Lennox International Reports Record First-Quarter Profit

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended March 31,

2016

2015

Net sales

$

715.2

$

685.8

Cost of goods sold

531.6

522.8

Gross profit

183.6

163.0

Operating Expenses:

Selling, general and administrative expenses

140.4

133.4

Losses and other expenses, net

4.3

5.6

Restructuring (gains) charges

(0.2)

0.3

Income from equity method investments

(4.6)

(3.3)

Operational income from continuing operations

43.7

27.0

Interest expense, net

5.8

5.7

Other expense (income), net

—

—

Income from continuing operations before income taxes

37.9

21.3

Provision for income taxes

13.0

7.3

Income from continuing operations

24.9

14.0

Discontinued Operations:

Loss from discontinued operations before income taxes

—

(0.2)

Benefit from income taxes

—

(0.1)

Loss from discontinued operations

—

(0.1)

Net income

$

24.9

$

13.9

Earnings per share – Basic:

Income from continuing operations

$

0.57

$

0.31

Loss from discontinued operations

—

—

Net income

$

0.57

$

0.31

Earnings per share – Diluted:

Income from continuing operations

$

0.56

$

0.31

Loss from discontinued operations

—

—

Net income

$

0.56

$

0.31

Weighted Average Number of Shares Outstanding - Basic

44.0

44.7

Weighted Average Number of Shares Outstanding - Diluted

44.7

45.5

Cash dividends declared per share

$

0.36

$

0.30

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended March 31,

2016

2015

Net sales

Residential Heating & Cooling

$

377.3

$

362.5

Commercial Heating & Cooling

170.3

159.9

Refrigeration

167.6

163.4

$

715.2

$

685.8

Segment Profit (Loss) (1)

Residential Heating & Cooling

$

38.3

$

31.2

Commercial Heating & Cooling

14.2

7.7

Refrigeration

9.0

4.0

Corporate and other

(14.8)

(11.7)

Total segment profit

46.7

31.2

Reconciliation to Income from continuing operations before income taxes:

Special product quality adjustments

(0.4)

(0.2)

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

3.6

4.1

Restructuring charges

(0.2)

0.3

Interest expense, net

5.8

5.7

Income from continuing operations before income taxes

$

37.9

$

21.3

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of March 31,2016

As of December 31,2015

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

40.6

$

38.9

Accounts and notes receivable, net of allowances of $6.5 and $6.3 in 2016 and 2015, respectively

469.8

422.8

Inventories, net

518.1

418.8

Other assets

93.1

57.7

Total current assets

1,121.6

938.2

Property, plant and equipment, net of accumulated depreciation of $691.0 and $682.9 in 2016 and 2015, respectively

338.5

339.6

Goodwill

197.0

195.1

Deferred income taxes

140.5

145.7

Other assets, net

63.4

58.8

Total assets

$

1,861.0

$

1,677.4

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

184.0

$

204.1

Current maturities of long-term debt

30.9

31.0

Accounts payable

378.3

320.1

Accrued expenses

209.4

242.6

Income taxes payable

0.6

26.0

Total current liabilities

803.2

823.8

Long-term debt

884.5

506.0

Post-retirement benefits, other than pensions

3.4

4.1

Pensions

121.9

120.8

Other liabilities

121.3

121.1

Total liabilities

1,934.3

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

966.9

1,002.4

Retained earnings

1,155.8

1,146.7

Accumulated other comprehensive loss

(190.7)

(204.7)

Treasury stock, at cost, 43,571,220 shares and 42,491,910 shares as of March 31, 2016 and December 31, 2015, respectively

(2,006.7)

(1,844.1)

Noncontrolling interests

0.5

0.4

Total stockholders' equity

(73.3)

101.6

Total liabilities and stockholders' equity

$

1,861.0

$

1,677.4

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Three Months EndedMarch 31,

2016

2015

Cash flows from operating activities:

Net income

$

24.9

$

13.9

Net loss from discontinued operations

—

0.1

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

Income from equity method investments

(4.6)

(3.3)

Restructuring expenses, net of cash paid

(0.5)

(0.1)

Provision for bad debts

1.3

0.9

Unrealized (gains) losses on derivative contracts

(0.5)

0.2

Stock-based compensation expense

6.3

3.5

Depreciation and amortization

14.2

15.5

Deferred income taxes

(0.5)

(1.1)

Other items, net

0.1

0.1

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

Accounts and notes receivable

(44.5)

(40.1)

Inventories

(95.5)

(78.5)

Other current assets

(6.2)

1.0

Accounts payable

67.9

29.6

Accrued expenses

(28.0)

(29.0)

Income taxes payable and receivable

(49.4)

(40.1)

Other

1.6

5.3

Net cash used in discontinued operations

—

(0.1)

Net cash used in operating activities

(113.4)

(122.2)

Cash flows from investing activities:

Purchases of property, plant and equipment

(23.8)

(18.0)

Net cash used in investing activities

(23.8)

(18.0)

Cash flows from financing activities:

Short-term borrowings, net

(0.4)

(0.2)

Asset securitization payments

(20.0)

(40.0)

Long-term debt payments

(0.3)

—

Borrowings from credit facility

770.5

580.5

Payments on credit facility

(392.0)

(379.0)

Proceeds from employee stock purchases

0.6

0.6

Repurchases of common stock

(200.0)

—

Repurchases of common stock to satisfy employee withholding tax obligations

(16.8)

(20.5)

Excess tax benefits related to share-based payments

11.8

16.0

Cash dividends paid

(16.1)

(13.4)

Net cash provided by financing activities

137.3

144.0

Increase in cash and cash equivalents

0.1

3.8

Effect of exchange rates on cash and cash equivalents

1.6

(4.6)

Cash and cash equivalents, beginning of period

38.9

37.5

Cash and cash equivalents, end of period

$

40.6

$

36.7

Supplemental disclosures of cash flow information:

Interest paid

$

3.3

$

3.1

Income taxes paid (net of refunds)

$

51.2

$

32.2

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. 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 March 31,

2016

Income from continuing operations, a GAAP measure

$

24.9

$

14.0

Restructuring charges, after tax

(0.1)

0.2

Special product quality adjustments, after tax (b)

(0.3)

(0.1)

Special legal contingency charges, after tax (a)

1.2

2.2

Asbestos-related litigation, after tax (a)

0.5

0.1

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

(0.3)

(0.1)

Environmental liabilities, after tax (a)

0.5

0.5

Contractor tax payments (a)

0.3

—

Other items, net, after tax (a)

0.3

—

Adjusted income from continuing operations, a non-GAAP measure

$

27.0

$

16.8

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

$

0.56

$

0.31

Restructuring charges, after tax

(0.01)

—

Special product quality adjustments, after tax (b)

(0.01)

—

Special legal contingency charges, after tax (a)

0.03

0.05

Asbestos-related litigation, after tax (a)

0.01

—

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

(0.01)

—

Environmental liabilities, after tax (a)

0.01

0.01

 Contractor tax payments. after tax (a)

0.01

—

Other items, net, after tax (a)

0.01

—

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

$

0.60

$

0.37

(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

For the Three Months Ended March 31,

2016

2015

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

Realized losses on settled future contracts (a)

$

0.5

$

0.4

Foreign currency exchange losses (gains) (a)

0.2

1.1

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

(0.5)

(0.1)

Special legal contingency charges (b)

1.7

3.4

Asbestos-related litigation (b)

0.8

0.1

Environmental liabilities (b)

0.7

0.7

Contractor tax payments (b)

0.5

—

Acquisition costs (b)

0.4

—

Losses and other expenses, net (pre-tax)

$

4.3

$

5.6

   (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 EndedDecember 31, 2016ESTIMATED

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

$6.30 - $6.80

Special loss contingencies and other items

(0.04)

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

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 March 31,

2016

2015

Net cash provided by operating activities, a GAAP measure

$

(113.4)

$

(122.2)

 Purchases of property, plant and equipment

(23.8)

(18.0)

Free cash flow, a Non-GAAP measure

$

(137.2)

$

(140.2)

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

TrailingTwelve  Months to  March 31, 2016

 Adjusted EBIT (a)

$

393.1

 Depreciation and amortization expense (b)

61.5

 EBITDA (a + b)

$

454.6

 Total debt at March 31, 2016 (c)

1,099.4

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

2.4

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

TrailingTwelve  Months to  March 31, 2016

 Adjusted EBIT per above, a Non-GAAP measure

$

393.1

    Special product quality adjustments

(2.3)

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

15.2

    Restructuring charges

2.7

    Interest expense, net

23.6

    Special inventory write down

5.6

   Goodwill impairment

5.5

   Asset impairment

44.5

    Other expenses, net

(0.8)

 Income from continuing operations before income taxes, a GAAP measure

$

299.1