Release Details

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2019

2018

2019

2018

Net sales

$

1,099.1

$

1,175.4

$

1,889.4

$

2,010.2

Cost of goods sold

767.0

813.8

1,355.8

1,425.5

Gross profit

332.1

361.6

533.6

584.7

Operating Expenses:

Selling, general and administrative expenses

152.4

161.4

298.2

316.6

Losses (gains) and other expenses, net

2.1

0.2

3.2

7.5

Restructuring charges

(0.1)

0.5

0.4

1.3

Loss (gain) on sale of businesses and related property

0.4

(22.1)

8.8

(11.8)

Loss on assets held for sale

—

31.4

—

31.4

Insurance proceeds for lost profits

(26.0)

—

(65.5)

—

Gain from insurance recoveries, net of losses incurred

(5.9)

—

(12.8)

—

Income from equity method investments

(4.6)

(4.9)

(7.2)

(8.4)

Operating income

213.8

195.1

308.5

248.1

Pension settlement

60.6

—

60.6

—

Interest expense, net

13.1

9.8

23.9

18.2

Other expense (income), net

0.3

0.8

1.2

1.4

Income from continuing operations before income taxes

139.8

184.5

222.8

228.5

Provision for income taxes

28.8

45.3

42.4

51.4

Income from continuing operations

111.0

139.2

180.4

177.1

Discontinued Operations:

(Loss) income from discontinued operations before income taxes

(0.3)

0.4

(0.4)

0.4

Income tax expense

—

2.0

—

2.0

Loss from discontinued operations

(0.3)

(1.6)

(0.4)

(1.6)

Net income

$

110.7

$

137.6

$

180.0

$

175.5

Earnings per share – Basic:

Income from continuing operations

$

2.84

$

3.42

$

4.58

$

4.31

Loss from discontinued operations

(0.01)

(0.04)

(0.01)

(0.04)

Net income

$

2.83

$

3.38

$

4.57

$

4.27

Earnings per share – Diluted:

Income from continuing operations

$

2.81

$

3.39

$

4.53

$

4.26

Loss from discontinued operations

(0.01)

(0.04)

(0.01)

(0.04)

Net income

$

2.80

$

3.35

$

4.52

$

4.22

Weighted Average Number of Shares Outstanding - Basic

39.1

40.7

39.4

41.1

Weighted Average Number of Shares Outstanding - Diluted

39.5

41.1

39.8

41.6

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Adjusted Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2019

2018

2019

2018

Adjusted Net Sales

Residential Heating & Cooling

$

689.1

$

716.0

$

1,154.6

$

1,169.7

Commercial Heating & Cooling

261.3

252.1

434.7

431.2

Refrigeration ⁽¹⁾

148.7

145.5

265.8

264.7

$

1,099.1

$

1,113.6

$

1,855.1

$

1,865.6

Adjusted Segment Profit (Loss) ⁽²⁾

Residential Heating & Cooling

$

153.4

$

153.6

$

240.1

$

204.9

Commercial Heating & Cooling

53.9

50.8

68.9

72.8

Refrigeration ⁽¹⁾

19.1

23.6

28.5

35.2

Corporate and other

(24.1)

(22.5)

(36.2)

(33.7)

Total adjusted segment profit

202.3

205.5

301.3

279.2

Reconciliation to Operating Income:

Special inventory write down

—

—

—

0.2

Special product quality adjustment

(0.5)

—

(0.5)

—

Loss (gain) on sale of businesses

0.4

(22.1)

8.8

(11.8)

Loss on assets held for sale

—

31.4

—

31.4

Gain from insurance recoveries, net of losses incurred

(5.9)

—

(12.8)

—

Partial advance of insurance recoveries related to lost profits

(8.0)

—

(8.0)

—

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

2.6

0.4

3.9

6.9

Restructuring charges

(0.1)

0.5

0.4

1.3

Operating loss from non-core businesses ⁽¹⁾

—

0.2

1.0

3.1

Operating income

$

213.8

$

195.1

$

308.5

$

248.1

⁽¹⁾

Excludes the non-core business results related to Kysor Warren, which was sold in March 2019 and the Company's business operations in Australia, Asia and South America, which were sold in 2018.

⁽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 losses (gains) on unsettled futures contracts,

 ◦      Special legal contingency charges,

 ◦      Asbestos-related litigation

 ◦      Environmental liabilities,

 ◦      Divestiture costs,

 ◦      Other items, net,

 •      Special inventory write down,

 •      Special product quality adjustment,

 •      Loss on sale of business,

 •      Loss on assets held for sale,

 •      Gain from insurance recoveries, net of losses incurred,

 •      Partial advance of insurance recoveries related to lost profits, and

 •      Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of June 30,

2019

As of December 31,
2018

 (Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

36.4

$

46.3

Short-term investments

1.8

—

Accounts and notes receivable, net of allowances of $6.1 and $6.3 in 2019 and 2018, respectively

718.8

472.7

Inventories, net

630.2

509.8

Other assets

56.7

60.6

Total current assets

1,443.9

1,089.4

Property, plant and equipment, net of accumulated depreciation of $795.8 and $778.5 in 2019 and 2018, respectively

418.0

408.3

Right-of-use assets from operating leases

166.2

—

Goodwill

186.6

186.6

Deferred income taxes

49.2

67.0

Other assets, net

76.5

65.9

Total assets

$

2,340.4

$

1,817.2

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt

311.0

300.8

Current operating lease liabilities

49.6

—

Accounts payable

473.6

433.3

Accrued expenses

240.8

272.3

Income taxes payable

—

2.1

Total current liabilities

1,075.0

1,008.5

Long-term debt

1,155.8

740.5

Long-term operating lease liabilities

117.6

—

Pensions

79.6

82.8

Other liabilities

129.9

135.0

Total liabilities

2,557.9

1,966.8

Commitments and contingencies

Stockholders' deficit:

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

1,085.8

1,078.8

Retained earnings

1,979.4

1,855.0

Accumulated other comprehensive loss

(129.6)

(188.8)

Treasury stock, at cost, 48,144,394 shares and 47,312,248 shares for 2019 and 2018, respectively

(3,154.0)

(2,895.5)

Total stockholders' deficit

(217.5)

(149.6)

Total liabilities and stockholders' deficit

$

2,340.4

$

1,817.2

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Six Months Ended
June 30,

2019

2018

Cash flows from operating activities:

Net income

$

180.0

$

175.5

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

Loss on sale of businesses

8.8

12.0

Gain on sale of Australian Property

—

(23.8)

Loss on Brazil assets held for sale

—

31.4

Gain from insurance recoveries, net of losses incurred

(12.8)

—

Income from equity method investments

(7.2)

(8.4)

Dividend from Affiliates

2.0

2.2

Restructuring charges, net of cash paid

(0.2)

0.6

Provision for bad debts

2.2

3.3

Unrealized losses on derivative contracts

(0.2)

1.3

Stock-based compensation expense

11.4

13.6

Depreciation and amortization

34.9

32.8

Deferred income taxes

15.7

(6.2)

Pension expense

64.2

4.2

Pension contributions

(1.0)

(2.2)

Other items, net

(0.1)

0.2

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

Accounts and notes receivable

(270.0)

(272.1)

Inventories

(149.9)

(115.5)

Other current assets

10.2

(2.2)

Accounts payable

52.6

109.2

Accrued expenses

(21.0)

3.2

Income taxes payable and receivable

(11.5)

15.1

Other

(19.1)

(9.2)

Net cash used in operating activities

(111.0)

(35.0)

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

0.8

0.1

Purchases of property, plant and equipment

(53.5)

(43.4)

Net proceeds from sale of businesses

43.6

111.8

Purchases of short-term investments

(1.8)

—

Insurance recoveries received for property damage incurred from natural disaster

12.8

—

Net cash provided by investing activities

1.9

68.5

Cash flows from financing activities:

Short-term debt payments

(2.1)

(18.4)

Short-term debt proceeds

2.1

21.3

Asset securitization borrowings

65.5

65.0

Asset securitization payments

(43.5)

(51.0)

Long-term debt payments

(33.3)

(17.8)

Borrowings from credit facility

1,459.5

1,391.0

Payments on credit facility

(1,037.5)

(1,042.0)

Proceeds from employee stock purchases

1.6

1.2

Repurchases of common stock

(250.0)

(350.2)

Repurchases of common stock to satisfy employee withholding tax obligations

(14.5)

(18.6)

Cash dividends paid

(50.8)

(42.4)

Net cash provided by (used in) financing activities

97.0

(61.9)

Decrease in cash and cash equivalents

(12.1)

(28.4)

Effect of exchange rates on cash and cash equivalents

2.2

(0.4)

Cash and cash equivalents, beginning of period

46.3

68.2

Cash and cash equivalents, end of period

$

36.4

$

39.4

Supplemental disclosures of cash flow information:

Interest paid

$

23.5

$

18.3

Income taxes paid (net of refunds)

$

54.2

$

45.0

Insurance recoveries received

$

128.0

$

—

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. In the first quarter of 2018, the Company announced the planned sales of its businesses in Australia, Asia, and South America. The sale of the Company's business in Australia and Asia and the related property was completed in the second quarter of 2018 and sale of the Company's business in South America was completed in the third quarter of 2018. The results from operations for these businesses have been shown in the tables below as "Non-core business results". The prior period results have been updated to provide period-over-period comparability.

Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure

For the Three Months Ended June 30,

(Unaudited)

2019

2018

Pre-Tax

    Tax
Impact (e)

After Tax

Pre-Tax

    Tax
Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

139.8

$

(28.8)

$

111.0

$

184.5

$

(45.3)

$

139.2

Restructuring charges

(0.1)

—

(0.1)

0.5

(0.1)

0.4

Loss on assets held for sale

—

—

—

31.4

—

31.4

Pension settlement

60.6

(15.1)

45.5

—

—

—

Special product quality adjustments (b)

(0.5)

0.1

(0.4)

—

—

—

Special legal contingency charges (a)

(0.1)

—

(0.1)

1.5

(0.3)

1.2

Asbestos-related litigation (a)

0.4

(0.1)

0.3

(0.2)

0.2

—

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

0.1

—

0.1

0.1

—

0.1

Environmental liabilities (a)

1.3

(0.3)

1.0

0.9

(0.3)

0.6

Excess tax benefits from share-based compensation (c)

—

(1.0)

(1.0)

—

(0.6)

(0.6)

Other tax items, net (c)

—

0.6

0.6

—

(2.3)

(2.3)

(Gain) loss, net on sale of business and related property

0.4

(0.1)

0.3

(22.1)

4.1

(18.0)

Divestiture costs (a) (g)

—

—

—

(2.5)

0.6

(1.9)

Partial advance of insurance recoveries related to lost profits (h)

(8.0)

2.3

(5.7)

—

—

—

Gain from insurance recoveries, net of losses incurred

(5.9)

1.2

(4.7)

—

—

—

Other items, net (a)

0.9

(0.1)

0.8

0.6

(0.6)

—

Non-core business results (f)

—

—

—

0.7

(0.2)

0.5

Adjusted income from continuing operations, a non-GAAP measure

$

188.9

$

(41.3)

$

147.6

$

195.4

$

(44.8)

$

150.6

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

$

2.81

$

3.39

Restructuring charges

—

0.01

Loss on assets held for sale

—

0.77

Pension settlement

1.14

—

Special product quality adjustments (b)

(0.01)

—

Special legal contingency charges (a)

—

0.03

Asbestos-related litigation (a)

0.01

—

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

—

—

Environmental liabilities (a)

0.03

0.01

Excess tax benefits from share-based compensation (c)

(0.03)

(0.01)

Other tax items, net (c)

0.02

(0.05)

(Gain) loss, net on sale of business and related property

0.01

(0.44)

Divestiture costs (a) (g)

—

(0.05)

Partial advance of insurance recoveries related to lost profits (h)

(0.14)

—

Gain from insurance recoveries, net of losses incurred

(0.13)

—

Other items, net (a)

0.02

—

Non-core business results (f)

—

0.01

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

0.01

—

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

$

3.74

$

3.67

 (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 activity related to the Company's business operations in Australia, Asia, and South America and the Kysor Warren business, not included elsewhere in the reconciliation.

(g) Divestiture costs incurred in Q1 2018 related to the sales of the Australia and Asia business and the related property were reclassified to (Gain) loss, net on sale of business and related property in Q2 2018.

(h) 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 will include the full recovery of the second quarter lost profits in adjusted income in the period in which the second quarter lost profits are collected in full.

For the Six Months Ended June 30,

(Unaudited)

2019

2018

Pre-Tax

   Tax Impact (e)

After Tax

Pre-Tax

   Tax Impact (e)

After Tax

Income from continuing operations, a GAAP measure

$

222.8

$

(42.4)

$

180.4

$

228.5

$

(51.4)

$

177.1

Restructuring charges

0.4

(0.1)

0.3

1.3

(0.3)

1.0

Loss on assets held for sale

—

—

—

31.4

—

31.4

Pension settlement

60.6

(15.1)

45.5

—

—

—

Special product quality adjustments (b)

(0.5)

0.1

(0.4)

—

—

—

Special legal contingency charges (a)

0.2

(0.1)

0.1

1.7

(0.4)

1.3

Asbestos-related litigation (a)

1.8

(0.4)

1.4

1.9

(0.4)

1.5

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

(0.3)

0.1

(0.2)

1.3

(0.3)

1.0

Inventory write down (b)

—

—

—

0.2

—

0.2

Environmental liabilities (a)

1.3

(0.3)

1.0

1.2

(0.3)

0.9

Excess tax benefits from share-based compensation (c)

—

(5.3)

(5.3)

—

(4.9)

(4.9)

Other tax items, net (c)

—

0.6

0.6

—

(3.2)

(3.2)

(Gain) loss, net on sale of business and related property

8.8

(3.5)

5.3

(11.8)

4.1

(7.7)

Partial advance of insurance recoveries related to lost profits (g)

(8.0)

2.3

(5.7)

—

—

—

Gain from insurance recoveries, net of losses incurred

(12.8)

2.9

(9.9)

—

—

—

Other items, net (a)

0.9

(0.2)

0.7

0.8

(0.6)

0.2

Non-core business results (f)

1.3

(0.3)

1.0

4.0

(0.9)

3.1

Adjusted income from continuing operations, a non-GAAP measure

$

276.5

$

(61.7)

$

214.8

$

260.5

$

(58.6)

$

201.9

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

$

4.53

$

4.26

Restructuring charges

0.01

0.03

Loss on assets held for sale

—

0.76

Pension settlement

1.14

—

Special product quality adjustments (b)

(0.01)

—

Special legal contingency charges (a)

—

0.03

Asbestos-related litigation (a)

0.04

0.04

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

(0.01)

0.02

Inventory write down (b)

—

0.01

Environmental liabilities (a)

0.03

0.02

Excess tax benefits from share-based compensation (c)

(0.13)

(0.12)

Other tax items, net (c)

0.02

(0.07)

(Gain) loss, net on sale of business and related property

0.13

(0.19)

Partial advance of insurance recoveries related to lost profits (g)

(0.14)

—

Gain from insurance recoveries, net of losses incurred

(0.26)

—

Other items, net (a)

0.02

—

Non-core business results (f)

0.03

0.07

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

0.01

0.01

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

$

5.41

$

4.87

 (a) Recorded in Losses 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 activity related to the Company's business operations in Australia, Asia, and South America and the Kysor Warren business, not included elsewhere in the reconciliation.

(g) 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 will include the full recovery of the second quarter lost profits in adjusted income in the period in which the second quarter lost profits are collected in full.

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2019

2018

2019

2018

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

Realized losses (gains) on settled future contracts ^(a)

$

0.1

$

(0.2)

$

0.2

$

(0.7)

Foreign currency exchange (gains) losses ^(a)

(0.2)

(0.1)

(0.7)

1.2

(Gain) loss on disposal of fixed assets ^(a)

(0.4)

0.1

(0.2)

0.1

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

0.1

0.1

(0.3)

1.3

Special legal contingency charges ^(b)

(0.1)

1.5

0.2

1.7

Asbestos-related litigation ^(b)

0.4

(0.2)

1.8

1.9

Environmental liabilities ^(b)

1.3

0.9

1.3

1.2

Divestiture costs ^{(b) (c)}

—

(2.5)

—

—

Other items, net ^(b)

0.9

0.6

0.9

0.8

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

$

2.1

$

0.2

$

3.2

$

7.5

(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

(c) Divestiture costs incurred in Q1 2018 related to the sales of the Australia and Asia business and the related property were reclassified to (Gain) loss, net on sale of business and related property in Q2 2018.

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, 2019
ESTIMATED

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

$11.91-$12.51

Insurance recovery, net of other non-core EBIT charges, from tornado impact to damaged property and second quarter non-cash pension settlement charge

0.61

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

$11.30-$11.90

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 June 30,

For the Six Months
Ended June 30,

2019

2018

2019

2018

Average shares outstanding - diluted, a GAAP measure

39.5

41.1

39.8

$

41.6

Impact on diluted shares from excess tax benefits from share-based compensation

(0.1)

(0.1)

(0.1)

(0.2)

Adjusted average shares outstanding - diluted, a Non-GAAP measure

39.4

41.0

39.7

41.4

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 June 30,

For the Three Months
Ended June 30,

2019

2018

2019

2018

Net sales, a GAAP measure

$

148.7

$

207.3

$

1,099.1

$

1,175.4

Net sales from non-core businesses (a)

—

61.8

—

61.8

Adjusted net sales, a Non-GAAP measure

$

148.7

$

145.5

$

1,099.1

$

1,113.6

(a) Non-Core businesses represent the Company's business operations in Australia, Asia, and South America and the Kysor Warren business.

Refrigeration Segment

Consolidated

For the Six Months
Ended June 30,

For the Six Months
Ended June 30,

2019

2018

2019

2018

Net sales, a GAAP measure

$

300.1

$

409.3

$

1,889.4

$

2,010.2

Net sales from non-core businesses (a)

34.3

144.6

34.3

144.6

Adjusted net sales, a Non-GAAP measure

$

265.8

$

264.7

$

1,855.1

$

1,865.6

(a) Non-Core businesses represent the Company's business operations in Australia, Asia, and South America and 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 June 30,

For the Three Months
Ended June 30,

2019

2018

2019

2018

Gross profit, a GAAP measure

$

45.7

$

61.7

$

332.1

$

361.6

Non-GAAP adjustments to gross profit

—

—

0.5

—

Gross profit from non-core businesses (a)

—

10.3

—

10.3

Adjusted Gross profit, a Non-GAAP measure

$

45.7

$

51.4

$

331.6

$

351.3

(a) Non-Core businesses represent the Company's business operations in Australia, Asia, and South America and the Kysor Warren business.

Refrigeration Segment

Consolidated

For the Six Months
Ended June 30,

For the Six Months
Ended June 30,

2019

2018

2019

2018

Gross profit, a GAAP measure

$

88.3

$

116.4

$

533.6

$

584.7

Non-GAAP adjustments to gross profit

—

(0.2)

0.5

(0.2)

Gross profit from non-core businesses (a)

3.6

24.9

3.6

24.9