Lennox International Reports Q4 and Full-Year 2002 Earnings in Line With
Guidance
Guidance
DALLAS, Feb. 5 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) announced today its fourth quarter and full-year 2002 earnings, in line with previous guidance.
Fourth quarter 2002 results
LII's net sales for the fourth quarter of 2002 decreased 3% to $704 million. Excluding the effects of the heat transfer joint venture and the activities of other non-core operations, company-wide sales, in constant currencies, were up 2%. Operating income was $13 million, contrasted with an operating loss of $43 million last year, reflecting improvements in all of LII's business segments. Operating margins expanded to 1.8%.
Net income was $5 million, or $0.08 per diluted share, compared with a loss in the prior year of $40 million, or $0.72 per diluted share. Changes in foreign exchange rates benefited earnings per share in the fourth quarter by $0.01. The prior year fourth quarter net loss included restructuring charges of $28 million, net of tax, or $0.50 per share.
Full-year 2002 results
Sales for full-year 2002 were $3 billion, down 3% from 2001, with changes in foreign exchange rates benefiting revenues by less than 1%. Sales in the company's core businesses, in constant currencies, were down less than 1%. Favorable weather supported LII's domestic residential businesses in 2002, while demand from commercial customers for heating, cooling, and refrigeration equipment and services remained soft. Sales outside the U.S. and Canada accounted for 13% of total LII revenues.
Operating income for the year increased to $126 million from an operating loss of $1 million in 2001. Higher volumes in LII's Heating & Cooling and Refrigeration businesses, along with lower cost structures across all LII operations, contributed to improved operating margins of 4.2% in 2002.
Including the $249 million goodwill impairment charge the company recorded in the first quarter, LII reported a net loss of $190 million, or $3.23 per diluted share, in 2002, compared with a loss in the previous year of $42 million, or $0.75 per diluted share. This full-year loss per share included restructuring charges; gains, losses, and other items; and FAS 142 impairment of goodwill, totaling a diluted loss per share of $4.19. Excluding these items, LII's diluted earnings per share of $0.96 were in line with the company's previously stated guidance of $0.90-$1.00, as reconciled in the table below.
Lennox International Inc. - Pro Forma Net Income Reconciliation
(In thousands, except per share data)
For the Twelve Diluted
Months Ended Earnings
Dec. 31, 2002 per Share
Net Loss, as Reported $ (190,423) $ (3.23)
Cumulative Effect of Accounting Change 249,224 4.23
Restructurings, Net of Income Tax 6,121 0.10
(Gains) Losses and Other Expenses,
Net of Income Tax (5,210) (0.09)
Adjustment to Prior Year Taxes (3,000) (0.05)
Pro Forma Net Income $ 56,712 $ 0.96
LII generated full-year free cash flow of $191 million, allowing the company to reduce its total debt by $138 million from the end of 2001. As historically defined by LII, free cash flow is cash from operations less capital expenditures, before dividends, asset securitizations, restructurings and gains, losses and other items. Reflecting its continued focus on the balance sheet, LII has lowered debt by over $310 million in the past 24 months.
"Despite a challenging global economic environment, LII made dramatic progress improving financial performance in 2002," said Bob Schjerven, chief executive officer. "We performed in line with our recent guidance, while forging the structure of a strong, focused company poised to deliver enhanced shareholder value going forward."
Fourth Quarter and Full-Year 2002 Results: Segment Performance
The following tables show LII's operating performance. Segment operating income is defined as income from operations as reported in the company's statement of operations, adjusted to exclude restructuring charges; other operating gains, losses and expenses; and amortization of goodwill.
Lennox International Inc. - Segment Operating Income Reconciliation
(In thousands)
(Gains)
Three Months Income Goodwill & Losses and Segment
Ended from Trademark Other Operating
December 31, Operations Amortization Restructurings Expenses Income
2002:
Residential $ 27,392 $ --- $ 112 $ --- $ 27,504
Commercial 6,086 --- --- --- 6,086
Heating and
Cooling 33,478 --- 112 --- 33,590
Service Experts (2,055) --- --- --- (2,055)
Refrigeration 8,726 --- (207) --- 8,519
Corporate and
other (27,255) --- (693) 1,039 (26,909)
Eliminations (86) --- --- --- (86)
Income from
Operations $ 12,808 $ --- $(788) $1,039 $ 13,059
(Gains)
Three Months Income Goodwill & Losses and Segment
Ended from Trademark Other Operating
December 31, Operations Amortization Restructurings Expenses Income
2001:
Residential $ 2,392 $ 742 $ 7,183 $ --- $ 10,317
Commercial (293) 81 4,720 4,508
Heating and
Cooling 2,099 823 11,903 --- 14,825
Service Experts (8,880) 2,959 --- --- (5,921)
Refrigeration 3,960 304 305 --- 4,569
Corporate and
other (41,051) 425 18,502 --- (22,124)
Eliminations 531 --- --- --- 531
Income from
Operations $(43,341) $4,511 $30,710 $ --- $ (8,120)
(Gains)
Twelve Months Income Goodwill & Losses and Segment
Ended from Trademark Other Operating
December 31, Operations Amortization Restructurings Expenses Income
2002:
Residential $111,466 $ --- $ 1,582 $ --- $113,048
Commercial 19,127 --- --- --- 19,127
Heating and
Cooling 130,593 --- 1,582 --- 132,175
Service Experts 24,114 --- --- --- 24,114
Refrigeration 32,276 --- 2,275 --- 34,551
Corporate and
other (60,555) --- 3,972 (7,892) (64,475)
Eliminations (783) --- --- --- (783)
Income from
Operations $125,645 $ --- $ 7,829 $(7,892) $125,582
(Gains)
Twelve Months Income Goodwill & Losses and Segment
Ended from Trademark Other Operating
December 31, Operations Amortization Restructurings Expenses Income
2001:
Residential $ 74,480 $ 3,178 $ 7,183 $ --- $ 84,841
Commercial 18,193 395 4,720 --- 23,308
Heating and
Cooling 92,673 3,573 11,903 --- 108,149
Service Experts (48,802) 12,231 34,631 --- (1,940)
Refrigeration 24,519 1,274 305 --- 26,098
Corporate and
other (69,003) 1,560 18,502 --- (48,941)
Eliminations (83) --- --- --- (83)
Income from
Operations $ (696) $18,638 $65,341 $ --- $ 83,283
To facilitate comparisons of operating performance in the fourth quarter, the segment data below are adjusted for restructuring, other non-recurring charges, and the new goodwill accounting standard.
Heating & Cooling revenues rose 6% in the fourth quarter of 2002 to $398 million. Segment operating income more than doubled to $33.6 million from $14.8 million last year. Operating margins for the quarter rose to 8.4% from 3.9% in 2001.
In the Residential Heating & Cooling segment, revenues rose 8% during the quarter to $284 million. Operating income increased to $27.5 million from $10.3 million last year, with operating margins expanding 580 basis points to 9.7%. Seasonally favorable weather and strong performances by Lennox Industries' Dave Lennox Signature(TM) Collection product line, along with exceptionally strong performances from LII's Ducane and Advanced Distributor Products (ADP) units, led the residential segment.
Revenues in the Commercial Heating & Cooling segment were flat at $114 million, and were down 4% when adjusted for changes in foreign exchange rates. Operating income increased 35% to $6.1 million, while operating margins expanded 140 basis points to 5.3%. Paring back of unprofitable operations in Asia and Australia during 2002 and an improved domestic product mix contributed to strong commercial business improvements.
Service Experts revenues declined 3% when compared to the previous year, primarily because there was one fewer week of operations included in this year's quarter. Excluding the effects of the additional week of operations in the previous year and the effect of centers closed in 2001, same-store sales increased 2%.
Service Experts posted an operating loss of $2.1 million for the quarter, with results negatively impacted by approximately $4.6 million in increased expenses due to a change in estimates in self-insured insurance costs. These results mark a substantial improvement over the segment operating loss of $5.9 million reported a year ago.
Refrigeration segment revenue rose 8%, or 3% in constant currencies. Segment operating income was $8.5 million, up 86% from last year. Operating margins increased to 9.4% from 5.4% in fourth quarter 2001. Every LII global refrigeration operation achieved improved performance for the quarter.
Outlook for 2003
After a record year for industry shipments of residential equipment and with the timing for economic recovery unclear, company revenues are expected to be relatively flat in 2003. However, earnings are anticipated to improve based on continued focus on cost reduction initiatives and the full-year effects of other actions taken in 2002. Earnings per share are anticipated to be in the range of $1.10 to $1.20, a 15-25% improvement over this year's result. Continued strength in free cash flow is expected, with 2003 free cash flow approximately equal to net income.
"LII is well-positioned for the future," Schjerven said. "Continued improvements in our core businesses are generating the cash needed to take advantage of important opportunities down the road, while a stronger balance sheet provides more flexibility for growth initiatives. We are encouraged by our progress in 2002, and look forward to continued improvement this year."
Conference call scheduled
LII has scheduled a conference call to discuss financial results for the fourth quarter and full-year 2002 on Thursday, February 6 at 9:30 a.m. Central time. All interested parties are invited to listen as Bob Schjerven, CEO and Rick Smith, CFO comment on the company's operating results. To listen, please call the conference call line at 612-326-1003 ten minutes prior to the scheduled start time and use reservation number 671379. The number of connections for this call is limited to 200.
This conference call will be broadcast live on the Internet by PRNewswire and can be accessed at http://www.firstcallevents.com/service/ajwz372512125gf12.html . A link to the broadcast can also be found on the company's web site at http://www.lennoxinternational.com . If you are unable to participate in this conference call, a replay will be available from 1:00 p.m. February 06 through February 13, 2003 on the Internet or by dialing 800-475-6701, access code 671379.
A Fortune 500 company operating in over 70 countries, Lennox International Inc. is a global leader in the heating, ventilation, air conditioning, and refrigeration markets. Lennox International stock is traded on the New York Stock Exchange under the symbol "LII". Additional information is available at: http://www.lennoxinternational.com or by contacting Bill Moltner, Vice President, Investor Relations, at 972-497-6670.
This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
subject to numerous risks and uncertainties that could cause actual results to
differ materially from such statements. For information concerning these
risks and uncertainties, see Lennox' publicly available filings with the
Securities and Exchange Commission. Lennox disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Twelve Months Ended December 31, 2002 and 2001
(In thousands, except per share data)
For the For the
Three Months Ended Twelve Months Ended
December 31, December 31,
2002 2001 (A) 2002 2001 (A)
NET SALES $704,364 $727,085 $3,025,767 $3,113,649
COST OF GOODS SOLD 483,422 534,225 2,074,027 2,199,261
Gross profit 220,942 192,860 951,740 914,388
OPERATING EXPENSES:
Selling, general
and administrative
expense 207,883 205,491 826,158 849,743
Restructurings (B) (788) 30,710 7,829 65,341
(Gains) Losses and
other expenses 1,039 --- (7,892) ---
Income (loss)
from operations 12,808 (43,341) 125,645 (696)
INTEREST EXPENSE, net 6,756 8,536 31,842 43,144
OTHER (379) 146 (1,198) 431
MINORITY INTEREST 117 (10) 321 125
Income (loss)
before income
taxes and
cumulative effect
of accounting change 6,314 (52,013) 94,680 (44,396)
PROVISION FOR
(BENEFIT FROM) INCOME
TAXES 1,288 (11,695) 35,879 (1,998)
Income (loss) before
cumulative effect of
accounting change 5,026 $ (40,318) 58,801 $ (42,398)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE --- --- 249,224 ---
Net income (loss) $ 5,026 $ (40,318) $(190,423) $ (42,398)
INCOME (LOSS) PER SHARE
BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE:
Basic $ 0.09 $ (0.72) $ 1.03 $ (0.75)
Diluted $ 0.08 $ (0.72) $ 1.00 $ (0.75)
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
PER SHARE:
Basic $ --- $ --- $ (4.35) $ ---
Diluted $ --- $ --- $ (4.23) $ ---
NET INCOME (LOSS)
PER SHARE:
Basic $ 0.09 $ (0.72) $ (3.32) $ (0.75)
Diluted $ 0.08 $ (0.72) $ (3.23) $ (0.75)
(A) Prior year's sales, cost of sales and operating expenses are restated
to conform with current year treatment of certain promotional payments
in line with the adoption of EITF 01-9 in 2002.
(B) Twelve months ended December 31, 2001 restructurings totaled $73,173,
of which $7,832 is included in Cost of Goods Sold.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT For the Three Months and Twelve Months Ended December 31, 2002 and 2001
(In thousands)
For the Three Months For the Twelve Months
Ended Dec. 31, Ended Dec. 31,
Net Sales 2002 2001 2002 2001
Residential $283,975 $262,499 $1,249,106 $1,195,110
Commercial 114,276 114,603 442,357 469,965
Heating & Cooling 398,251 377,102 1,691,463 1,665,075
Service Experts 235,726 243,164 943,779 1,002,564
Refrigeration 90,642 84,312 363,794 348,087
Corporate and other (A) 1,156 43,639 129,306 200,505
Eliminations (21,411) (21,132) (102,575) (102,582)
$704,364 $727,085 $3,025,767 $3,113,649
Income (Loss) from
Operations - before
Restructurings, For the Three Months For the Twelve Months
(Gains) Losses & Ended Dec. 31, Ended Dec. 31,
Other Expenses 2002 2001 2001 2002 2001 2001
Adj. (B) Adj. (B)
Residential $ 27,504 $ 9,575 $ 10,317 $113,048 $ 81,663 $ 84,841
Commercial 6,086 4,427 4,508 19,127 22,913 23,308
Heating &
Cooling 33,590 14,002 14,825 132,175 104,576 108,149
Service Experts (2,055) (8,880) (5,921) 24,114 (14,171) (1,940)
Refrigeration 8,519 4,265 4,569 34,551 24,824 26,098
Corporate and
other (A) (26,909) (22,549) (22,124) (64,475) (50,501) (48,941)
Eliminations (86) 531 531 (783) (83) (83)
$13,059 $(12,631) $(8,120) $125,582 $64,645 $83,283
(A) In the third quarter of 2002, the Company formed a joint venture with
Outokumpu ("Outokumpu") Oyj of Finland by selling to Outokumpu a
55 percent interest in the Company's heat transfer business segment
for approximately $55 million. The net sales and results of
operations for the current periods and all prior periods of the
Company's former heat transfer business segment are now included in
Corporate and other.
(B) To facilitate comparisons, the reported segment Income (Loss) from
Operations amounts for the three and twelve months ended
December 31, 2001 have been adjusted to reflect the discontinuation
of goodwill and trademark amortization under SFAS 142.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2002 and December 31, 2001
(In thousands, except share data)
ASSETS
December 31, December 31,
2002 2001
CURRENT ASSETS:
Cash and cash equivalents $ 76,369 $ 34,393
Accounts and notes receivable, net 307,334 291,485
Inventories 219,682 281,170
Deferred income taxes 33,270 42,662
Other assets 38,400 63,655
Total current assets 675,055 713,365
PROPERTY, PLANT AND EQUIPMENT, net 231,042 291,531
GOODWILL, net 420,802 704,713
OTHER ASSETS 194,819 84,379
TOTAL ASSETS $1,521,718 $1,793,988
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 9,255 $ 23,701
Current maturities of long-term debt 13,871 28,895
Accounts payable 247,598 242,534
Accrued expenses 253,929 249,546
Income taxes payable 12,808 9,870
Total current liabilities 537,461 554,546
LONG-TERM DEBT 356,747 465,163
DEFERRED INCOME TAXES --- 673
POSTRETIREMENT BENEFITS, OTHER
THAN PENSIONS 13,472 14,014
OTHER LIABILITIES 159,648 103,301
Total liabilities 1,067,328 1,137,697
MINORITY INTEREST 1,591 1,651
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,
63,039,254 shares and 60,690,198
shares issued for 2002 and 2001,
respectively 630 607
Additional paid-in capital 404,723 372,877
Retained earnings 171,316 383,566
Accumulated other comprehensive loss (79,636) (68,278)
Deferred compensation (13,518) (3,710)
Treasury stock, at cost, 3,009,656
and 2,980,846 shares for 2002 and
2001, respectively (30,716) (30,422)
Total stockholders' equity 452,799 654,640
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,521,718 $1,793,988
SOURCE Lennox International Inc.