Lennox Reports Record Revenue and EPS for Full Year 2022

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months Ended
December 31,

For the Years Ended
December 31,

2022

2021

2022

2021

Net sales

$         1,093.8

$            964.8

$        4,718.4

$        4,194.1

Cost of goods sold

808.6

711.2

3,433.7

3,005.7

Gross profit

285.2

253.6

1,284.7

1,188.4

Operating Expenses:

Selling, general and administrative expenses

155.0

151.5

627.2

598.9

(Gains) losses and other expenses, net

(0.6)

4.5

4.9

9.2

Restructuring charges

0.3

0.2

1.5

1.8

Income from equity method investments

(1.3)

(0.2)

(5.1)

(11.8)

Operating income

131.8

97.6

656.2

590.3

Pension settlements

(0.4)

0.1

(0.2)

1.2

Interest expense, net

12.7

6.2

38.7

25.0

Other expense (income), net

—

1.1

1.9

4.0

Income from continuing operations before income taxes

119.5

90.2

615.8

560.1

Provision for income taxes

25.1

6.7

118.7

96.1

Income from continuing operations

94.4

83.5

497.1

464.0

Discontinued Operations:

Income from discontinued operations before income taxes

—

0.2

—

—

Income tax expense

—

0.1

—

—

Income from discontinued operations

—

0.1

—

—

Net income

$              94.4

$              83.6

$           497.1

$           464.0

Earnings per share – Basic:

Income from continuing operations

$              2.66

$              2.28

$           13.92

$           12.47

Loss from discontinued operations

—

—

—

—

Net income

$              2.66

$              2.28

$           13.92

$           12.47

Earnings per share – Diluted:

Income from continuing operations

$              2.65

$              2.27

$           13.88

$           12.39

Loss from discontinued operations

—

—

—

—

Net income

$              2.65

$              2.27

$           13.88

$           12.39

Weighted Average Number of Shares Outstanding - Basic

35.4

36.6

35.7

37.2

Weighted Average Number of Shares Outstanding - Diluted

35.6

36.8

35.8

37.5

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months
Ended December 31,

For the Years Ended
December 31,

2022

2021

2022

2021

Net Sales

Residential Heating & Cooling

$      703.4

$      620.3

$   3,198.3

$   2,775.6

Commercial Heating & Cooling

240.5

201.4

900.7

864.8

Refrigeration

149.9

143.1

619.4

553.7

$   1,093.8

$      964.8

$   4,718.4

$   4,194.1

Segment Profit (Loss) ⁽¹⁾

Residential Heating & Cooling

$      119.2

$      110.3

$      596.9

$      540.3

Commercial Heating & Cooling

27.9

15.6

80.9

110.9

Refrigeration

18.8

13.2

78.8

49.1

Corporate and other

(33.7)

(37.2)

(90.8)

(96.4)

Total segment profit

132.2

101.9

665.8

603.9

Reconciliation to Operating Income:

Special product quality adjustments

—

(1.4)

—

(2.5)

Items in (Gains) losses and other expenses, net which are excluded from
segment profit (loss) ⁽¹⁾

0.1

$           5.5

8.1

14.3

Restructuring charges

0.3

0.2

1.5

1.8

Operating income

$      131.8

$        97.6

$      656.2

$      590.3

We define segment profit (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:

•  The following items in (Gains) losses and other expenses, net:

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

           •  Environmental liabilities and special litigation charges,

           •  Charges incurred related to COVID-19 pandemic; and

           •  Other items, net,

•  Special product quality adjustments; and

•  Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Amounts in millions, except shares and par values)

As of December 31, 2022

As of December 31, 2021

ASSETS

Current Assets:

Cash and cash equivalents

$                                52.6

$                               31.0

Short-term investments

8.5

5.5

Accounts and notes receivable, net of allowances of $15.5 and $10.7 in
2022 and 2021, respectively

608.5

508.3

Inventories, net

753.0

510.9

Other assets

73.9

119.7

Total current assets

1,496.5

1,175.4

Property, plant and equipment, net of accumulated depreciation of $920.8
and $888.8 in 2022 and 2021, respectively

548.9

515.1

Right-of-use assets from operating leases

219.9

196.1

Goodwill

186.3

186.6

Deferred income taxes

27.5

11.3

Other assets, net

88.5

87.4

Total assets

$                           2,567.6

$                          2,171.9

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt

$                              710.6

$                               11.3

Current operating lease liabilities

63.3

54.8

Accounts payable

427.3

402.1

Accrued expenses

376.9

358.9

Income taxes payable

17.6

—

Total current liabilities

1,595.7

827.1

Long-term debt

814.2

1,226.5

Long-term operating lease liabilities

161.8

145.0

Pensions

40.1

83.3

Other liabilities

158.9

159.0

Total liabilities

2,770.7

2,440.9

Commitments and contingencies

Stockholders' deficit:

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares
issued or outstanding

—

—

Common stock, $0.01 par value, 200,000,000 shares authorized,
87,170,197 shares issued

0.9

0.9

Additional paid-in capital

1,155.2

1,133.7

Retained earnings

3,070.6

2,719.3

Accumulated other comprehensive loss

(90.6)

(88.1)

Treasury stock, at cost, 51,700,260 shares and 50,536,125 shares for
2022 and 2021, respectively

(4,339.2)

(4,034.8)

Total stockholders' deficit

(203.1)

(269.0)

Total liabilities and stockholders' deficit

$                           2,567.6

$                          2,171.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Years Ended
December 31,

2022

2021

Cash flows from operating activities:

Net income

$         497.1

$         464.0

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

Income from equity method investments

(5.1)

(11.8)

Dividends from affiliates

1.7

9.1

Restructuring charges, net of cash paid

1.0

1.1

Provision for credit losses

6.9

4.9

Unrealized losses (gains), net on derivative contracts

1.7

(0.6)

Stock-based compensation expense

21.8

24.3

Depreciation and amortization

77.9

72.4

Deferred income taxes

(15.2)

(5.4)

Pension expense

6.0

11.3

Pension contributions

(22.5)

(1.5)

Other items, net

(1.1)

0.3

Changes in assets and liabilities:

Accounts and notes receivable

(112.4)

(68.8)

Inventories

(249.3)

(71.0)

Other current assets

(7.3)

(19.2)

Accounts payable

28.2

55.2

Accrued expenses

13.7

64.2

Income taxes payable and receivable, net

56.4

(26.5)

   Leases, net

1.7

0.2

Other, net

1.1

13.3

Net cash provided by operating activities

302.3

515.5

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

1.6

0.9

Purchases of property, plant and equipment

(101.1)

(106.8)

Purchases of short-term investments, net

(3.5)

(0.5)

Net cash used in investing activities

(103.0)

(106.4)

Cash flows from financing activities:

Asset securitization borrowings

407.0

627.0

Asset securitization payments

(307.0)

(377.0)

Long-term debt payments

(12.9)

(12.3)

Borrowings from credit facility

2,537.5

1,162.5

Payments on credit facility

(2,352.0)

(1,156.0)

Payments of deferred financing costs

—

2.4

Proceeds from employee stock purchases

3.6

3.3

Repurchases of common stock

(300.0)

(600.0)

Repurchases of common stock to satisfy employee withholding tax obligations

(8.3)

(22.1)

Cash dividends paid

(142.0)

(126.5)

Net cash used in financing activities

(174.1)

(498.7)

Increase (decrease) in cash and cash equivalents

25.2

(89.6)

Effect of exchange rates on cash and cash equivalents

(3.6)

(3.3)

Cash and cash equivalents, beginning of period

31.0

123.9

Cash and cash equivalents, end of period

$           52.6

$           31.0

Supplemental disclosures of cash flow information:

Interest paid

$           35.4

$           23.8

Income taxes paid (net of refunds)

$           77.2

$         128.5

Insurance recoveries received  

$              —

$             6.6

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.

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

For the Three Months Ended December 31,

(Unaudited)

2022

2021

Pre-Tax

Tax Impact (d)

After Tax

Pre-Tax

Tax Impact (d)

After Tax

Income from continuing operations, a GAAP measure

$     119.5

$              (25.1)

$      94.4

$      90.2

$               (6.7)

$      83.5

Restructuring charges

0.3

(0.1)

0.2

0.2

—

0.2

Pension settlements

(0.4)

0.1

(0.3)

0.1

(0.1)

—

Special product quality adjustments (a)

—

—

—

(1.4)

0.4

(1.0)

Items in (Gains) losses and other expenses, net
which are excluded from segment profit (loss) (b)

0.1

(0.1)

—

5.5

(2.2)

3.3

Excess tax (benefit) expense from share-based
compensation (c)

—

(0.9)

(0.9)

—

0.7

0.7

Other tax items, net (c)

—

0.2

0.2

—

—

—

Adjusted income from continuing operations, a
non-GAAP measure

$     119.5

$              (25.9)

$       93.6

$      94.6

$               (7.9)

$      86.7

Earnings per share - diluted, a GAAP measure

$      2.65

$      2.27

Restructuring charges

0.01

—

Pension settlements

(0.01)

—

Special product quality adjustments (a)

—

(0.03)

Items in (Gains) losses and other expenses, net
which are excluded from segment profit (loss)
(b)

—

0.09

Excess tax (benefit) expense from share-based
compensation (c)

(0.03)

0.02

Other tax items, net (c)

0.01

—

Adjusted earnings per share - diluted, a non-
GAAP measure

$      2.63

$      2.35

(a) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(b) Recorded in (Gains) losses and other expenses, net in the Consolidated Statements of Operations

(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

For the Years Ended December 31,

(Unaudited)

2022

2021

Pre-Tax

Tax Impact (d)

After Tax

Pre-Tax

Tax Impact (d)

After Tax

Income from continuing operations, a GAAP
measure

$     615.8

$            (118.7)

$     497.1

$     560.1

$              (96.1)

$     464.0

Restructuring charges

1.5

(0.3)

1.2

1.8

(0.4)

1.4

Pension settlements

(0.2)

0.1

(0.1)

1.2

(0.3)

0.9

Special product quality adjustments (a)

—

—

—

(2.5)

0.7

(1.8)

Items in (Gains) losses and other expenses, net
which are excluded from segment profit (loss)
(b)

8.1

(1.5)

6.6

14.3

(3.8)

10.5

Excess tax benefit from share-based
compensation (c)

—

(0.6)

(0.6)

—

(5.7)

(5.7)

Other tax items, net (c)

—

(0.5)

(0.5)

—

2.1

2.1

Adjusted income from continuing operations, a
non-GAAP measure

$     625.2

$            (121.5)

$     503.7

$     574.9

$            (103.5)

$     471.4

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

$     13.88

$     12.39

Restructuring charges

0.03

0.04

Pension settlements

—

0.02

Special product quality adjustments (a)

—

(0.05)

Items in (Gains) losses and other expenses, net
which are excluded from segment profit (loss)
(b)

0.19

0.29

Excess tax benefit from share-based
compensation (c)

(0.02)

(0.15)

Other tax items, net (c)

(0.01)

0.06

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

$     14.07

$     12.60

(a) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(b) Recorded in (Gains) losses and other expenses, net in the Consolidated Statements of Operations

(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

For the Three Months
Ended December 31,

For the Years Ended
December 31,

2022

2021

2022

2021

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

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

$            0.2

$           (0.3)

$            0.1

$           (1.2)

Foreign currency exchange gains ^(a)

(0.8)

(0.6)

(1.3)

(2.2)

Loss (gain) on disposal of fixed assets ^(a)

0.4

0.4

(1.0)

(0.2)

Other operating income ^(a)

(0.5)

(0.5)

(1.0)

(1.5)

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

(0.7)

—

0.4

—

Environmental liabilities and special litigation charges ^(b)

1.3

2.5

7.5

9.6

Charges incurred related to COVID-19 pandemic ^(b)

0.1

0.3

0.8

2.2

Other items, net ^(b)

(0.6)

2.7

(0.6)

2.5

(Gains) losses and other expenses, net (pre-tax)

$          (0.6)

$            4.5

$            4.9

$            9.2

(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 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 December 31,

For the Years Ended
December 31,

2022

2021

2022

2021

Average shares outstanding - diluted, a GAAP measure

35.6

36.8

35.8

37.5

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

—

—

—

(0.1)

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

35.6

36.8

35.8

37.4

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 December 31,

For the Years Ended
December 31,

2022

2021

2022

2021

Net cash provided by operating activities

$         132.2

$         119.2

$         302.3

$         515.5

Purchases of property, plant and equipment

(34.1)

(38.3)

(101.1)

(106.8)

Proceeds from the disposal of property, plant and equipment

0.4

0.2

1.6

0.9

Free cash flow, a Non-GAAP measure

$           98.5

$           81.1

$         202.8

$         409.6

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

Trailing Twelve
  Months to

 December 31,
2022

Adjusted EBIT (a)

$                 665.8

Depreciation and amortization expense (b)

75.7

EBITDA (a + b)

$                 741.5

Total debt at December 31, 2022 (c)

$              1,524.8

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

2.1

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

Trailing Twelve
 Months to

December 31,
2022

Income from continuing operations before income taxes, a GAAP measure

615.8

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

8.1

Restructuring charges

1.5

Interest expense, net

38.7

Pension settlements

(0.2)

Other expense (income), net

1.9

Adjusted EBIT per above, a Non-GAAP measure

665.8