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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________________________________
FORM 10-Q
 _________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to ______


Commission file number 001-15149
 _________________________________________________
LENNOX INTERNATIONAL INC.
Incorporated pursuant to the laws of the State of Delaware
_________________________________________________ 
Internal Revenue Service Employer Identification No. 42-0991521
2140 LAKE PARK BLVD., RICHARDSON, Texas, 75080
(972) 497-5000
_________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareLIINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  
As of April 17, 2023, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 35,501,548.





LENNOX INTERNATIONAL INC.
FORM 10-Q
For the three months March 31, 2023

INDEX
Page
Part I
Consolidated Balance Sheets - March 31, 2023 (Unaudited) and December 31, 2022
Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2023 and 2022
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2023 and 2022
Consolidated Statements of Stockholders' Deficit (Unaudited) - Three Months Ended March 31, 2023 and 2022
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2023 and 2022
Part II

i


Part I - Financial Information
Item 1. Financial Statements

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions, except shares and par values)As of March 31, 2023As of December 31, 2022
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents$40.4 $52.6 
Short-term investments7.1 8.5 
Accounts and notes receivable, net of allowances of $16.8 and $15.5 in 2023 and 2022, respectively
642.5 608.5 
Inventories, net904.1 753.0 
Other assets77.5 73.9 
Total current assets1,671.6 1,496.5 
Property, plant and equipment, net of accumulated depreciation of $938.9 and $920.8 in 2023 and 2022, respectively
567.2 548.9 
Right-of-use assets from operating leases217.8 219.9 
Goodwill186.3 186.3 
Deferred income taxes34.0 27.5 
Other assets, net93.5 88.5 
Total assets$2,770.4 $2,567.6 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Current maturities of long-term debt$657.5 $710.6 
Current operating lease liabilities
63.8 63.3 
Accounts payable445.0 427.3 
Accrued expenses341.7 376.9 
Income taxes payable18.4 17.6 
Total current liabilities1,526.4 1,595.7 
Long-term debt1,010.1 814.2 
Long-term operating lease liabilities159.3 161.8 
Pensions39.7 40.1 
Other liabilities160.8 158.9 
Total liabilities2,896.3 2,770.7 
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 capital1,161.1 1,155.2 
Retained earnings3,130.9 3,070.6 
Accumulated other comprehensive loss(78.6)(90.6)
Treasury stock, at cost, 51,672,744 shares and 51,700,260 shares for 2023 and 2022, respectively
(4,340.2)(4,339.2)
Total stockholders' deficit(125.9)(203.1)
Total liabilities and stockholders' deficit$2,770.4 $2,567.6 
The accompanying notes are an integral part of these consolidated financial statements.
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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Amounts in millions, except per share data)For the Three Months Ended March 31,
 20232022
Net sales$1,049.4 $1,013.4 
Cost of goods sold742.8 745.2 
Gross profit306.6 268.2 
Operating Expenses:
Selling, general and administrative expenses167.5 155.3 
Losses (gains) and other expenses, net0.3 0.4 
Restructuring charges 0.5 
(Income) loss from equity method investments(0.7)0.1 
Operating income139.5 111.9 
Pension settlements0.2 0.1 
Interest expense, net14.2 6.8 
Other expense (income), net 0.6 
Net income before income taxes125.1 104.4 
Provision for income taxes27.1 20.8 
Net income$98.0 $83.6 
Earnings per share – Basic:$2.76 $2.30 
Earnings per share – Diluted:$2.75 $2.29 
Weighted Average Number of Shares Outstanding - Basic35.5 36.3 
Weighted Average Number of Shares Outstanding - Diluted35.6 36.5 

The accompanying notes are an integral part of these consolidated financial statements.


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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(Amounts in millions)For the Three Months Ended March 31,
 20232022
Net income$98.0 $83.6 
Other comprehensive income (loss):
Foreign currency translation adjustments6.8 (1.2)
Net change in pension and post-retirement liabilities(0.1)(1.4)
Reclassification of pension and post-retirement benefit losses into earnings0.2 1.3 
Pension settlements0.2 0.1 
Net change in fair value of cash flow hedges6.3 19.6 
Reclassification of cash flow hedge losses (gains) into earnings0.4 (7.5)
Other comprehensive income before taxes13.8 10.9 
Tax expense(1.8)(3.3)
Other comprehensive income, net of tax12.0 7.6 
Comprehensive income$110.0 $91.2 
The accompanying notes are an integral part of these consolidated financial statements.

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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the three months ended March 31, 2023 and 2022 (Unaudited)
(In millions, except per share data)
Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' Deficit
(For the three months ended March 31, 2023)
Shares Amount
Balance as of December 31, 2022$0.9 $1,155.2 $3,070.6 $(90.6)51.7 $(4,339.2)$(203.1)
Net income— — 98.0 — — — 98.0 
Dividends, $1.06 per share
— — (37.7)— — — (37.7)
Foreign currency translation adjustments— — — 6.8 — — 6.8 
Pension and post-retirement liability changes, net of tax expense of $0.0
— — — 0.2 — — 0.2 
Stock-based compensation expense— 6.1 — — — — 6.1 
Change in cash flow hedges, net of tax expense of $1.8
— — — 5.0 — — 5.0 
Treasury shares reissued for common stock— (0.2)— — — 1.0 0.8 
Treasury stock purchases— — — — — (2.0)(2.0)
Balance as of March 31, 2023$0.9 $1,161.1 $3,130.9 $(78.6)51.7 $(4,340.2)$(125.9)
Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' Deficit
(For the three months ended March 31, 2022)
Shares Amount
Balance as of December 31, 2021$0.9 $1,133.7 $2,719.3 $(88.1)50.5 $(4,034.8)$(269.0)
Net income— — 83.6 — — — 83.6 
Dividends, $0.92 per share
— — (33.1)— — — (33.1)
Foreign currency translation adjustments— — — (1.2)— — (1.2)
Pension and post-retirement liability changes, net of tax expense of $0.2
— — — (0.2)— — (0.2)
Stock-based compensation expense— 4.7 — — — — 4.7 
Change in cash flow hedges, net of tax expense of $3.1
— — — 9.0 — — 9.0 
Treasury shares reissued for common stock— (1.0)— — (0.1)1.9 0.9 
Treasury stock purchases— (27.0)— — 0.7 (177.9)(204.9)
Balance as of March 31, 2022$0.9 $1,110.4 $2,769.8 $(80.5)51.1 $(4,210.8)$(410.2)

The accompanying notes are an integral part of these consolidated financial statements.


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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions)For the Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net income$98.0 $83.6 
Adjustments to reconcile net income to net cash used in operating activities:
(Income) loss from equity method investments(0.7)0.1 
Restructuring charges, net of cash paid 0.5 
Provision for credit losses2.0 1.4 
Unrealized losses, net on derivative contracts1.6 0.1 
Stock-based compensation expense6.1 4.7 
Depreciation and amortization19.6 18.8 
Deferred income taxes(8.2)(5.3)
Pension expense0.7 1.4 
Pension contributions(1.2)(0.1)
Other items, net(0.3)(0.9)
Changes in assets and liabilities:
Accounts and notes receivable(34.9)(96.9)
Inventories(150.4)(168.8)
Other current assets1.2 1.1 
Accounts payable22.3 67.5 
Accrued expenses(32.5)(33.0)
Income taxes payable and receivable, net0.8 20.8 
   Leases, net0.1 0.5 
Other, net(3.0)6.6 
Net cash used in operating activities(78.8)(97.9)
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment0.3 0.3 
Purchases of property, plant and equipment(35.4)(25.8)
Proceeds from (purchases of) short-term investments, net1.4 (0.2)
Net cash used in investing activities(33.7)(25.7)
Cash flows from financing activities:
Asset securitization borrowings 90.0 
Asset securitization payments(53.0)(61.0)
Long-term debt payments(3.2)(3.2)
Borrowings from credit facility610.5 722.5 
Payments on credit facility(414.5)(381.5)
Proceeds from employee stock purchases0.9 0.9 
Repurchases of common stock (200.0)
Repurchases of common stock to satisfy employee withholding tax obligations(2.0)(4.9)
Cash dividends paid(37.6)(33.7)
Net cash provided by financing activities101.1 129.1 
(Decrease) increase in cash and cash equivalents(11.4)5.5 
Effect of exchange rates on cash and cash equivalents(0.8)(2.2)
Cash and cash equivalents, beginning of period52.6 31.0 
Cash and cash equivalents, end of period$40.4 $34.3 
Supplemental disclosures of cash flow information:
Interest paid$13.0 $5.8 
Income taxes paid (net of refunds)$34.4 $5.2 

The accompanying notes are an integral part of these consolidated financial statements.
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LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:

References in this Quarterly Report on Form 10-Q to "we","our","us","LII" or the "Company" refer to Lennox International Inc. and its subsidiaries, unless the context requires otherwise.

Basis of Presentation

The accompanying unaudited Consolidated Balance Sheet as of March 31, 2023, the accompanying unaudited Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022, the accompanying unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023 and 2022, the accompanying unaudited Consolidated Statements of Stockholders' Deficit for the three months ended March 31, 2023 and 2022, and the accompanying unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 should be read in conjunction with our audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations, although we believe that the disclosures herein are adequate to make the information presented not misleading. The operating results for the interim periods are not necessarily indicative of the results that may be expected for a full year.

Our fiscal quarterly periods are comprised of approximately 13 weeks, but the number of days per quarter may vary year-over-year. Our quarterly reporting periods usually end on the Saturday closest to the last day of March, June and September. Our fourth quarter and fiscal year ends on December 31, regardless of the day of the week on which December 31 falls. For convenience, the 13-week periods comprising each fiscal quarter are denoted by the last day of the respective calendar quarter.

Use of Estimates

The preparation of financial statements requires us to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets and other long-lived assets, contingencies, guarantee obligations, indemnifications, and assumptions used in the calculation of income taxes, pension and post-retirement medical benefits, self-insurance and warranty reserves, and stock-based compensation, among others. These estimates and assumptions are based on our best estimates and judgment.

We evaluate these estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates and assumptions to be reasonable under the circumstances and will adjust such estimates and assumptions when facts and circumstances dictate. Volatile equity, foreign currency and commodity markets combine to increase the uncertainty inherent in such estimates and assumptions. Future events and their effects cannot be determined with precision and actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the financial statements in future periods.


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2. Reportable Business Segments:

We operate in two reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”) industry. Our segments are organized primarily by the nature of the products and services we provide. The following table describes each segment:
 
SegmentProduct or ServicesMarkets ServedGeographic Areas
ResidentialFurnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment, comfort control products, replacement parts and suppliesResidential Replacement;
Residential New Construction
United States
Canada
CommercialUnitary heating and air conditioning equipment, applied systems, controls, installation and service of commercial heating and cooling equipment, variable refrigerant flow commercial products, condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, controls, and compressorized racksLight Commercial;
Food Preservation;
Non-Food/Industrial
United States
Canada
Prior to January 1, 2023, we operated in three reportable business segments. In November 2022, we announced the decision to explore strategic alternatives for our European commercial HVAC and refrigeration businesses. We will continue to invest in our Heatcraft Worldwide Refrigeration business which became part of the Commercial segment effective on January 1, 2023 while the European portfolio will be presented with Corporate and Other until disposition. The consolidation of our Heatcraft business within the Commercial segment provides the opportunity to leverage synergies and create long-term growth opportunities by integrating entities with similar products, end consumers and financial performance metrics under the same management. The change in segment reporting better aligns with how the businesses are managed and evaluated given the change in portfolio. See "Recast Segment Results" below for both the previously presented segment results as well as the recast financial information to reflect the change in our segment presentation.

We use segment profit or loss as the primary measure of profitability to evaluate operating performance and to allocate capital resources. We define segment profit or loss as a segment’s income or loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding certain items. The reconciliation in the table below details the items excluded.

Our corporate costs include those costs related to our European operations, as well as our corporate functions such as legal, internal audit, treasury, human resources, tax compliance and senior executive staff. Any intercompany sales and associated profit (and any other intercompany items) are eliminated from segment results. There were no significant intercompany eliminations for the periods presented.

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Segment Data

Net sales and segment profit (loss) for each segment, along with a reconciliation of segment profit (loss) to Operating income, are shown below (in millions):
 For the Three Months Ended March 31,
 2023
2022 (2)
Net sales
Residential$681.0 $682.2 
Commercial308.7 279.5 
Corporate and other59.7 51.7 
$1,049.4 $1,013.4 
Segment profit (loss) (1)
Residential$111.1 $107.6 
Commercial50.0 23.8 
Corporate and other(19.4)(16.8)
Total segment profit141.7 114.6 
Reconciliation to Operating income:
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)
2.2 2.2 
Restructuring charges 0.5 
Operating income$139.5 $111.9 
(1) 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,
Environmental liabilities and special litigation charges,
Charges incurred related to COVID-19 pandemic, and
Other items, net,
Restructuring charges.
(2) 2022 results have been recast to reflect the realignment of our reportable segments. See Recast Segment Results for further detail.
Recast Segment Results

The following tables present the previously reported and recast financial results reflecting the change in segment reporting for the fiscal year 2022 and 2021.
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Q1 2022Q2 2022Q3 2022Q4 20222022
As ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs Adjusted
Residential segment net sales
$682.2 $682.2 $977.5 $977.5 $835.3 $835.3 $703.4 $703.4 $3,198.3 $3,198.3 
Residential segment profit
$107.6 $107.6 $216.3 $216.3 $153.8 $153.8 $119.2 $119.2 $596.9 $596.9 
Commercial segment net sales
$187.7 $279.5 $219.6 $327.4 $252.9 $352.3 $240.5 $327.2 $900.7 $1,286.4 
Commercial segment profit
$6.3 $23.8 $17.2 $41.2 $29.6 $52.4 $27.9 $45.6 $80.9 $163.0 
Refrigeration segment net sales$143.5 $ $169.2 $ $156.7 $ $149.9 $ $619.4 $ 
Refrigeration segment profit$14.1 $ $23.4 $ $22.4 $ $18.8 $ $78.8 $ 
Corporate net sales$ $ $ $ $ $ $ $ $ $ 
Net sales from European operations$ $51.7 $ $61.4 $ $57.3 $ $63.2 $ $233.7 
Corporate and other net sales$ $51.7 $ $61.4 $ $57.3 $ $63.2 $ $233.7 
Corporate costs$(13.4)$(13.4)$(27.1)$(27.1)$(16.5)$(16.5)$(33.7)$(33.7)$(90.8)$(90.8)
Segment profit from European operations$ $(3.4)$ $(0.6)$ $(0.4)$ $1.1 $ $(3.3)
Corporate and other segment profit$(13.4)$(16.8)$(27.1)$(27.7)$(16.5)$(16.9)$(33.7)$(32.6)$(90.8)$(94.1)
LII net sales$1,013.4 $1,013.4 $1,366.3 $1,366.3 $1,244.9 $1,244.9 $1,093.8 $1,093.8 $4,718.4 $4,718.4 
LII total segment profit$114.6 $114.6 $229.8 $229.8 $189.3 $189.3 $132.2 $132.2 $665.8 $665.8 
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Q1 2021Q2 2021Q3 2021Q4 20212021
As ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs AdjustedAs ReportedAs Adjusted
Residential segment net sales
$606.3 $606.3 $838.0 $838.0 $711.0 $711.0 $620.3 $620.3 $2,775.6 $2,775.6 
Residential segment profit
$96.4 $96.4 $189.7 $189.7 $144.0 $144.0 $110.3 $110.3 $540.3 $540.3 
Commercial segment net sales
$199.2 $274.8 $252.8 $335.0 $211.5 $292.7 $201.4 $286.3 $864.8 $1,188.8 
Commercial segment profit
$27.4 $39.6 $45.3 $58.9 $22.6 $36.3 $15.6 $29.8 $110.9 $164.6 
Refrigeration segment net sales$125.0 $ $148.2 $ $137.4 $ $143.1 $ $553.7 $ 
Refrigeration segment profit$7.9 $ $13.5 $ $14.5 $ $13.2 $ $49.1 $ 
Corporate net sales$ $ $ $ $ $ $ $ $ $ 
Net sales from European operations$ $49.4 $ $66.0 $ $56.2 $ $58.2 $ $229.7 
Corporate and other net sales$ $49.4 $ $66.0 $ $56.2 $ $58.2 $ $229.7 
Corporate costs$(16.0)$(16.0)$(26.9)$(26.9)$(16.3)$(16.3)$(37.2)$(37.2)$(96.4)$(96.4)
Segment profit from European operations$ $(4.3)$ $(0.1)$ $0.8 $ $(1.0)$ $(4.6)
Corporate and other segment profit$(16.0)$(20.3)$(26.9)$(27.0)$(16.3)$(15.5)$(37.2)$(38.2)$(96.4)$(101.0)
LII net sales$930.5 $930.5 $1,239.0 $1,239.0 $1,059.9 $1,059.9 $964.8 $964.8 $4,194.1 $4,194.1 
LII total segment profit$115.7 $115.7 $221.6 $221.6 $164.8 $