Lennox International Reports First Quarter Results

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share data)

For the Three Months
Ended March 31,

2010

2009

NET SALES

$

644.1

$

580.6

COST OF GOODS SOLD

469.8

442.7

Gross profit

174.3

137.9

OPERATING EXPENSES:

Selling, general and administrative expenses

168.9

155.1

Gains and other expenses, net

(0.3)

(0.9)

Restructuring charges

7.2

11.2

Income from equity method investments

(2.0)

(1.3)

Operational income (loss) from continuing operations  

0.5

(26.2)

INTEREST EXPENSE, net

2.5

1.9

Loss from continuing operations before income taxes

(2.0)

(28.1)

BENEFIT FROM INCOME TAXES  

(0.7)

(10.4)

Loss from continuing operations

(1.3)

(17.7)

DISCONTINUED OPERATIONS:

   Operational loss from discontinued operations

0.4

0.6

   Income tax benefit

(0.1)

(0.2)

        Loss from discontinued operations

0.3

0.4

             Net loss

$

(1.6)

$

(18.1)

LOSS PER SHARE - BASIC AND DILUTED:

    Loss from continuing operations

$

(0.02)

$

(0.32)

    Loss from discontinued operations

(0.01)

(0.01)

             Net loss

$

(0.03)

$

(0.33)

AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED

56.0

55.2

CASH DIVIDENDS DECLARED PER SHARE

$

0.15

$

0.14

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

SEGMENT NET SALES AND PROFIT

(Unaudited, in millions)

For the Three Months
Ended March 31,

2010

2009

Net Sales

Residential Heating & Cooling

$

284.2

$

246.3

Commercial Heating & Cooling

119.7

131.5

Service Experts

127.1

104.4

Refrigeration

131.4

113.7

Eliminations (A)

(18.3)

(15.3)

$

644.1

$

580.6

Segment Profit (Loss) (B)

Residential Heating & Cooling

$

7.1

$

(4.8)

Commercial Heating & Cooling

3.4

2.0

Service Experts

(4.6)

(7.1)

Refrigeration

14.9

6.5

Corporate and other

(13.2)

(13.9)

Eliminations (A)

0.2

(0.4)

  Subtotal that includes segment profit (loss) and eliminations

7.8

(17.7)

Reconciliation to loss from continuing operations before income taxes:

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

0.1

(2.7)

Restructuring charges

7.2

11.2

Interest expense, net

2.5

1.9

Loss from continuing operations before income taxes

$

(2.0)

$

(28.1)

(A) Eliminations consist of intercompany sales between business segments, such as products sold to Service Experts by the Residential Heating & Cooling segment.

(B) 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 adjustment.
• Items within Gains and/or losses and other expenses, net that are noted in (C) .
• Restructuring charges.
• Goodwill and equity method investment impairments.
• Interest expense, net.
• Other expense, net.

(C) Items in Gains and/or losses and other expenses, net that are excluded from segment profit are net change in unrealized gains on open future contracts, discount fee on accounts sold, realized gain on marketable securities, and other items.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)

As of
March 31,
2010

As of
December 31,
2009

(unaudited)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

63.0

$

124.3

Restricted cash

25.1

-

Accounts and notes receivable, net of allowances of $15.7 and $15.6 in 2010 and 2009, respectively

349.5

357.0

Inventories, net

326.4

250.2

Deferred income taxes

34.3

34.9

Other assets

84.8

67.5

Total current assets

883.1

833.9

PROPERTY, PLANT AND EQUIPMENT, net

326.7

329.6

GOODWILL

260.9

257.4

DEFERRED INCOME TAXES

69.5

74.6

OTHER ASSETS, net

50.6

48.4

TOTAL ASSETS

$

1,590.8

$

1,543.9

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Short-term debt

$

4.2

$

2.2

Current maturities of long-term debt

0.5

35.5

Accounts payable

286.1

238.2

Accrued expenses

285.9

317.9

Total current liabilities

576.7

593.8

LONG-TERM DEBT

286.6

193.8

POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS

13.3

13.4

PENSIONS

68.4

66.7

OTHER LIABILITIES

75.3

71.8

Total liabilities

1,020.3

939.5

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, 85,978,262 shares and 85,567,485 shares issued for 2010 and 2009, respectively

0.9

0.9

Additional paid-in capital

846.6

839.1

Retained earnings

548.7

558.6

Accumulated other comprehensive income (loss)

7.1

(0.8)

Treasury stock, at cost, 30,216,824 shares and 29,292,512 shares for 2010 and 2009, respectively

(832.8)

(793.4)

Total stockholders' equity

570.5

604.4

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,590.8

$

1,543.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

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

(Unaudited, in millions, except per share and ratio data)

Reconciliation of Loss From Continuing Operations to Adjusted Income (Loss) From Continuing Operations

For The Three Months

Ended March 31,

2010

2009

Loss from continuing operations, a GAAP measure

$      (1.3)

$         (17.7)

  Restructuring charges, after tax

4.6

7.5

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

-

(1.8)

  Other items, after tax (a)

0.1

-

Adjusted income (loss) from continuing operations, a non-GAAP measure

$       3.4

$         (12.0)

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

$    (0.02)

$         (0.32)

  Restructuring charges

0.08

0.14

  Net change in unrealized gains on open future contracts (a)

-

(0.04)

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

$     0.06

$         (0.22)

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

For The Three Months

Ended March 31,

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

2010

2009

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

$ (0.4)

$  1.9

 Foreign currency exchange gain (a)

(0.1)

(0.2)

 Loss on disposal of fixed assets (a)

0.1

-

 Discount fee on accounts sold (b)

-

0.2

 Realized gain on marketable securities (b)

-

(0.1)

 Net change in unrealized gains on open futures contracts (c)

-

(2.7)

 Gain on sale of business (c)

(0.1)

-

 Other items, net (c)

0.2

-

    Gains and other expenses, net (pre-tax)

$ (0.3)

$ (0.9)

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

(b) Included in adjusted income (loss) from continuing operations but excluded from segment profit (loss)

(c) Excluded from segment profit (loss) and adjusted income (loss) from continuing operations

Reconciliation of Estimated Adjusted to GAAP Income per Share from Continuing Operations - Diluted  

For the  

Year Ended

December 31,

2010

ESTIMATED

Adjusted income per share from continuing operations - diluted

$1.90 - $2.30

Restructuring charges

(0.12)

Net change in unrealized losses on open futures contracts and other items, net

(0.01)

GAAP income per share from continuing operations - diluted

$1.77 - $2.17

Free Cash Flow

For the Three Months  

Ended March 31,

2010

2009

Net cash (used in) provided by operating activities

$                 (40.3)

$                    16.3

Purchase of property, plant and equipment

(10.7)

(9.9)

Free cash flow

$                 (51.0)

$                      6.4

Operational Working Capital

March 31,

March 31,

2010

2009

March 31,

Trailing  

March 31,

Trailing  

2010

12 Mo. Avg.

2009

12 Mo. Avg.

Accounts and notes receivable, net

$                349.5

$                330.0

Asset securitization

-

30.0

Allowance for doubtful accounts

15.7

18.6

Accounts and notes receivable, gross

365.2

$                404.6

378.6

$                  489.5

Inventories

326.4

320.3

Excess of current cost over Last-in,

   First-out

71.7

75.1

Inventories as adjusted

398.1

358.1

395.4

418.3

Accounts payable

(286.1)

(259.5)

(257.7)

(307.2)

Operating working capital (a)

$                477.2

$                503.2

$                516.3

$                  600.6

Net sales, trailing twelve months (b)

$             2,911.0

$             2,911.0

$             3,267.1

$               3,267.1

Operational working capital ratio (a / b)

16.4%

17.3%

15.8%

18.4%

Note:  Management uses free cash flow and operational working capital, which are not defined by U.S. GAAP, to measure the Company's operating performance.  Free cash flow and operational working capital are also two of several measures used to determine incentive compensation for certain employees.

Debt to Earnings Before Interest, Taxes, Depreciation and Amortization Expense ("EBITDA") Ratio

Trailing  

Twelve

Months to

March 31,

2010

Earnings before interest and taxes ("EBIT") (a)

$190.0

Depreciation and amortization expense ("DA") (b)

53.1

EBITDA (EBIT excluding DA) (a + b)

$243.1

Total debt at March 31, 2010 (c)

$291.3

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

1.2

Reconciliation of EBIT to income from continuing operations before income taxes:

EBIT per above (non-GAAP)

$190.0

Special product quality adjustment

18.3

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

(8.1)

Impairment of assets

6.4

Restructuring charges

37.5

Other expenses, net

0.1

Interest expense, net

8.8

Income from continuing operations before income taxes (GAAP)

$127.0