Lennox International Reports Record First Quarter Revenue and Earnings Per Share

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES 

Consolidated Statements of Operations 

(Unaudited) 

(Amounts in millions, except per share data)

For the Three Months Ended March 31,

2022

2021

Net sales

$                 1,013.4

$                    930.5

Cost of goods sold

745.2

674.0

     Gross profit

268.2

256.5

Operating Expenses:

     Selling, general and administrative expenses

155.3

145.3

     Losses (gains) and other expenses, net

0.4

0.3

     Restructuring charges

0.5

0.1

     Loss (income) from equity method investments

0.1

(3.3)

Operating income

111.9

114.1

Pension settlements

0.1

0.7

Interest expense, net

6.8

6.0

Other expense (income), net

0.6

1.0

     Net income before income taxes

104.4

106.4

Provision for income taxes

20.8

22.2

Net income

$                      83.6

$                      84.2

Earnings per share – Basic:

$                      2.30

$                      2.22

Earnings per share – Diluted:

$                      2.29

$                      2.20

Weighted Average Number of Shares Outstanding - Basic

36.3

38.0

Weighted Average Number of Shares Outstanding - Diluted

36.5

38.2

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Segment Net Sales and Profit (Loss)

(Amounts in millions)

For the Three Months Ended March 31,

(Unaudited)

2022

2021

Net Sales

Residential Heating & Cooling

$                  682.2

$                  606.3

Commercial Heating & Cooling

187.7

199.2

Refrigeration

143.5

125.0

$               1,013.4

$                  930.5

Segment Profit (Loss) ⁽¹⁾

Residential Heating & Cooling

$                  107.6

$                    96.4

Commercial Heating & Cooling

6.3

27.4

Refrigeration

14.1

7.9

Corporate and other

(13.4)

(16.0)

     Total segment profit

114.6

115.7

Reconciliation to Operating Income:

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

2.2

1.5

Restructuring charges

0.5

0.1

Operating income

$                  111.9

$                  114.1

⁽¹⁾  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,

        •   Charges incurred related to COVID-19 pandemic;

        •   Other items, net,

   •   Special product quality adjustments; and

   •   Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions, except shares and par values)

As of March 31,
2022

As of December 31,
2021

ASSETS

Current Assets:

     Cash and cash equivalents

$                      34.3

$                      31.0

     Short-term investments

5.7

5.5

     Accounts and notes receivable, net of allowances of $11.7 and $10.7 in 2022 and 2021,
     respectively

603.0

508.3

     Inventories, net

678.9

510.9

     Other assets

115.3

119.7

          Total current assets

1,437.2

1,175.4

Property, plant and equipment, net of accumulated depreciation of $902.2 and $888.8 in
2022 and 2021, respectively

518.3

515.1

Right-of-use assets from operating leases

212.1

196.1

Goodwill

186.4

186.6

Deferred income taxes

13.3

11.3

Other assets, net

89.6

87.4

Total assets

$                 2,456.9

$                 2,171.9

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

     Current maturities of long-term debt

$                      11.8

$                      11.3

     Current operating lease liabilities

58.8

54.8

     Accounts payable

457.3

402.1

     Accrued expenses

325.1

358.9

     Income taxes payable

6.4

—

          Total current liabilities

859.4

827.1

Long-term debt

1,599.5

1,226.5

Long-term operating lease liabilities

157.4

145.0

Pensions

84.3

83.3

Other liabilities

166.5

159.0

Total liabilities

2,867.1

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

1,110.4

1,133.7

     Retained earnings

2,769.8

2,719.3

     Accumulated other comprehensive loss

(80.5)

(88.1)

     Treasury stock, at cost, 51,127,988 shares and 50,536,125 shares for 2022 and 2021,
     respectively

(4,210.8)

(4,034.8)

Total stockholders' deficit

(410.2)

(269.0)

Total liabilities and stockholders' deficit

$                 2,456.9

$                 2,171.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES 

Consolidated Statements of Cash Flows 

(Unaudited) 

(Amounts in millions)

For the Three Months Ended March 31,

2022

2021

Cash flows from operating activities:

     Net income

$                     83.6

$                     84.2

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

          Loss (income) from equity method investments

0.1

(3.3)

          Restructuring charges, net of cash paid

0.5

0.3

          Provision for credit losses

1.4

2.0

          Unrealized losses (gains) on derivative contracts

0.1

(0.2)

          Stock-based compensation expense

4.7

8.5

          Depreciation and amortization

18.8

17.4

          Deferred income taxes

(5.3)

1.0

          Pension expense

1.4

3.0

          Pension contributions

(0.1)

(0.4)

          Other items, net

(0.9)

(0.1)

     Changes in assets and liabilities:

          Accounts and notes receivable

(96.9)

(77.5)

          Inventories

(168.8)

(62.5)

          Other current assets

1.1

(9.5)

          Accounts payable

67.5

41.2

          Accrued expenses

(33.0)

(41.8)

          Income taxes payable and receivable, net

20.8

14.0

          Leases, net

0.5

(0.7)

          Other, net

6.6

6.9

Net cash used in operating activities

(97.9)

(17.5)

Cash flows from investing activities:

     Proceeds from the disposal of property, plant and equipment

0.3

0.4

     Purchases of property, plant and equipment

(25.8)

(24.7)

     (Purchases of) proceeds from short-term investments, net

(0.2)

0.5

Net cash used in investing activities

(25.7)

(23.8)

Cash flows from financing activities:

     Asset securitization borrowings

90.0

155.0

     Asset securitization payments

(61.0)

—

     Long-term debt payments

(3.2)

(2.9)

     Borrowings from credit facility

722.5

202.0

     Payments on credit facility

(381.5)

(165.0)

     Proceeds from employee stock purchases

0.9

0.9

     Repurchases of common stock

(200.0)

(200.0)

     Repurchases of common stock to satisfy employee withholding tax obligations

(4.9)

(6.0)

     Cash dividends paid

(33.7)

(29.5)

Net cash provided by (used in) financing activities

129.1

(45.6)

Increase (decrease) in cash and cash equivalents

4.6

(86.8)

Effect of exchange rates on cash and cash equivalents

(2.2)

(1.6)

Cash and cash equivalents, beginning of period

31.0

123.9

Cash and cash equivalents, end of period

$                     34.3

$                     35.5

Supplemental disclosures of cash flow information:

     Interest paid

$                       5.8

$                       5.5

     Income taxes paid (net of refunds)

$                       5.2

$                       8.2

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 Net Income, a GAAP measure, to Adjusted Net Income, a Non-GAAP measure

For the Three Months Ended March 31,

(Unaudited)

2022

2021

Pre-Tax

Tax Impact (d)

After Tax

Pre-Tax

Tax Impact (d)

After Tax

Net income, a GAAP measure

$     104.4

$              (20.8)

$       83.6

$     106.4

$              (22.2)

$       84.2

     Restructuring charges

0.5

(0.1)

0.4

0.1

(0.1)

—

     Pension settlements

0.1

—

0.1

0.7

(0.1)

0.6

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

2.2

(0.7)

1.5

1.5

(0.2)

1.3

     Excess tax expense (benefits) from share-based
     compensation (b)

—

0.5

0.5

—

(1.2)

(1.2)

     Other tax items, net (b)

—

—

—

—

2.0

2.0

Adjusted net income, a non-GAAP measure

$     107.2

$              (21.1)

$       86.1

$     108.7

$              (21.8)

$       86.9

Earnings per share - diluted, a GAAP measure

$       2.29

$       2.20

     Restructuring charges

0.01

—

     Pension settlements

—

0.02

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

0.04

0.03

     Excess tax expense (benefits) from share-based
     compensation (b)

0.02

(0.03)

     Other tax items, net (b)

—

0.05

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

—

—

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

$       2.36

$       2.27

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

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

(c) 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 amount.

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

For the Three Months Ended March 31,

2022

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

Realized gains on settled futures contracts ^(a)

$                        (0.3)

$                        (0.3)

Foreign currency exchange gains ^(a)

(0.3)

(0.3)

Gain on disposal of fixed assets ^(a)

(0.9)

(0.3)

Other operating income ^(a)

(0.3)

(0.3)

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

(0.7)

(0.2)

Special legal contingency charges ^(b)

0.3

0.2

Asbestos-related litigation ^(b)

1.7

1.1

Environmental liabilities ^(b)

0.1

0.6

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

0.3

0.6

Other items, net ^(b)

0.5

(0.8)

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

$                         0.4

$                         0.3

(a) Included in both segment profit (loss) and Adjusted net income

(b) Excluded from both segment profit (loss) and Adjusted net income

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 March 31,

2022

2021

Average shares outstanding - diluted, a GAAP measure

36.5

38.2

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

(0.1)

—

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

36.4

38.2

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 March 31,

2022

2021

Net cash used in operating activities

$                    (97.9)

$                    (17.5)

     Purchases of property, plant and equipment

(25.8)

(24.7)

     Proceeds from the disposal of property, plant and equipment

0.3

0.4

Free cash flow, a Non-GAAP measure

$                  (123.4)

$                    (41.8)

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

Trailing Twelve 
Months to

 March 31, 2022

Adjusted EBIT (a)

$                  602.8

Depreciation and amortization expense (b)

71.4

EBITDA (a + b)

$                  674.2

Total debt at March 31, 2022 (c)

$               1,611.3

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

2.4

Reconciliation of Net Income Before Income Taxes, a GAAP measure to Adjusted EBIT, a Non-GAAP measure

Trailing Twelve 
Months to

March 31, 2022

Net income before income taxes, a GAAP measure

558.1

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

15.0

     Special product quality adjustments

(2.5)

     Restructuring charges

2.2

     Interest expense, net

25.8

     Pension settlements

0.6

     Other expense (income), net

3.6

Adjusted EBIT per above, a Non-GAAP measure

602.8