Lennox International Reports Record Revenue and Profit in Second Quarter

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Amounts in millions, except per share data)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Net sales

$          1,366.3

$          1,239.0

$        2,379.7

$        2,169.4

Cost of goods sold

969.2

855.8

1,714.4

1,529.7

Gross profit

397.1

383.2

665.3

639.7

Operating Expenses:

Selling, general and administrative expenses

169.6

167.8

324.9

313.2

Losses (gains) and other expenses, net

1.6

2.3

2.0

2.6

Restructuring charges

0.5

1.2

1.0

1.3

Income from equity method investments

(1.5)

(4.1)

(1.4)

(7.4)

Operating income

226.9

216.0

338.8

330.0

Pension settlements

0.2

?

0.3

0.7

Interest expense, net

8.7

6.4

15.6

12.3

Other expense (income), net

0.7

0.9

1.2

1.9

Net income before income taxes

217.3

208.7

321.7

315.1

Provision for income taxes

40.1

38.7

60.9

60.9

Net income

$             177.2

$             170.0

$            260.8

$            254.2

Earnings per share ? Basic:

$                4.97

$                4.55

$              7.25

$              6.74

Earnings per share ? Diluted:

$                4.96

$                4.51

$              7.23

$              6.70

Weighted Average Number of Shares Outstanding -  
Basic

35.6

37.4

36.0

37.7

Weighted Average Number of Shares Outstanding -
Diluted

35.7

37.7

36.1

38.0

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Segment Net Sales and Profit (Loss)
(Unaudited)

(Amounts in millions)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Net Sales

Residential Heating & Cooling

$       977.5

$       838.0

$    1,659.6

$    1,444.2

Commercial Heating & Cooling

219.6

252.8

407.3

452.0

Refrigeration

169.2

148.2

312.8

273.2

$    1,366.3

$    1,239.0

$    2,379.7

$    2,169.4

Segment Profit (Loss) ⁽¹⁾

Residential Heating & Cooling

$       216.3

$       189.7

$       324.0

$       286.1

Commercial Heating & Cooling

17.2

45.3

23.5

72.6

Refrigeration

23.4

13.5

37.5

21.4

Corporate and other

(27.1)

(26.9)

(40.6)

(42.9)

Total segment profit

229.8

221.6

344.4

337.2

Reconciliation to Operating Income:

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

2.4

4.4

4.6

5.9

Restructuring charges

0.5

1.2

1.0

1.3

Operating income

$       226.9

$       216.0

$       338.8

$       330.0

⁽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,
• Environmental liabilities and special litigation charges,
• 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 June 30, 2022

As of December 31, 2021

ASSETS

(Unaudited)

Current Assets:

Cash and cash equivalents

$                              57.4

$                                  31.0

Short-term investments

5.3

5.5

Accounts and notes receivable, net of allowances of $12.2 and $10.7 in
2022 and 2021, respectively

782.6

508.3

Inventories, net

692.8

510.9

Other assets

91.0

119.7

Total current assets

1,629.1

1,175.4

Property, plant and equipment, net of accumulated depreciation of $906.6 and
$888.8 in 2022 and 2021, respectively

519.5

515.1

Right-of-use assets from operating leases

204.7

196.1

Goodwill

186.2

186.6

Deferred income taxes

29.0

11.3

Other assets, net

90.5

87.4

Total assets

$                        2,659.0

$                             2,171.9

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt

$                              11.8

$                                  11.3

Current operating lease liabilities

59.5

54.8

Accounts payable

485.6

402.1

Accrued expenses

384.8

358.9

Income taxes payable

26.0

?

Total current liabilities

967.7

827.1

Long-term debt

1,681.5

1,226.5

Long-term operating lease liabilities

149.7

145.0

Pensions

85.6

83.3

Other liabilities

175.8

159.0

Total liabilities

3,060.3

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

1,144.0

1,133.7

Retained earnings

2,909.5

2,719.3

Accumulated other comprehensive loss

(117.9)

(88.1)

Treasury stock, at cost, 51,743,384 shares and 50,536,125 shares for 2022
and 2021, respectively

(4,337.8)

(4,034.8)

Total stockholders' deficit

(401.3)

(269.0)

Total liabilities and stockholders' deficit

$                        2,659.0

$                             2,171.9

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in millions)

For the Six Months Ended June 30,

2022

2021

Cash flows from operating activities:

Net income

$                    260.8

$                    254.2

Adjustments to reconcile net income to net cash (used in) provided by operating activities

Income from equity method investments

(1.4)

(7.4)

Dividends from affiliates

?

3.7

Restructuring charges, net of cash paid

0.5

1.4

Provision for credit losses

2.7

3.5

Unrealized losses, net on derivative contracts

2.0

0.3

Stock-based compensation expense

10.6

17.5

Depreciation and amortization

37.8

35.6

Deferred income taxes

(11.6)

(3.6)

Pension expense

3.5

5.4

Pension contributions

(0.5)

(0.8)

Other items, net

(0.9)

(0.3)

Changes in assets and liabilities:

Accounts and notes receivable

(281.6)

(248.2)

Inventories

(187.3)

7.0

Other current assets

1.2

(9.7)

Accounts payable

93.7

67.4

Accrued expenses

14.8

33.7

Income taxes payable and receivable, net

39.4

1.6

   Leases, net

0.9

(0.6)

Other, net

14.6

13.8

Net cash (used in) provided by operating activities

(0.8)

174.5

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment

0.5

0.6

Purchases of property, plant and equipment

(46.7)

(45.5)

Proceeds from short-term investments, net

?

2.3

Net cash used in investing activities

(46.2)

(42.6)

Cash flows from financing activities:

Asset securitization borrowings

211.0

299.0

Asset securitization payments

(61.0)

(44.0)

Long-term debt payments

(6.4)

(3.1)

Borrowings from credit facility

1,331.0

753.0

Payments on credit facility

(1,029.0)

(748.5)

Proceeds from employee stock purchases

1.8

1.6

Repurchases of common stock

(300.0)

(400.0)

Repurchases of common stock to satisfy employee withholding tax obligations

(5.1)

(10.2)

Cash dividends paid

(66.9)

(58.6)

Net cash provided by (used in) financing activities

75.4

(210.8)

Increase (decrease) in cash and cash equivalents

28.4

(78.9)

Effect of exchange rates on cash and cash equivalents

(2.0)

(0.5)

Cash and cash equivalents, beginning of period

31.0

123.9

Cash and cash equivalents, end of period

$                      57.4

$                      44.5

Supplemental disclosures of cash flow information:

Interest paid

$                      14.2

$                      11.8

Income taxes paid (net of refunds)

$                      32.9

$                      62.6

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

For the Three Months Ended June 30,

(Unaudited)

2022

2021

Pre-Tax

Tax Impact (d)

After Tax

Pre-Tax

Tax Impact (d)

After Tax

Net income, a GAAP measure

$     217.3

$               (40.1)

$     177.2

$     208.7

$               (38.7)

$     170.0

Restructuring charges

0.5

(0.1)

0.4

1.2

(0.2)

1.0

Pension settlements

0.2

(0.1)

0.1

?

?

?

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

2.4

(0.4)

2.0

4.4

(1.0)

3.4

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

?

0.1

0.1

?

(2.5)

(2.5)

Other tax items, net (b)

?

(1.4)

(1.4)

?

0.1

0.1

Adjusted net income, a non-GAAP measure

$      220.4

$                (42.0)

$      178.4

$     214.3

$               (42.3)

$     172.0

Earnings per share - diluted, a GAAP measure

$       4.96

$       4.51

Restructuring charges

0.01

0.03

Pension settlements

?

?

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

0.06

0.09

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

?

(0.07)

Other tax items, net (b)

(0.03)

?

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

?

0.01

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

$       5.00

$       4.57

(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 expense (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 Six Months Ended June 30,

(Unaudited)

2022

2021

Pre-Tax

   Tax Impact (d)

After Tax

Pre-Tax

   Tax Impact (d)

After Tax

Net income, a GAAP measure

$     321.7

$               (60.9)

$     260.8

$     315.1

$               (60.9)

$     254.2

Restructuring charges

1.0

(0.2)

0.8

1.3

(0.3)

1.0

Pension settlements

0.3

(0.1)

0.2

0.7

(0.1)

0.6

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

4.6

(0.9)

3.7

5.9

(1.1)

4.8

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

?

0.5

0.5

(3.8)

(3.8)

Other tax items, net (b)

?

(1.4)

(1.4)

?

2.1

2.1

Adjusted net income, a non-GAAP measure

$     327.6

$               (63.0)

$     264.6

$     323.0

$               (64.1)

$     258.9

Earnings per share from net income - diluted, a
GAAP measure

$       7.23

$       6.70

Restructuring charges

0.02

0.03

Pension settlements

0.01

0.02

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

0.10

0.13

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

0.01

(0.10)

Other tax items, net (b)

(0.04)

0.05

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

?

?

Adjusted earnings per share from net income -
diluted, a non-GAAP measure

$       7.33

$       6.83

(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 expense (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 June 30,

For the Six Months 
Ended June 30,

2022

2021

2022

2021

(Unaudited)

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

Realized gains on settled future contracts ^(a)

$            (0.1)

$            (0.4)

$            (0.4)

$            (0.6)

Foreign currency exchange gains ^(a)

(0.5)

(1.3)

(0.8)

(1.6)

Gain on disposal of fixed assets ^(a)

?

(0.2)

(0.9)

(0.5)

Other operating income ^(a)

(0.2)

(0.2)

(0.5)

(0.6)

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

1.9

0.1

1.2

(0.2)

Environmental liabilities and special litigation charges ^(b)

1.0

3.2

3.1

5.2

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

0.2

0.5

0.5

1.1

Other items, net ^(b)

(0.7)

0.6

(0.2)

(0.2)

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

$             1.6

$             2.3

$             2.0

$             2.6

(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 June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Average shares outstanding - diluted, a GAAP measure

35.7

37.7

36.1

38.0

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

?

(0.1)

?

(0.1)

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

35.7

37.6

36.1

37.9

Reconciliation of Net Cash Provided By (Used In) Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP
measure (dollars in millions)

For the Three Months
Ended June 30,

For the Six Months
Ended June 30,

2022

2021

2022

2021

Net cash provided by (used in) operating activities

$            97.1

$          192.0

$            (0.8)

$          174.5

Purchases of property, plant and equipment

(20.9)

(20.8)

(46.7)

(45.5)

Proceeds from the disposal of property, plant and equipment

0.2

0.2

0.5

0.6

Free cash flow, a Non-GAAP measure

$            76.4

$          171.4

$          (47.0)

$          129.6

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

Trailing Twelve 
Months to

 June 30, 2022

Adjusted EBIT (a)

$                   610.8

Depreciation and amortization expense (b)

72.3

EBITDA (a + b)

$                   683.1

Total debt at June 30, 2022 (c)

$                1,693.3

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

2.5

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

Trailing Twelve 
Months to

June 30, 2022

Net income before income taxes, a GAAP measure

566.6

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

12.9

Special product quality adjustments

(2.5)

Restructuring charges

1.5

Interest expense, net

28.3

Pension settlements

0.7

Other expense (income), net

3.3

Adjusted EBIT per above, a Non-GAAP measure

610.8