unsettled futures contracts (a)

—

(0.01)

Environmental liabilities (a)

0.03

0.05

Excess tax benefits from share-based compensation (c)

(0.07)

(0.18)

Other tax items, net (c)

0.21

0.08

Loss on sale of business

—

0.14

Charges incurred related to COVID-19 pandemic (a)

0.12

—

Loss (gain) from natural disasters, net of insurance recoveries

0.15

(0.22)

Other items, net (a)

—

0.03

Non-core business results (f)

—

0.03

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

—

0.02

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

$

7.05

$

8.74

(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 the Kysor Warren business, not included elsewhere in the reconciliation. 

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

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

Realized losses on settled future contracts ^(a)

$

—

$

0.1

$

0.2

$

0.4

Foreign currency exchange gains ^(a)

(0.4)

(0.3)

(3.0)

(1.0)

Gain on disposal of fixed assets ^(a)

(0.2)

—

(0.4)

(0.2)

Other operating income ^(a)

(0.4)

(1.2)

(1.7)

(1.2)

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

(1.4)

0.1

—

(0.2)

Special legal contingency charges ^(b)

0.2

0.3

0.9

0.5

Asbestos-related litigation ^(b)

2.4

1.5

1.9

3.3

Environmental liabilities ^(b)

0.3

1.1

1.5

2.4

Charges incurred related to COVID-19 pandemic ^(b)

3.0

—

6.4

—

Other items, net ^(b)

(0.1)

0.6

(0.2)

1.3

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

$

3.4

$

2.2

$

5.6

$

5.3

(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, 2020
ESTIMATED

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

$8.35-$8.95

Other non-core EBIT charges and other non-core tax items, net, incurred in 1Q 2020, 2Q 2020 and 3Q 2020

(0.70)

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

$9.05-$9.65

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,

2020

2019

2020

2019

Average shares outstanding - diluted, a GAAP measure

38.6

$

39.0

38.6

$

39.5

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

38.5

38.9

38.5

39.5

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,

2020

2019

2020

2019

Net sales, a GAAP measure

$

125.1

$

142.0

$

1,055.0

$

1,032.9

Net sales from non-core business

—

—

—

—

Adjusted net sales, a Non-GAAP measure

$

125.1

$

142.0

$

1,055.0

$

1,032.9

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Net sales, a GAAP measure

$

336.7

$

442.1

$

2,720.1

$

2,922.2

Net sales from non-core business (a)

—

34.3

—

34.3

Adjusted net sales, a Non-GAAP measure

$

336.7

$

407.8

$

2,720.1

$

2,887.9

_{(a) Non-Core businesses represent 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,

2020

2019

2020

2019

Gross profit, a GAAP measure

$

38.5

$

47.4

$

323.3

$

298.3

Non-GAAP adjustments to gross profit

—

—

—

0.5

Adjusted Gross profit, a Non-GAAP measure

$

38.5

$

47.4

$

323.3

$

297.8

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Gross profit, a GAAP measure

$

98.2

$

135.6

$

764.8

$

831.9

Non-GAAP adjustments to gross profit

—

—

1.0

1.0

Gross profit from non-core business (a)

—

3.6

—

3.6

Adjusted Gross profit, a Non-GAAP measure

$

98.2

$

132.0

$

763.8

$

827.3

_{(a) Non-Core businesses represent 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,

2020

2019

2020

2019

Segment profit, a Non-GAAP measure

$

13.0

$

19.8

$

176.5

$

175.3

(Loss) profit from non-core business

—

—

—

—

Adjusted Segment profit, a Non-GAAP measure

$

13.0

$

19.8

$

176.5

$

175.3

Refrigeration Segment

Consolidated

For the Nine Months
Ended September 30,

For the Nine Months
Ended September 30,

2020

2019

2020

2019

Segment profit, a Non-GAAP measure

$

22.6

$

47.3

$

367.2

$

475.6

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

—

(1.0)

—

(1.0)

Adjusted Segment profit, a Non-GAAP measure

$

22.6