Lennox : Reports Record First-Quarter Profit

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months
Ended March 31,

2014

2013

Net sales

$

695.4

$

668.4

Cost of goods sold

527.3

506.4

Gross profit

168.1

162.0

Operating Expenses:

Selling, general and administrative expenses

135.6

135.6

Losses and other expenses, net

2.4

1.1

Restructuring charges

0.1

0.5

Income from equity method investments

(3.9)

(3.1)

Operational income from continuing operations

33.9

27.9

Interest expense, net

3.3

3.4

Other expense, net

-

0.1

Income from continuing operations before income taxes

30.6

24.4

Provision for income taxes

10.7

8.6

Income from continuing operations

19.9

15.8

Discontinued Operations:

Loss from discontinued operations before income taxes

-

(13.4)

Benefit from income taxes

-

(5.6)

Loss from discontinued operations

-

(7.8)

Net income

$

19.9

$

8.0

Earnings per share - Basic:

Income from continuing operations

$

0.41

$

0.32

Loss from discontinued operations

-

(0.16)

Net income

$

0.41

$

0.16

Earnings per share - Diluted:

Income from continuing operations

$

0.40

$

0.31

Loss from discontinued operations

-

(0.15)

Net income

$

0.40

$

0.16

Weighted Average Number of Shares Outstanding - Basic

49.0

50.3

Weighted Average Number of Shares Outstanding - Diluted

49.9

51.0

Cash dividends declared per share

$

0.24

$

0.20

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Unaudited)

(Amounts in millions)

For the Three Months
Ended March 31,

2014

2013

Net Sales

Residential Heating & Cooling

$

342.1

$

314.5

Commercial Heating & Cooling

173.0

163.0

Refrigeration

180.3

190.9

$

695.4

$

668.4

Segment Profit (Loss)  (1)

Residential Heating & Cooling

$

24.4

$

20.5

Commercial Heating & Cooling

10.2

11.1

Refrigeration

12.1

16.7

Corporate and other

(11.4)

(18.9)

Subtotal that includes segment profit and eliminations

35.3

29.4

Reconciliation to Income from continuing operations before income taxes:

Special product quality adjustments

-

(0.2)

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

1.3

1.3

Restructuring charges

0.1

0.5

Interest expense, net

3.3

3.4

Income from continuing operations before income taxes

$

30.6

$

24.4

(1)

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;

•      The following items in Losses and other expenses, net:

◦      Net change in unrealized gains and/or losses on unsettled futures contracts,

◦      Special legal contingency charges,

◦      Asbestos-related litigation, and

◦      Other items, net;

•      Restructuring charges;

•      Goodwill, long-lived asset, and equity method investment impairments;

•      Interest expense, net; and

•      Other expense, net.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of March
31, 2014

As of December
31, 2013

(unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

39.0

$

38.0

Accounts and notes receivable, net of allowances of $9.5 and $9.8 in 2014 and 2013, respectively

442.2

408.1

Inventories, net

490.3

378.8

Deferred income taxes, net

26.2

24.5

Other assets

59.8

53.0

Total current assets

1,057.5

902.4

Property, plant and equipment, net of accumulated depreciation of $631.8 and $617.3 in 2014 and 2013, respectively

340.6

335.5

Goodwill

218.9

216.8

Deferred income taxes

82.8

88.5

Other assets, net

87.9

83.5

Total assets

$

1,787.7

$

1,626.7

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term debt

$

168.8

$

165.9

Current maturities of long-term debt

1.4

1.3

Accounts payable

343.1

283.1

Accrued expenses

205.2

232.1

Income taxes payable

1.5

31.6

Total current liabilities

720.0

714.0

Long-term debt

394.0

233.2

Post-retirement benefits, other than pensions

4.3

4.6

Pensions

60.3

70.0

Other liabilities

117.5

119.2

Total liabilities

1,296.1

1,141.0

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

935.3

912.7

Retained earnings

878.6

870.5

Accumulated other comprehensive loss

(61.1)

(61.1)

Treasury stock, at cost, 38,030,197 shares and 38,066,794 shares in 2014 and 2013, respectively

(1,262.9)

(1,238.1)

Noncontrolling interests

0.8

0.8

Total stockholders' equity

491.6

485.7

Total liabilities and stockholders' equity

$

1,787.7

$

1,626.7

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Three Months Ended
March 31,

2014

2013

Cash flows from operating activities:

Net income

$

19.9

$

8.0

Net loss from discontinued operations

-

7.8

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

Income from equity method investments

(3.9)

(3.1)

Restructuring expenses, net of cash paid

(0.1)

(1.4)

Provision for bad debts

(0.1)

1.2

Unrealized losses on derivative contracts

0.6

0.5

Stock-based compensation expense

3.8

7.7

Depreciation and amortization

15.0

14.1

Deferred income taxes

0.5

(1.6)

Other items, net

12.8

9.0

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

Accounts and notes receivable

(33.8)

(35.8)

Inventories

(122.9)

(100.9)

Other current assets

(1.7)

(3.5)

Accounts payable

59.5

18.8

Accrued expenses

(33.1)

(43.0)

Income taxes payable and receivable

(29.3)

(9.6)

Other

(12.2)

6.5

Net cash used in discontinued operations

-

(12.0)

Net cash used in operating activities

(125.0)

(137.3)

Cash flows from investing activities:

Purchases of property, plant and equipment

(17.3)

(12.1)

Net proceeds from sale of business

-

5.3

Net cash used in discontinued operations

-

(0.1)

Net cash used in investing activities

(17.3)

(6.9)

Cash flows from financing activities:

Short-term borrowings, net

2.5

1.2

Asset securitization borrowings

-

130.0

Asset securitization payments

-

(140.0)

Long-term debt payments

(0.4)

(0.2)

Borrowings from revolving credit facility

479.0

435.5

Payments on revolving credit facility

(319.0)

(296.5)

Proceeds from employee stock purchases

0.5

0.5

Repurchases of common stock to satisfy employee withholding tax obligations

(10.7)

(4.2)

Excess tax benefits related to share-based payments

4.2

2.3

Cash dividends paid

(11.8)

-

Net cash provided by financing activities

144.3

128.6

Increase (decrease) in cash and cash equivalents

2.0

(15.6)

Effect of exchange rates on cash and cash equivalents

(1.0)

(1.3)

Cash and cash equivalents, beginning of period

38.0

51.8

Cash and cash equivalents, end of period

$

39.0

$

34.9

Supplemental disclosures of cash flow information:

Interest paid

$

1.2

$

1.2

Income taxes paid (net of refunds)

$

35.4

$

11.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) Measures

(Unaudited)

(Amounts 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 March 31,

2014

2013

Income from continuing operations, a GAAP measure

$

19.9

$

15.8

Restructuring charges, after tax

0.1

0.3

Special product quality adjustments, after tax (b)

-

(0.1)

Special legal contingency charges, after tax (a)

0.2

0.2

Asbestos-related litigation, after tax (a)

0.1

-

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

0.4

0.7

Other items, net, after tax (a)

0.1

0.1

Adjusted income from continuing operations, a non-GAAP measure

$

20.8

$

17.0

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

$

0.40

$

0.31

Restructuring charges, after tax

-

0.01

Special legal contingency charges, after tax (a)

0.01

-

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

0.01

0.01

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

$

0.42

$

0.33

(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

For the Three Months Ended March 31,

2014

2013

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

Realized losses on settled future contracts (a)

$

0.2

$

-

Foreign currency exchange losses (gains) (a)

0.8

(0.2)

Losses on disposal of fixed assets (a)

0.1

-

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

0.6

1.0

Special legal contingency charges (b)

0.4

0.2

Asbestos-related litigation (b)

0.2

-

Other items, net (b)

0.1

0.1

Losses and other expenses, net (pre-tax)

$

2.4

$

1.1

(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, 2014
ESTIMATED

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

$4.20 - $4.60

Net change in unrealized losses on unsettled future contracts and other items

(0.02)

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

$4.18 - $4.58

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

For the Three Months Ended March 31,

2014

2013

Net cash used in operating activities, a GAAP measure

$

(125.0)

$

(137.3)

Purchases of property, plant and equipment

(17.3)

(12.1)

Proceeds from the disposal of property, plant and equipment

-

-

Free cash flow, a Non-GAAP measure

$

(142.3)

$

(149.4)

Calculation of Debt to EBITDA Ratio:

Trailing
Twelve Months
to  March 31,
2014

EBIT (a)

$

306.4

Depreciation and amortization expense (b)

$

59.8

EBITDA (a + b)

$

366.2

Total debt at March 31, 2014 (c)

$

564.2

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

1.5

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

Trailing
Twelve Months
to  March 31,
2014

EBIT per above, a Non-GAAP measure

$

306.4

Special product quality adjustments

(2.1)

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

8.8

Restructuring charges

4.6

Interest expense, net

14.4

Other expenses, net

0.2

Income from continuing operations before income taxes, a GAAP measure

$

280.5