Lennox International Reports Record Third-Quarter Profit

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,

2015

2014

2015

2014

Net sales

$

955.0

$

898.4

$

2,633.3

$

2,554.6

Cost of goods sold

681.6

651.3

1,913.5

1,876.7

Gross profit

273.4

247.1

719.8

677.9

Operating Expenses:

Selling, general and administrative expenses

143.8

140.9

430.0

425.5

Losses (gains) and other expenses, net

6.0

2.1

14.9

3.5

Restructuring charges

(0.4)

1.0

1.8

1.3

Income from equity method investments

(3.0)

(3.5)

(11.8)

(12.0)

Operational income from continuing operations

127.0

106.6

284.9

259.6

Interest expense, net

5.7

4.0

17.9

11.0

Other expense (income), net

(0.7)

—

(0.7)

—

Income from continuing operations before income taxes

122.0

102.6

267.7

248.6

Provision for income taxes

41.7

35.1

91.9

86.6

Income from continuing operations

80.3

67.5

175.8

162.0

Discontinued Operations:

Loss from discontinued operations before income taxes

—

(0.2)

(0.9)

(1.3)

Benefit from income taxes

—

(0.1)

(0.4)

(0.5)

Loss from discontinued operations

—

(0.1)

(0.5)

(0.8)

Net income

$

80.3

$

67.4

$

175.3

$

161.2

Earnings per share – Basic:

Income from continuing operations

$

1.78

$

1.40

$

3.92

$

3.33

Loss from discontinued operations

—

—

(0.01)

(0.02)

Net income

$

1.78

$

1.40

$

3.91

$

3.31

Earnings per share – Diluted:

Income from continuing operations

$

1.76

$

1.38

$

3.86

$

3.27

Loss from discontinued operations

—

—

(0.01)

(0.01)

Net income

$

1.76

$

1.38

$

3.85

$

3.26

Weighted Average Number of Shares Outstanding - Basic

45.0

48.3

44.9

48.7

Weighted Average Number of Shares Outstanding - Diluted

45.6

49.0

45.6

49.5

Cash dividends declared per share

$

0.36

$

0.30

$

1.02

$

0.84

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2015

2014

2015

2014

Net sales

Residential Heating & Cooling

$

517.9

$

462.6

$

1,435.6

$

1,332.5

Commercial Heating & Cooling

246.8

241.6

660.3

655.6

Refrigeration

190.3

194.2

537.4

566.5

$

955.0

$

898.4

$

2,633.3

$

2,554.6

Segment Profit (Loss) (1)

Residential Heating & Cooling

$

90.1

$

69.4

$

221.3

$

178.8

Commercial Heating & Cooling

44.8

42.2

95.5

91.3

Refrigeration

20.3

16.5

37.5

42.3

Corporate and other

(24.0)

(17.5)

(57.4)

(47.8)

Subtotal that includes segment profit and eliminations

131.2

110.6

296.9

264.6

Reconciliation to Income from continuing operations before income taxes:

Special product quality adjustments

0.7

0.2

(0.6)

(0.1)

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

3.9

1.8

10.8

2.8

Restructuring charges

(0.4)

1.0

1.8

1.3

Interest expense, net

5.7

4.0

17.9

11.0

Special inventory write down

—

1.0

—

1.0

Other expense (income), net

(0.7)

—

(0.7)

—

Income from continuing operations before income taxes

$

122.0

$

102.6

$

267.7

$

248.6

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of September 30, 2015

As of December 31, 2014

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

35.1

$

37.5

Accounts and notes receivable, net of allowances of $7.3 and $7.9 in 2015 and 2014, respectively

537.7

421.4

Inventories, net

488.3

463.3

Deferred income taxes, net

31.9

32.5

Other assets

58.9

59.3

Total current assets

1,151.9

1,014.0

Property, plant and equipment, net of accumulated depreciation of $677.9 and $654.1 in 2015 and 2014, respectively

345.3

358.6

Goodwill

199.8

209.4

Deferred income taxes

97.9

97.5

Other assets, net

86.6

84.8

Total assets

$

1,881.5

$

1,764.3

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

226.3

$

226.6

Current maturities of long-term debt

23.7

24.0

Accounts payable

337.7

324.3

Accrued expenses

251.9

239.0

Income taxes payable

13.8

13.4

Total current liabilities

853.4

827.3

Long-term debt

668.0

675.0

Post-retirement benefits, other than pensions

2.9

4.5

Pensions

134.2

129.9

Other liabilities

125.5

118.6

Total liabilities

1,784.0

1,755.3

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

857.3

824.9

Retained earnings

1,151.5

1,022.1

Accumulated other comprehensive loss

(209.8)

(153.5)

Treasury stock, at cost, 42,120,067 shares and 42,535,126 shares in 2015 and 2014, respectively

(1,702.9)

(1,686.0)

Noncontrolling interests

0.5

0.6

Total stockholders' equity

97.5

9.0

Total liabilities and stockholders' equity

$

1,881.5

$

1,764.3

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 September 30,

For the Nine Months Ended September 30,

2015

2014

2015

2014

Income from continuing operations, a GAAP measure

$

80.3

$

67.5

$

175.8

$

162.0

Restructuring charges, after tax

(0.3)

0.8

1.2

1.4

Special product quality adjustments, after tax (b)

0.5

0.1

(0.4)

(0.1)

Special legal contingency charges, after tax (a)

0.8

0.3

3.4

0.4

Asbestos-related litigation, after tax (a)

0.3

0.2

0.7

0.6

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

0.5

0.2

0.5

0.1

  Inventory write down, after tax (b)

—

0.8

—

0.8

Environmental liabilities, after tax (a)

0.3

0.4

0.6

0.4

Contractor Tax Payments (a)

0.7

—

1.8

—

Other items, net, after tax (a)

0.1

—

0.1

0.5

Adjusted income from continuing operations, a non-GAAP measure

$

83.2

$

70.3

$

183.7

$

166.1

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

$

1.76

$

1.38

$

3.86

$

3.27

Restructuring charges, after tax

(0.01)

0.02

0.02

0.03

Special product quality adjustments, after tax (b)

0.01

—

—

—

Special legal contingency charges, after tax (a)

0.02

0.01

0.08

0.01

Asbestos-related litigation, after tax (a)

0.01

—

0.02

0.01

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

0.01

—

0.01

—

  Inventory write down, after tax (b)

—

0.02

—

0.02

Environmental liabilities, after tax (a)

0.01

0.01

0.02

0.01

 Contractor tax payments (a)

0.01

—

0.03

—

Other items, net, after tax (a)

—

—

—

0.01

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

$

1.82

$

1.44

$

4.04

$

3.36

(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 September 30,

For the Nine Months Ended September 30,

2015

2014

2015

2014

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

Realized losses on settled future contracts (a)

$

0.6

$

0.1

$

1.3

$

0.6

Foreign currency exchange losses (gains) (a)

1.4

0.1

2.7

0.1

Loss on disposal of fixed assets (a)

0.1

0.1

0.1

—

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

0.8

0.2

0.9

0.1

Special legal contingency charges (b)

1.3

0.5

5.5

0.7

Asbestos-related litigation (b)

0.4

0.4

1.0

1.0

Environmental liabilities (b)

0.3

0.7

0.7

0.7

Contractor Tax Payments (b)

0.8

—

2.4

—

Other items, net (b)

0.3

—

0.3

0.3

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

$

6.0

$

2.1

$

14.9

$

3.5

   (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

 Ended December 31, 2015 ESTIMATED

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

$5.25 - $5.40

Restructuring charges and other items

(0.17)

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

$5.08 - $5.23

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 September 30,

For the Nine Months Ended September 30,

2015

2014

2015

2014

Net cash provided by operating activities, a GAAP measure

$

159.1

$

96.9

$

106.9

$

23.5

(13.9)

(18.7)

(47.0)

(59.9)

 Proceeds from the disposal of property, plant and equipment

—

0.2

—

0.2

 Free cash flow, a Non-GAAP measure

$

145.2

$

78.4

$

59.9

$

(36.2)

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

Trailing Twelve  Months to  September 30, 2015

 Adjusted EBIT (a)

$

373.1

 Depreciation and amortization expense (b)

62.2

 EBITDA (a + b)

$

435.3

 Total debt at September 30, 2015 (c)

918.0

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

2.1

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

Trailing Twelve Months to September 30, 2015

 Adjusted EBIT per above, a Non-GAAP measure

$

373.1

 Special product quality adjustments

(1.9)

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

4.9

 Restructuring charges

2.4

 Interest expense, net

24.0

 Special inventory write down

—

 Other expenses, net

(0.2)

 Income from continuing operations before income taxes, a GAAP measure

$

343.9