Lennox International Reports Third Quarter EPS from Continuing Operations Up 34%

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In millions, except per share data)

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2013

2012

2013

2012

Net sales

$

868.0

$

809.7

$

2,449.5

$

2,264.5

Cost of goods sold

630.6

604.8

1,796.1

1,710.6

Gross profit

237.4

204.9

653.4

553.9

Operating Expenses:

Selling, general and administrative expenses

136.9

125.9

424.0

379.8

Losses (gains) and other expenses, net

(0.3)

0.3

2.8

0.2

Restructuring charges

0.3

0.4

3.2

3.1

Income from equity method investments

(3.3)

(2.6)

(10.7)

(8.8)

Operational income from continuing operations

103.8

80.9

234.1

179.6

Interest expense, net

3.8

4.4

10.8

13.4

Other expense (income), net

—

—

(0.1)

0.1

Income from continuing operations before income taxes

100.0

76.5

223.4

166.1

Provision for income taxes

34.2

26.8

77.5

57.6

Income from continuing operations

65.8

49.7

145.9

108.5

Discontinued Operations:

Loss from discontinued operations before income taxes

(2.3)

(24.6)

(15.7)

(57.2)

Benefit from income taxes

(0.8)

(4.3)

(6.4)

(16.7)

Loss from discontinued operations

(1.5)

(20.3)

(9.3)

(40.5)

Net income

$

64.3

$

29.4

$

136.6

$

68.0

Earnings per share – Basic:

Income from continuing operations

$

1.32

$

0.98

$

2.92

$

2.13

Loss from discontinued operations

(0.03)

(0.40)

(0.19)

(0.79)

Net income

$

1.29

$

0.58

$

2.73

$

1.34

Earnings per share – Diluted:

Income from continuing operations

$

1.30

$

0.97

$

2.87

$

2.11

Loss from discontinued operations

(0.03)

(0.40)

(0.18)

(0.79)

Net income

$

1.27

$

0.57

$

2.69

$

1.32

Average shares outstanding:

Basic

49.7

50.6

50.0

50.8

Diluted

50.5

51.3

50.8

51.5

Cash dividends declared per share

$

0.24

$

0.20

$

0.68

$

0.56

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

SEGMENT NET SALES AND PROFIT (LOSS)

(Unaudited)

(In millions)

For the Three Months
Ended September 30,

For the Nine Months
Ended September 30,

2013

2012

2013

2012

Net Sales

Residential Heating & Cooling

$

433.9

$

386.3

$

1,224.5

$

1,070.7

Commercial Heating & Cooling

239.1

219.7

631.8

597.9

Refrigeration

195.0

203.7

593.2

595.9

$

868.0

$

809.7

$

2,449.5

$

2,264.5

Segment Profit (Loss)  (A)

Residential Heating & Cooling

$

57.0

$

37.7

$

143.7

$

90.7

Commercial Heating & Cooling

39.2

32.5

84.8

74.1

Refrigeration

23.9

25.1

66.5

60.6

Corporate and other

(16.6)

(14.3)

(56.2)

(43.7)

Subtotal that includes segment profit and eliminations

103.5

81.0

238.8

181.7

Reconciliation to Income from continuing operations before income taxes:

Special product quality adjustments

(0.4)

0.9

(0.5)

1.0

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

(0.2)

(1.2)

2.0

(2.0)

Restructuring charges

0.3

0.4

3.2

3.1

Interest expense, net

3.8

4.4

10.8

13.4

Other expense (income), net

—

—

(0.1)

0.1

Income from continuing operations before income taxes

$

100.0

$

76.5

$

223.4

$

166.1

(A) The Company defines segment profit and loss as a segment's Income or Loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding:

• Special product quality adjustments;
• Items in Losses (gains) and other expenses, net that are noted in (B);
• Restructuring charges;
• Goodwill, long-lived asset and equity method investment impairments;
• Interest expense, net;
• Other expense (income), net.

(B) Items in Losses (gains) and other expenses, net that are excluded from segment profit or loss are the net change in unrealized gains and/or losses on unsettled future contracts, special legal contingency charges and other items.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except shares and par value)

As of September 30, 2013

As of December 31, 2012

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

37.8

$

51.8

Accounts and notes receivable, net of allowances of $9.3 and $9.5 in 2013 and 2012, respectively

489.2

373.4

Inventories, net

430.0

374.8

Deferred income taxes, net

29.5

27.5

Other assets

50.8

61.0

Assets of discontinued operations

—

98.6

Total current assets

1,037.3

987.1

Property, plant and equipment, net of accumulated depreciation of $615.8 and $584.8 in 2013 and 2012, respectively

314.8

298.2

Goodwill

218.8

223.8

Deferred income taxes

111.8

102.8

Other assets, net

73.0

80.0

Total assets

$

1,755.7

$

1,691.9

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

167.9

$

34.9

Current maturities of long-term debt

0.8

0.7

Accounts payable

324.1

284.7

Accrued expenses

281.4

259.6

Income taxes payable

21.6

4.5

Liabilities of discontinued operations

—

55.2

Total current liabilities

795.8

639.6

Long-term debt

266.2

351.0

Post-retirement benefits, other than pensions

3.8

6.1

Pensions

138.1

134.4

Other liabilities

69.6

62.5

Total liabilities

1,273.5

1,193.6

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

916.2

898.3

Retained earnings

847.1

744.4

Accumulated other comprehensive loss

(93.9)

(22.3)

Treasury stock, at cost, 37,593,995 shares and 36,937,632 shares in 2013 and 2012, respectively

(1,189.4)

(1,124.5)

Noncontrolling interests

1.3

1.5

Total stockholders' equity

482.2

498.3

Total liabilities and stockholders' equity

$

1,755.7

$

1,691.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

(In millions)

2013

2012

Cash flows from operating activities:

Net income

$

136.6

$

68.0

Net loss from discontinued operations

9.3

40.5

Adjustments to reconcile net income to net cash provided by operating activities:

Income from equity method investments

(10.7)

(8.8)

Dividends from affiliates

9.1

6.9

Restructuring expenses, net of cash paid

(1.2)

—

Provision for bad debts

2.7

2.0

Unrealized losses (gains) on derivative contracts

0.7

(1.4)

Stock-based compensation expense

20.5

10.5

Depreciation and amortization

43.1

41.1

Deferred income taxes

0.1

0.5

Other items, net

13.5

3.3

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

Accounts and notes receivable

(125.3)

(62.4)

Inventories

(76.4)

(81.3)

Other current assets

(13.7)

(5.0)

Accounts payable

29.4

20.8

Accrued expenses

18.3

32.1

Income taxes payable and receivable

12.9

13.7

Other

9.3

(3.6)

Net cash used in discontinued operations

(13.2)

(12.5)

Net cash provided by operating activities

65.0

64.4

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

0.1

0.1

Purchases of property, plant and equipment

(41.0)

(28.0)

Net proceeds from sale of businesses

8.1

10.1

Net cash used in discontinued operations

(0.1)

(0.3)

Net cash used in investing activities

(32.9)

(18.1)

Cash flows from financing activities:

Short-term borrowings, net

3.8

1.3

Asset securitization borrowings

330.0

480.0

Asset securitization payments

(200.0)

(455.0)

Long-term debt payments

(0.7)

(0.9)

Borrowings from revolving credit facility

998.0

696.0

Payments on revolving credit facility

(1,083.5)

(706.0)

Proceeds from employee stock purchases

1.3

0.3

Repurchases of common stock

(66.0)

(35.0)

Repurchases of common stock to satisfy employee withholding tax obligations

(7.7)

(3.4)

Excess tax benefits related to share-based payments

4.7

1.7

Cash dividends paid

(22.1)

(27.5)

Net cash used in financing activities

(42.2)

(48.5)

Decrease in cash and cash equivalents

(10.1)

(2.2)

Effect of exchange rates on cash and cash equivalents

(3.9)

6.0

Cash and cash equivalents, beginning of period

51.8

45.0

Cash and cash equivalents, end of period

$

37.8

$

48.8

Supplementary disclosures of cash flow information:

Cash paid during the period for:

Interest, net

$

9.4

$

11.8

Income taxes (net of refunds)

$

53.6

$

27.8

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.  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,

2013

2012

2013

2012

Income from continuing operations, a GAAP measure

$

65.8

$

49.7

$

145.9

$

108.5

Restructuring charges, after tax

0.2

0.3

2.1

2.1

Special product quality adjustments, after tax (b)

(0.3)

0.6

(0.4)

0.9

Special legal contingency charges, after tax (a)

0.5

—

0.7

—

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

(0.7)

(0.9)

0.4

(1.7)

Other items, net, after tax (a)

—

—

0.3

0.3

Adjusted income from continuing operations, a non-GAAP measure

$

65.5

$

49.7

$

149.0

$

110.1

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

$

1.30

$

0.97

$

2.87

$

2.11

Restructuring charges, after tax

—

0.01

0.04

0.04

Special product quality adjustments, after tax (b)

—

0.01

(0.01)

0.02

Special legal contingency charges, after tax (a)

0.01

—

0.01

—

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

(0.01)

(0.02)

0.01

(0.03)

Other items, net, after tax (a)

—

—

0.01

—

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

$

1.30

$

0.97

$

2.93

$

2.14

     (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,

2013

2012

2013

2012

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

Realized losses on settled future contracts (a)

$

0.4

$

0.5

$

0.8

$

1.4

Foreign currency exchange loss (gain) (a)

(0.5)

1.0

—

0.7

Loss on disposal of fixed assets (a)

—

—

—

0.1

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

(1.1)

(1.4)

0.7

(2.5)

Special legal contingency charge (b)

0.8

—

1.0

—

Other items, net (b)

0.1

0.2

0.3

0.5

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

$

(0.3)

$

0.3

$

2.8

$

0.2

     (a) Included in segment profit (loss) and adjusted income from continuing operations

     (b) Excluded from 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, 2013

ESTIMATED

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

$3.50 - $3.75

Restructuring charges and other items

(0.07)

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

$3.43 - $3.68

Reconciliation of Net Cash Provided by Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2013

2012

2013

2012

Net cash provided by operating activities, a GAAP measure

$

153.3

$

75.0

$

65.0

$

64.4

Purchases of property, plant and equipment

(17.6)

(11.6)

(41.0)

(28.0)

Proceeds from the disposal of property, plant and equipment

0.1

—

0.1

0.1

Free cash flow, a Non-GAAP measure

$

135.8

$

63.4

$

24.1

$

36.5

Calculation of Debt to EBITDA Ratio:

Trailing Twelve
Months to
September 30, 2013

EBIT (a)

$

281.3

Depreciation and amortization expense (b)

$

57.4

EBITDA (a + b)

$

338.7

Total debt at September 30, 2013 (c)

$

434.9

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

1.3

Reconciliation of EBIT, a Non-GAAP measure, to Income From Continuing Operations Before Income Taxes, a GAAP measure

Trailing Twelve
Months to
September 30, 2013

EBIT per above, a Non-GAAP measure

$

281.3

Special product quality adjustments

(0.4)

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

3.8

Restructuring charges

4.3

Interest expense, net

14.4

Other expenses, net

0.1

Income from continuing operations before income taxes, a GAAP measure

$

259.1