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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1999MARCH 31, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to -------- --------________
Commission file number 001-15149
LENNOX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 42-0991521
- --------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2140 LAKE PARK BLVD.
RICHARDSON, TEXAS
75080
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(Address of principal executive offices)
(Zip Code)
(972) 497-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of November 1, 1999,May 9, 2000, the number of shares outstanding of the registrant's common
stock, par value $.01 per share, was 45,041,133.57,433,490.
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LENNOX INTERNATIONAL INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999March 31, 2000 (Unaudited)
and December 31, 19981999 3
Consolidated Statements of Income (Unaudited) - Three Months
Ended March 31, 2000 and Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited) - NineThree Months
Ended September 30,March 31, 2000 and 1999 and 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 1714
Part II. Other Information
Item 5. Other Information 184. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 1815
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1999March 31, 2000 and December 31, 19981999
(In thousands, except share data)
ASSETS
ASSETS
September 30,March 31, December 31,
2000 1999
1998
------------ ----------------------- -----------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 41,12231,965 $ 28,38929,174
Accounts and notes receivable, net 484,420 318,858537,074 443,107
Inventories 327,067 274,679409,464 345,424
Deferred income taxes 38,406 37,42628,874 25,367
Other assets 40,081 36,18352,708 44,526
----------- -----------
Total current assets 931,096 695,5351,060,085 887,598
INVESTMENTS IN JOINT VENTURES 12,479 17,26112,029 12,434
PROPERTY, PLANT AND EQUIPMENT, net 302,285 255,125371,267 329,966
GOODWILL, net 323,103 155,290638,561 394,252
OTHER ASSETS 40,471 29,74156,161 59,423
----------- -----------
TOTAL ASSETS $ 1,609,4342,138,103 $ 1,152,9521,683,673
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 157,27029,655 $ 56,07022,219
Current maturities of long-term debt 25,424 18,77830,141 34,554
Accounts payable 200,088 149,824263,573 196,143
Accrued expenses 206,882 207,040243,037 200,221
Income taxes payable 9,271 5346,258 9,859
----------- -----------
Total current liabilities 598,935 432,246572,664 462,996
LONG-TERM DEBT 309,467 242,593726,733 520,276
DEFERRED INCOME TAXES 12,726 11,628518 928
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 15,735 16,51114,980 15,125
OTHER LIABILITIES 70,336 60,84571,816 72,377
----------- -----------
Total liabilities 1,007,199 763,8231,386,711 1,071,702
MINORITY INTEREST 15,213 12,68912,907 14,075
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,
44,958,24059,456,566 shares and 35,546,94046,161,607 shares issued
for 2000 and outstanding
for 1999, and 1998, respectively 450 355595 462
Additional paid-in capital 199,302 32,889366,743 215,523
Retained earnings 398,412 350,851
Currency translation adjustments (11,142) (7,655)410,138 409,851
Accumulated other comprehensive loss (21,665) (12,706)
Deferred compensation (4,843) (2,848)
Treasury stock, at cost, 1,182,975 and 1,172,200 shares
for 2000 and 1999, respectively (12,483) (12,386)
----------- -----------
Total stockholders' equity 587,022 376,440738,485 597,896
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,609,4342,138,103 $ 1,152,9521,683,673
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2000 and Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands, except per share data)
For the
For the
Three Months Ended
Nine Months Ended
September 30, September 30,
------------------------- --------------------------March 31,
------------------------
2000 1999
1998 1999 1998
----------- ----------- ----------- -------------------- ---------
NET SALES $ 669,053716,324 $ 529,169 $ 1,749,953 $ 1,364,799489,059
COST OF GOODS SOLD 456,611 359,663 1,199,611 930,464
----------- ----------- ----------- -----------487,561 337,481
--------- ---------
Gross Profit 212,442 169,506 550,342 434,335228,763 151,578
OPERATING EXPENSES:
Selling, general and administrative 154,735 125,676 422,529 331,294
Other operating expenses, net 3,078 (1,044) 6,486 6,247
----------- ----------- ----------- -----------205,280 131,786
--------- ---------
Income from operations 54,629 44,874 121,327 96,79423,483 19,792
INTEREST EXPENSE, net 9,093 4,437 24,193 10,90312,750 6,558
OTHER 378 754 (403) 1,286229 (211)
MINORITY INTEREST 832 205 212 (583)
----------- ----------- ----------- -----------(546) (516)
--------- ---------
Income before income taxes 44,326 39,478 97,325 85,18811,050 13,961
PROVISION FOR INCOME TAXES 17,042 14,884 39,840 35,220
----------- ----------- ----------- -----------5,310 7,331
--------- ---------
Net income $ 27,2845,740 $ 24,594 $ 57,485 $ 49,968
=========== =========== =========== ===========6,630
========= =========
EARNINGS PER SHARE:
Basic $ 0.650.10 $ 0.70 $ 1.52 $ 1.440.19
Diluted $ 0.640.10 $ 0.68 $ 1.48 $ 1.400.18
The accompanying notes are an integral part
of these consolidated financial statements.
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LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the NineThree Months Ended September 30,March 31, 2000 and 1999 and 1998
(Unaudited, in thousands)
For the
NineThree Months Ended
September 30,March 31,
------------------------
2000 1999
1998
------ -------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 57,4855,740 $ 49,9686,630
Adjustments to reconcile net income to net cash provided by (used in) operating
activities -
Minority interest 212 (583)(546) (516)
Joint venture losses 2,409 2,514329 1,088
Depreciation and amortization 41,825 28,12620,892 13,502
Loss on disposal of equipment 701 511,788 18
Other (994) (385)315 1,969
Changes in assets and liabilities, net of effects of acquisitions and divestitures -
Accounts and notes receivable (94,086) (75,569)(26,828) (45,900)
Inventories (11,873) (54,723)(38,846) (38,763)
Other current assets (3,682) (2,618)(5,038) (2,660)
Accounts payable 18,718 54,60542,931 22,004
Accrued expenses (9,946) (12,215)3,577 (16,540)
Deferred income taxes 2,184 (3,375)(2,150) 1,145
Income taxes payable and receivable 17,014 17,0872,587 7,048
Long-term warranty, deferred income and other liabilities (2,559) (21,102)3,972 (6,269)
--------- ---------
Net cash provided by (used in) operating activities 17,408 (18,219)8,723 (57,244)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property, plant and equipment 746 28486 35
Purchases of property, plant and equipment (53,203) (30,505)
Sale of operating unit 5,490 --
Investments in joint ventures (567) --(17,470) (20,050)
Acquisitions, net of cash acquired (226,127) (130,630)(183,423) (51,145)
--------- ---------
Net cash used in investing activities (273,661) (160,851)(200,807) (71,160)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 96,554 (956)
RepaymentsProceeds from revolving short-term debt 7,939 134,536
Proceeds from (usage of) revolving long-term debt 206,673 (701)
Repayment of long-term debt (2,619) (1,223)
Long-term borrowings 43,917 75,000(13,640) --
Sales of common stock 141,799 8,611-- 249
Repurchases of common stock (152) (5,306)(97) (131)
Cash dividends paid (9,924) (7,781)(5,453) (3,038)
--------- ---------
Net cash provided by financing activities 269,575 68,345195,422 130,915
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,322 (110,725)3,338 2,511
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (589) (1,377)(547) (638)
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 29,174 28,389 147,802
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 41,12231,965 $ 35,70030,262
========= =========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,8308,816 $ 10,2272,487
========= =========
Income taxes $ 21,6372,403 $ 21,50838
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
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LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATIONINFORMATION:
The accompanying unaudited consolidated balance sheet as of September 30,
1999,March 31, 2000,
and the consolidated statements of income and cash flows for the three months
ended March 31, 2000 and nine
months ended September 30, 1999 and 1998, and the statements of cash flows for
the nine months ended September 30, 1999 and 1998 should be read in conjunction with Lennox
International Inc.'s (the "Company") consolidated financial statements and the
accompanying footnotes as of December 31, 19981999 and 19971998 and for each of the
three years in the period ended December 31, 1998.1999. In the opinion of management,
the accompanying consolidated financial statements contain all material
adjustments, consisting principally of normal recurring adjustments, necessary
for a fair presentation of the Company's financial position, results of
operations, and cash flows. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
applicable rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. The operating results for the interim periods are not necessarily
indicative of the results to be expected for a full year.
The Company's fiscal year ends on December 31 of each year, and the
Company's quarters are each comprised of 13 weeks. For convenience, throughout
these financial statements, the 13 weeks comprising each three month period are
denoted by the last day of the respective calendar quarter.
2. PRODUCT INSPECTION CHARGE
During 1997, the Company recorded a pre-tax charge of $140 million to
provide for projected expenses of the product inspection program related to its
Pulse furnace. The Company offered the owners of all Pulse furnaces installed
between 1982 and 1990 a subsidized inspection and a free carbon monoxide
detector. The inspection included a severe pressure test to determine the
serviceability of the heat exchanger. If the heat exchanger did not pass the
test, the Company either replaced the heat exchanger or offered a new furnace
and subsidized the labor costs for installation. The cost required for the
program was a function of the number of furnaces located, the percentage of
those located that did not pass the pressure test, and the replacement option
chosen by the homeowner.
The program ended June 1999 and future expenses associated with the program
are not expected to be significant.
3. REPORTABLE BUSINESS SEGMENTS
As of December 31, 1998, the Company adoptedSEGMENTS:
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
131, which requires disclosure ofthe Company discloses business segment data in accordance withfor its reportable business
segments, which have been determined using the "management approach." The
management approach is based on the way segments are organized within the
Company for making operating decisions and assessing performance. TheOperations for
the North American retail segment include primarily the retail sale and service
of heating and air conditioning products that have historically been included in
the North American residential segment. As a result of the growth in operations
of this segment, retail segment results have now been stated separately on a
comparative basis. Therefore, the Company's business operations are organized
within the following fourfive reportable business segments
as follows (in thousands):
FOR THE
FOR THE
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,MARCH 31,
------------------------ --------------------------
NET SALES 2000 1999
1998 1999 1998- --------- --------- ----------- --------------------
North American residential $ 386,108291,780 $ 300,667 $ 1,009,411 $ 764,124271,474
North American retail 194,528 16,680
Commercial air conditioning 127,922 112,364 337,985 286,20995,084 92,468
Commercial refrigeration 94,176 67,049 238,351 176,05891,672 61,598
Heat transfer (1) 60,847 49,089 164,206 138,40865,447 50,069
Eliminations (22,187) (3,230)
--------- ---------
----------- ----------
$ 669,053716,324 $ 529,169 $ 1,749,953 $1,364,799489,059
========= ========= =========== ==========
(1) In addition to the sales described above, theThe Heat Transfer segment had affiliate intersegment sales of $5,722$5,113 and $6,714$6,587 for
the three months ended September 30,March 31, 2000 and 1999, and 1998, respectively, and $17,696 and $21,133 for the nine
months ended September 30, 1999 and 1998, respectively.
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FOR THE
FOR THE
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------MARCH 31,
----------------------
INCOME (LOSS) FROM OPERATIONS 2000 1999
1998 1999 1998
--------- ---------- ----------- ------------ ----------------------------- -------- --------
North American residential $ 44,79020,765 $ 41,188 $ 109,441 $100,68323,956
North American retail 5,426 901
Commercial air conditioning 5,138 1,787 6,285 (3,303)(3,053) (1,934)
Commercial refrigeration 9,925 9,164 19,095 17,0927,050 2,306
Heat transfer 2,851 4,377 10,308 11,2744,934 3,239
Corporate and other (8,075) (11,642) (23,802) (28,952)(9,905) (8,408)
Eliminations (1,734) (268)
-------- --------
----------- --------
$ 54,62923,483 $ 44,874 $ 121,327 $ 96,79419,792
======== ======== =========== ========
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AS OF SEPTEMBER 30,MARCH 31, AS OF DECEMBER 31,
IDENTIFIABLETOTAL ASSETS 2000 1999
1998
-------------------- ------------ --------------- ------------------
North American residential $ 789,016633,485 $ 528,660596,895
North American retail 707,870 290,978
Commercial air conditioning 274,376 198,982257,231 251,226
Commercial refrigeration 247,960 194,601257,264 252,176
Heat transfer 162,530 88,633183,938 179,615
Corporate and other 135,552 142,076
------------ ------------123,795 127,320
Eliminations (25,480) (14,537)
----------- -----------
$ 1,609,4342,138,103 $ 1,152,952
============ ============1,683,673
=========== ===========
4.3. INVENTORIES:
Components of inventories are as follows (in thousands):
AS OF SEPTEMBER 30,MARCH 31, AS OF DECEMBER 31,
2000 1999
1998
---------------------------------- ------------------
Finished goods $ 206,231 $ 177,490$264,174 $219,303
Repair parts 35,176 31,67447,561 36,153
Work in process 34,127 15,57422,968 20,957
Raw materials 99,975 102,876
------------ -----------
375,509 327,614122,822 117,209
-------- --------
457,525 393,622
Reduction for last-in, first-out 48,442 52,935
------------ -----------
$ 327,067 $ 274,679
============ ===========48,061 48,198
-------- --------
$409,464 $345,424
======== ========
5.4. LINES OF CREDIT AND SHORT-TERM DEBT:CREDIT:
The Company has bank lines of credit and short-term facilities that provide
for aggregate borrowings of $337aggregating $688 million, of which
$157$535 million was outstanding at September 30, 1999 with a weighted average interest rateMarch 31, 2000 and the remaining $153 million
was available for future borrowings. As of 6.1%. The
unsecured noteMarch 31, 2000, $509 million of the
amount outstanding has been classified as long-term debt in the accompanying
Consolidated Balance Sheets. Included in the lines are two $300 million domestic
facilities governed by revolving credit facility agreements and lines of credit provide for restrictions with
respect to additional borrowings and maintenance of capital.
On July 29, 1999between the Company
entered into a new Revolving Credit Facility
Agreement with a syndicateand syndicates of banks providing a revolving credit line of up to
$300 million.banks. The facility containsfacilities contain certain financial covenants and
bearsbear interest, at the Company's option, at a rate equal to either (a) the
greater of the bank's prime rate or the federal fundsfund's rate plus 0.5% or (b) the
London Interbank Offered Rate plus a margin equal to 0.5% to 1.125%1.25%, depending
upon ourthe ratio of total funded debt to EBITDA. The agreement provides forCompany pays a commitment fee
equal to 0.10% to 0.30% of the unused commitment, depending upon the ratio of
total funded debt to EBITDA. The agreements provide restrictions on the
Company's ability to incur additional debt, maintenance of capital and limitations on
interest expense.
6.indebtedness, encumber its assets, sell
its assets, or pay dividends.
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5. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are computed by dividing net income by the sum of the
weighted average number of shares and the number of equivalent shares assumed
outstanding, if dilutive, under the Company's stock-based compensation plans.
Diluted earnings per share are computed as follows (in thousands, except per
share amounts):
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FOR THE
FOR THE
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------MARCH 31,
-------------------
2000 1999
1998 1999 1998
--------- ---------- ----------- ------------------ -------
Net income $27,284 $24,594 $57,485 $49,968
======= =======$ 5,740 $ 6,630
======= =======
Weighted average shares outstanding 42,164 35,113 37,910 34,77554,480 35,541
Effect of assumed exercise ofdiluted securities attributable to stock
options 737 873 878 792and performance share awards 307 825
------- -------
Weighted average shares outstanding, ------- ------- ------- -------
as adjusted 42,901 35,986 38,788 35,567
======= =======54,787 36,366
======= =======
Diluted earnings per share $ 0.640.10 $ 0.68 $ 1.48 $ 1.40
======= =======0.18
======= =======
7.6. INVESTMENTS IN SUBSIDIARIES
LIVERNOIS
In May 1999,SUBSIDIARIES:
SERVICE EXPERTS, INC.
On January 21, 2000, the Company acquired Livernois Engineering Holding Company,
its operating subsidiaryService Experts, Inc., a holding
company owning retail outlets for heating and its licensed patents for $18.9 million. Livernois
produces heat transfer manufacturing equipment forair conditioning products and
services. The acquisition took place in the HVACR and automotive
industries. The purchase price, consistingform of cash of $13.2 million and $5.7
million ina merger wherein 0.67 shares
of the Company's common stock (304,953 shares), has been
allocated, based on fair value, to identifiable assets totaling $16.0were exchanged for each share of Service Experts,
Inc. common stock. The 12.2 million shares so exchanged were valued at
approximately $140.1 million. In addition, transaction costs of approximately
$4.1 million were paid, and to liabilities totaling $3.0$162.7 million with $5.9 million being allocated to
goodwill. This goodwill is being amortized over 40 years.of Service Experts, Inc. debt was
assumed and concurrently repaid, resulting in a total purchase price of $306.9
million. The acquisition was accounted for in accordance withunder the purchase method of
accounting.accounting wherein approximately $161.7 million was allocated to the fair value
of the assets acquired, approximately $78.9 million was allocated to the fair
value of liabilities assumed, and $224.1 million was allocated to goodwill,
which is being amortized on a straight-line basis over 40 years. The results of
the operations of LivernoisService Experts, Inc. have been fully consolidated with those of the Company
since the date of acquisition.
DEALERS
In September of 1998, the Company initiated a program to acquire high
quality heating and air conditioning dealers (the "Dealers") in metropolitan areas of the United
States and Canada (the "Dealers"). Through 1999, 93 such dealers had been
acquired. During the first three months of 2000, six additional Dealers in the
United States and one additional Dealer in Canada to market "Lennox" and other brandswere purchased for a total
price of heating and
air conditioning products. Duringapproximately $17.5 million. In addition, approximately $14.6 million
was paid in the first nine monthsquarter of 1999, the Company
acquired 622000 as additional Dealers in Canada and the United States. The aggregate
purchase price for thepayments on Dealers acquired
in 1999. Of this approximately $14.6 million, approximately $5.6 million was $141.2 million, consistingin
the form of cash
of $140.2 million and $1.0 million in491,285 shares of the Company's common stock
(59,970 shares). These acquisitionsstock. The purchase of the
Dealers in the first three months of 2000 and the additional payments on Dealers
acquired in 1999 were accounted for in accordance withunder the purchase method of accounting. The purchase priceaccounting
wherein approximately $7.1 million was allocated to the fair value of each Dealer has beenassets
acquired and $4.1 million was allocated based onto the fair values, to identifiable assets totaling $64.4value of liabilities
assumed. Approximately $29.1 million and to liabilities totaling $40.4 million with $117.2 million beingwas allocated to goodwill which is being
amortized on a straight-line basis over 40 years. The results of the operations of theacquired
Dealers have been fully consolidated with those of the Company since the
respective dates of acquisition.
KIRBY
In June 1999, the Company acquired the outstanding stock of James N. Kirby
Pty. Ltd., an Australian manufacturer and distributor of refrigeration and heat
transfer technology. The purchase price of $65.4 million was paid in cash and
in shares of the Company's common stock (650,430 shares) in the amounts of
$49.3 million and $16.1 million, respectively. The acquisition was accounted
for in accordance with the purchase method of accounting, and accordingly, the
purchase price was allocated, based on fair value, to identifiable assets
totaling $76.0 million and to liabilities totaling $50.2 million, with $39.6
million being allocated to goodwill. In order to finance the cash portion of
the purchase price, the Company borrowed approximately $49.3 million in the
form of three promissory notes. The first promissory note of $16.1 million
bears interest at 5.68% and is payable December 31, 1999 at which time
permanent financing will be arranged. The second promissory note of $11.6
million is payable in June 2000 at no interest charge. The third promissory
note of $21.6 million is payable $11.1 million in 2001 and $10.5 million in
2002. The stated interest rate on the third promissory note escalates from no
interest in year one to 4% in year three. Accordingly, the Company recorded a
discount on the third promissory note of $1.6 million, which is being amortized
over three years, to record the promissory note at fair value. The goodwill is
being amortized over 40 years. In conjunction with the acquisition, the Company
assumed a $20.5 million promissory note bearing interest at 5.5% which is
payable upon the arranging of permanent financing. The results of the
operations of this acquired company have been fully consolidated with those of
the Company since the date of acquisition.
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9
The following table presents the pro forma results as if the above
companies had been acquired on January 1, 19981999 (in thousands, except per share
data):
FOR THE
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
----- ----
Net sales $ 745,405 $ 611,909
Net income 5,762 10,941
Basic earnings per share 0.10 0.23
Diluted earnings per share 0.10 0.22
7. TREASURY STOCK:
On November 1, 1999, the Company's Board of Directors authorized the
purchase of up to 5,000,000 shares of the issued and outstanding common stock.
As of March 31, 2000, 1,172,200 of such shares had been purchased at a total
cost of $12.4 million. On March 6, 2000, the Company entered into forward
purchase contracts to purchase 1,557,100 shares of its common stock. In
accordance with the terms of these contracts, settlement is permitted on either
a net cash settlement, net share settlement, or a physical settlement basis.
Therefore, the shares so contracted remain issued and outstanding until such
time as the contracts are settled. The Company expects to settle the contracts
in the third quarter of 2000.
8. COMPREHENSIVE INCOME:
Comprehensive income is computed as follows (in thousands):
FOR THE
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------MARCH 31,
--------------------
2000 1999
1998 1999 1998
--------- ---------- ----------- ------------------ -------
Net sales $ 696,072 $ 616,233 $ 1,941,933 $ 1,621,750
Net income 29,658 28,251 66,417 61,465
Basic earnings per share 0.69 0.78 1.71 1.72
Diluted earnings per share 0.68 0.76 1.67 1.68$ 5,740 $ 6,630
Cumulative foreign currency
translation adjustments (8,959) (5,912)
------- -------
Total comprehensive income (loss) $(3,219) $ 718
======= =======
ETS. BRANCHER9. SUBSEQUENT EVENTS:
As of April 28, 2000, the Company had signed letters of intent to acquire
17 Dealers for an aggregate purchase price of approximately $73.3 million.
The Company hashad entered into an agreement to purchase the remaining 30%
interest in Ets. Brancher, for 102.5 millionthe holding company owning the Company's interest in
companies located in France. The purchase was completed on April 5, 2000,
wherein the Company paid 101,800,000 French francs (approximately $17($16.2 million) on March 31, 2000.
8. INITIAL PUBLIC OFFERING
On August 3, 1999, the Company completed an initial public offering of its
common stock in which 8,088,490 shares of common stock were issued at an
offering price of $18.75 per share. The Company borrowed $67 million under the
revolving credit agreement on August 3, 1999, using these proceeds and the
proceeds from the initial public offering of approximately $140 million to
retire all outstanding loans under the previous U.S. based revolving credit and
short-term credit facilities.
9. SUBSEQUENT EVENTS
Between September 30, 1999 and October 30, 1999, the Company acquired nine
additional Dealers for approximately $29 million in cash and $1.1 million in
shares of the Company's common stock (82,893 shares). As of October 30, 1999,
the Company had signed letters of intent to acquire six additional Dealers in
Canada and 19 Dealers in the U.S. for an aggregate purchase price of
approximately $52 million.
On October 29, 1999 the Company purchased certain assets and assumed
certain related liabilities of The Ducane Company, Inc. and a related company.
The purchase price was approximately $45 million, with a contingent payment
based on net assets purchased at the closing.
The Company has entered into a definitive agreement to acquire
the common
stock of Service Experts, Inc., a heating, ventilation and air conditioning
service company comprised of retail businesses within the United States. The
agreement provides for an exchange of shares wherein each share of common stock
of Service Experts, Inc. will be exchanged for 0.67 of a share of Company
common stock. Service Experts, Inc. will then become a wholly-owned subsidiary
of the Company. The Company will issue approximately 12.2 million shares of
Company common stock in the acquisition valued at approximately $140 million,
plus assume certain stock options, warrants and convertible securities. The
Company will also assume approximately $160 million of debt in the acquisition.
The acquisition will be accounted for in accordance with the purchase method of
accounting and is expected to be completed during the first quarter ofinterest.
On April 3, 2000,
subject to approval of governing regulatory bodies and shareholders at both
companies.
The Company announced a two-phase stock buy-back plan to repurchase,
depending on market conditions and other factors, up to 5 million shares of
Lennox common stock. This may include up to 2 million shares before the closing
of the acquisition of Service Experts, Inc., with the remainder to be acquired
after the closing of the acquisition. Purchases under the share repurchase
program will be made on an open-market basis at prevailing market prices. The
timing of any repurchases will depend on market conditions, the market price of
Lennox's common stock, and management's assessment of the Company's liquidity
and cash flow needs.
Labor agreements have been reached between the Company and the labor unions
representing employees in the Marshalltown, Iowa and Toronto, Ontario
factories. The Marshalltown agreement hasborrowed $35.0 million under a term of five years and is effective
November 1999. The Toronto agreement has a term of two years and is retroactive
to April 1999.
9
10
The Company has signed anshelf
agreement with The Prudential Insurance Company of America which will allow the Company to borrow up to $100 million in the
form of senior notes from time to time within the first three yearsAmerica. Terms of the
agreement. Currently, there are no funds borrowed under this agreement.
The Company elected to exercise its option to prepay, in December 1999,
$19.7 million of Series H Senior Promissory Notes due in 2003 withborrowing include an interest rate at 9.69%. In the fourth quarter of 1999, an8%, interest premium willto be paid to make this election. The amountsemi-annually and
an ultimate maturity date of June 1, 2010. Terms and conditions of the premium is not significant.borrowing
are similar to those of the existing revolving credit agreements.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.OPERATIONS
OVERVIEW
We participateLennox participates in fourfive reportable business segments of the heating,
ventilation, air conditioning and refrigeration ("HVACR") industry. The first
segment is the North American residential market, in which we manufactureLennox manufactures
and marketmarkets a full line of heating, air conditioning and hearth products for the
residential replacement and new construction markets in the U.S.United States and
Canada. The second segment is the North American residential segment alsoretail market which includes
sales and installation of, and maintenance and repair services performedfor, HVACR
equipment by Lennox-owned Dealers.dealers in the United States and Canada. The secondthird
segment is the global commercial air conditioning market, in which we manufactureLennox
manufactures and sellsells rooftop products and applied systems for commercial
applications. The thirdfourth segment is the global commercial refrigeration market,
which consists of unit coolers, condensing units and other commercial
refrigeration products. The fourthfifth segment is the heat transfer market, in which
we design, manufactureLennox designs, manufactures and sellsells evaporator and condenser coils, copper
tubing and related manufacturing equipment to original equipment manufacturers
and other specialty purchasers on a global basis.
We sell ourLennox sells its products and services to numerous types of customers,
including distributors, installing dealers, homeowners, national accounts and
original equipment manufacturers. The demand for ourLennox's products is cyclical and influenced
by national and regional economic and demographic factors, such as interest
rates, the availability of financing, regional population and employment trends
and general economic conditions, especially consumer confidence. In addition to
economic cycles, demand for ourLennox's products is seasonal and dependent on the
weather. Hotter than normal summers generate strong demand for replacement air
conditioning and refrigeration products and colder than normal winters have the
same effect on heating products. Conversely, cooler than normal summers and
warmer than normal winters depress sales of HVACR products.
The principal components of cost of goods sold are labor, raw materials,
component costs, factory overhead and estimated costs of warranty expense. The
principal raw materials used in ourLennox's manufacturing processes are copper,
aluminum and steel. In instances where we areLennox is unable to pass on to ourits
customers increases in the costs of copper and aluminum, we enterLennox enters into
forward contracts for the purchase of suchthose materials. We attemptLennox attempts to
minimize the risk of price fluctuations in key components by entering into
contracts, typically at the beginning of the year, which generally provide for
fixed prices for ourits needs throughout the year. These hedging strategies enable
usLennox to establish product prices for the entire model year while minimizing
the impact of price increases of components and raw materials on ourits margins.
Warranty expense is estimated based on historical trends and other factors.
We acquired Superior Fireplace Company, Marco Mfg., Inc. and Pyro
Industries, Inc. in the third quarter of 1998 and Security Chimneys
International, Ltd. in the first quarter of 1999 for an aggregate purchase
price of approximately $120 million. These acquisitions give us one of the
broadest lines of hearth products in the industry.
WeLennox acquired James N. Kirby Pty. Ltd., an Australian company that
participates in the commercial refrigeration and heat transfer markets in
Australia, in June 1999 for approximately $65 million in cash, common stock and
seller financing. In addition, weLennox assumed approximately $28$20.5 million of
Kirby's debt.
Lennox, through its Excel Comfort Systems subsidiary, purchased the
heating, ventilation and air conditioning ("HVAC") related assets of The Ducane
Company, Inc. in October 1999 for approximately $53 million in cash. This
purchase adds to the brands offered in the North American residential segment.
In September 1998, weLennox initiated a program to acquire high quality
heating and air conditioning Dealersdealers in metropolitan areas in the U.S.United States
and Canada to market "Lennox" and other brands of heating and air conditioning
products. This strategy will enable usenables Lennox to extend ourits distribution directly to
the consumer and permit uspermits it to participate in the revenues and margins available
at the retail level while strengthening and protecting ourits brand equity. We believeLennox
believes that the retail sales and service market represents a significant
growth opportunity because this market is large and highly fragmented. The
retail sales and service market in the U.S.United States is comprised of over 30,000
dealers. In addition, we
believeLennox believes that the heating and air conditioning
service business is somewhat less seasonal than the business of manufacturing
and selling heating and air conditioning products. As of September 30, 1999, weMarch 31, 2000, Lennox
had acquired 57 Dealers225 dealers in the U.S. and Canada, and 19including the dealers acquired
through the acquisition of Service Experts, Inc. The aggregate purchase price of
these dealers was approximately $580 million as of March 31, 2000. The Company
has signed letters of intent to acquire an additional 17 dealers in the U.S. for
an aggregate purchase price of approximately $164
million and had signed letters$73.3 million.
On January 21, 2000, Lennox completed the acquisition of intent to acquire seven additional Canadian
Dealers and 25 U.S. Dealers for an aggregate purchase price of approximately
$82 million.
10
11
On October 26, 1999, we entered into an agreement to acquire Service Experts,
Inc. a heating, ventilation and air conditioning ("HVAC"), an HVAC company comprised of HVAC retail businesses across the U.S. The acquisition will be
accomplished with an exchange ofUnited
States, for approximately 12.2 million shares in which a wholly-owned subsidiary of
Lennox will merge into Service Experts and each share of Service Experts common
stock will be converted into the right to receive 0.67 of a share of Lennox common stock.stock and the
assumption of approximately $163 million of debt, which was concurrently repaid.
The success of the Service
10
11
Experts acquisition, along with Lennox's other acquisitions, will then become a wholly-owned subsidiary of
Lennox. We currently expectdepend on
Lennox's ability to complete theintegrate these businesses into its business without
substantial costs, delays or other operational or financial difficulties. The
acquisition during the first
quarter of 2000, subject to approval of governing regulatory bodies and
stockholders of both companies. We expect that the acquisition of Service
Experts will be accretive in the year 2000 in the range of $0.04 to $0.06 per
share, but we can make no assurances if oradded over 120 dealers to the extent this acquisition will
be accretive or the effect this acquisition will have on our results of
operations. See " - Forward Looking Information."
We have assigned a 40-year life to the goodwill acquired in the
acquisitions of the hearth products companies and the Dealers acquired to date.
These companies and Dealers are all profitable and all have been in business
for extended periods of time. They all operate in established industries where
the basic product technology has changed very little over time. In addition,
all of these companies and Dealers have strong brand names and market share in
their respective industries or markets. Based upon these factors, we concluded
that the anticipated future cash flows associated with the goodwill recognized
in the acquisitions will continue for at least 40 years.
OurU.S. retail network.
Lennox's fiscal year ends on December 31 of each year, and ourits fiscal
quarters are each comprised of 13 weeks. For convenience, throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the 13 week periods comprising each fiscal quarter are denoted by
the last day of the calendar quarter.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, our statement
of income data
for the three months ended March 31, 2000 and nine months ended September 30, 1999
and 1998.1999:
THREE MONTHS NINE MONTHS
ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ---------------------MARCH 31,
-----------------
2000 1999
1998 1999 1998
--------- --------- --------- -------------- -----
Net sales ......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................................ 68.2 68.0 68.6 68.2
----- -----68.1 69.0
----- -----
Gross profit ................................. 31.8 32.0 31.4 31.8
----- ----- ----- -----31.9 31.0
Selling, general and administrative
expenses ...... 23.1 23.7 24.1 24.2
Other operating expense, net ...................... 0.5 (0.2) 0.4 0.5
----- -----28.6 27.0
----- -----
Income from operations ....................... 8.2 8.5 6.9 7.13.3 4.0
Interest expense, net ............................. 1.4 0.91.8 1.3
0.8
Other ............................................. 0.1 0.1 0.0 0.1(0.1)
Minority interest ................................. 0.1 0.0 0.0 0.0
----- -----(0.1) (0.1)
----- -----
Income before income taxes ................... 6.6 7.5 5.6 6.21.5 2.9
Provision for income taxes ........................ 2.5 2.9 2.3 2.5
----- -----0.7 1.5
----- -----
Net income (loss) ............................ 4.1% 4.6% 3.3% 3.7%
===== =====0.8% 1.4%
===== =====
The following table sets forth net sales by business segment and geographic
market (dollars in millions):
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------MARCH 31,
-------------------------------------------
2000 1999
1998
------------------------ ------------------------------------------- ------------------
AMOUNT % AMOUNT %
--------- ---------- ---------- ---------------- ------ ------ ------
BUSINESS SEGMENT:
North American
residential ..... $ 386.1 57.7% $ 300.7 56.8%$291.8 40.7% $271.5 55.5%
North American retail 194.5 27.2 16.7 3.4
Commercial air
conditioning .... 127.9 19.1 112.4 21.295.1 13.3 92.5 18.9
Commercial refrigeration ....... 94.2 14.1 67.0 12.791.7 12.8 61.6 12.6
Heat transfer .................. 60.965.4 9.1 49.1 9.3
-------- ----- -------- -----50.1 10.2
Eliminations (22.2) (3.1) (3.3) (0.6)
------ ------ ------ ------
Total net sales ....... $ 669.1$716.3 100.0% $ 529.2$489.1 100.0%
======== ===== ======== =========== ====== ====== ======
GEOGRAPHIC MARKET:
U.S. ........................... $ 475.5 71.1% $ 434.4 82.1%$554.9 77.5% 383.2 78.3%
International .................. 193.6 28.9 94.8 17.9
-------- ----- -------- -----161.4 22.5 105.9 21.7
------ ------ ------ ------
Total net sales ....... $ 669.1$716.3 100.0% $ 529.2$489.1 100.0%
======== ===== ======== =====
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998
------------------------ -----------------------
AMOUNT % AMOUNT %
---------- --------- --------- ---------
BUSINESS SEGMENT:
North American residential ..... $ 1,009.4 57.7% $ 764.1 56.0%
Commercial air conditioning .... 338.0 19.3 286.2 21.0
Commercial refrigeration ....... 238.4 13.6 176.1 12.9
Heat transfer .................. 164.2 9.4 138.4 10.1
---------- ----- ---------- -----
Total net sales ....... $ 1,750.0 100.0% $ 1,364.8 100.0%
========== ===== ========== =====
GEOGRAPHIC MARKET:
U.S. ........................... $ 1,301.3 74.4% $ 1,116.2 81.8%
International .................. 448.7 25.6 248.6 18.2
---------- ----- ---------- -----
Total net sales ....... $ 1,750.0 100.0% $ 1,364.8 100.0%
========== ===== ========== =========== ====== ====== ======
11
12
THREE MONTHS ENDED SEPTEMBER 30, 1999MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998MARCH 31, 1999
Net sales. Net sales increased $139.9$227.2 million, or 26.4%46.5%, to $669.1$716.3 million
for the three monthsquarter ended September 30, 1999March 31, 2000 from $529.2$489.1 million for the three
monthsquarter ended
September 30, 1998.March 31, 1999.
Net sales related to the North American residential segment were $386.1$291.8
million duringfor the three monthsquarter ended September 30, 1999,March 31, 2000, an increase of $85.4$20.3 million, or
28.4%7.5%, from $300.7$271.5 million for the corresponding three months in
1998.quarter ended March 31, 1999. Of the $85.4$20.3
million increase, $78.3$16.8 million was due to sales from theacquired hearth products
acquisitions, our acquired Dealerscompanies and acquired heating and air
conditioning distributors.the acquisition of Ducane's HVAC product lines. The remaining $7.1$3.5
million increasegrowth in North American residential net sales is an increase of 1.3%
over the first quarter of 1999. However, sales in the first quarter of 1999 were
enhanced in anticipation of a work stoppage at Armstrong's operations in the
second quarter of 1999. Management estimates sales would have grown
approximately 4.3% without the impact of the Armstrong work stoppage.
Net sales in the North American retail segment were $194.5 million for the
quarter ended March 31, 2000, an increase of $177.8 million from the $16.7
million of net sales for the quarter ended March 31, 1999. This increase was primarily due
to a 2.4% increase in sales of
our existing business relating primarily to higher unit volumes. Sales to
Dealers in the U.S. and Canada which we have acquired are no longer reflected
as sales in our existing business and are instead reflected as sales due to
acquisitions. If sales to these acquired Dealers were included in sales of our
existing business, sales of our existing business would have increased by 5.1%.
Commercial air conditioning net sales increased $15.5$2.6 million, or 13.8%2.8%, to
$127.9$95.1 million for the three monthsquarter ended September 30, 1999March 31, 2000 compared to the corresponding three monthsquarter ended
March 31, 1999. All of the $2.6 million increase in 1998. Of this increase, $7.8 million was due to
increasednet sales volumes in North Americacame from
international operations, primarily due to the effectivenessfact that the Company has
rationalized its European products and they are being marketed throughout Europe
rather than just within the country of recently established commercial sales districts and $7.7 million was due to
increased international sales, $2.0 million of which was due to acquisitions.manufacture.
Net sales related to the commercial refrigeration segment were $94.2$91.7
million duringfor the three monthsquarter ended September 30, 1999,March 31, 2000, an increase of $27.2$30.1 million, or
40.6%48.9%, from $67.0$61.6 million for the corresponding three months in 1998.quarter ended March 31, 1999. Of this
increase, $26.6$18.7 million was due to the international acquisitionsacquisition of
Lovelock Luke Pty. Limited and James N. Kirby Pty. Ltd.
North American commercial refrigeration net sales increased $0.8 million.$6.9 million as a
result of strong sales in the walk-in cooler segment and some large cold storage
projects that were completed. International net sales increased $4.5 million
primarily due to the expansion of supermarket rack business and the HK
Refrigeration brand, which is sold directly to contractors in Europe.
Heat transfer revenues increased $11.8$15.3 million, or 24.0%,30.5 %, to $60.9$65.4 million
for the three monthsquarter ended September 30, 1999March 31, 2000 compared to the corresponding three months in 1998.quarter ended March 31,
1999. The acquisitions of James N. Kirby Pty. Ltd. and Livernois Engineering
Holding Company added $16.2contributed $15.4 million to heat transfer revenues forin the three months
ended September 30, 1999. Sales volumesfirst
quarter of 2000. Net sales growth in ourthe existing North AmericanAmerica heat transfer
business decreased $1.7increased $1.5 million. A decline in net sales of $1.6 million or 4.2%, and Europe had a decrease of $3.0 million, or
34.3%. A strike at one of our French factoriesoccurred
in the second quarterexisting international heat transfer operations, largely due to the drop
in the exchange rate of 1998
delayed some sales until the third quarter of 1998.
Domestic sales increased $41.1 million, or 9.5%Euro to $475.5 million for the third quarter of 1999 from $434.4 million for the third quarter of 1998.
International sales increased $98.8 million, or 104.2%, to $193.6 million for
the third quarter of 1999 from $94.8 million for the third quarter of 1998.U.S. dollar.
Gross profit. Gross profit was $212.4$228.8 million for the three monthsquarter ended September 30, 1999 asMarch
31, 2000 compared to $169.5$151.6 million for the three monthsyear ended September 30, 1998,March 31, 1999, an
increase of $42.9$77.2 million. Gross profit margin was 31.8%31.9% for the three monthsquarter ended
September 30, 1999March 31, 2000 and 32.0%31.0% for the three monthsquarter ended September 30, 1998.March 31, 1999. The increase of
$42.9$77.2 million in gross profit was primarily attributable to increased sales in
the 1999 period asfirst quarter of 2000 compared to 1998. The majority of the decrease in gross profit margin for the thirdfirst quarter of 1999 is due to the acquisition of businesses with lower margins than our
other businesses.1999. The gross
profit margins of ourLennox's traditional businesses increased 0.5% from0.8% for the thirdfirst
quarter of 19982000 compared to the thirdfirst quarter of 1999 primarily due to favorable
purchasing savings and operating efficiencies.overhead variation. Acquired businesses contributed 0.1% to the
increase in gross profit margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $154.7$205.3 million for the three monthsquarter ended September 30, 1999,March 31,
2000, an increase of $29.0$73.5 million, or 23.1%55.8%, from $125.7$131.8 million for the
three monthsquarter ended September 30, 1998.March 31, 1999. Selling, general and administrative expenses
represented 23.1%28.6% and 23.7%27.0% of total net revenues for the thirdfirst quarter of 19992000 and
1998,1999, respectively. Of the $29.0$73.5 million increase, $25.2acquired companies were $66.6
million, or 86.9%90.6%, was related to increased infrastructure
associated with acquisitions.of the increase in selling, general and administrative
expenses. The majority of the remaining $3.8$6.9 million increase was due to
increases in selling, generalincreased advertising and administrative expenses
for the North American residential segment which was primarily comprised of
increased information technology costspromotion, personnel and increased selling expenses.
Other operating expenses, net. Other operating expenses, net totaled $3.1
million for the three months ended September 30, 1999, an increase of $4.1
million from $1.0 million of income for the corresponding three months in 1998.
Other operating expense, net is comprised of (income) loss from joint ventures,
amortization of goodwill and other intangibles, and miscellaneous items.
Domestic income from operations was $42.2 million during the three months
ended September 30, 1999, a decrease of 9.1% from $46.4 million during the
corresponding period in 1998. International income from operations was $12.4
million during the 1999 period and a loss of $1.5 million during the 1998
period.
12
13facility costs.
Interest expense, net. Interest expense,expenses, net for the three monthsquarter ended September 30, 1999March
31, 2000 increased to $9.1$12.8 million from $4.4$6.6 million for the same
period in 1998. Thequarter ended
March 31, 1999. Increased borrowings to fund acquisitions were responsible for
the increase in interest expense was due to increased usage of
our credit lines and additional short-term borrowings as a result of
acquisitions.
Other. Other expense was $0.4 million for the three months ended September
30, 1999 and $0.8 million for the three months ended September 30, 1998. Other
expense is primarily comprised of currency exchange gains or losses. The
majority of the improvement in other expense was due to the strengthening of
the Canadian dollar.
Minority interest. Minority interest in subsidiaries' net income of $0.8
million for the three months ended September 30, 1999 and $0.2 million for the
three months ended September 30, 1998 primarily represents the minority interest
in Ets. Brancher and McQuay do Brasil.expense.
Provision for income taxes. The provision for income taxes was $17.0$5.3 million
for the three monthsquarter ended September 30, 1999March 31, 2000 and $14.9$7.3 million for the three monthsquarter ended
September 30, 1998.March 31, 1999. The effective tax rate of 38.4%48.1% and 37.7%52.5% for the three monthsquarters
12
13
ended September 30,March 31, 2000 and 1999, and 1998, respectively,
differs from the statutory federal rate of 35.0% principally due to state and
local taxes, non-deductible goodwill expenses and foreign operating losses for
which no tax benefits have been recognized.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales. Net sales increased $385.2 million, or 28.2%, to $1,750.0
million for the nine months ended September 30, 1999 from $1,364.8 million for
the nine months ended September 30, 1998.
Net sales related to the North American residential segment were $1,009.4
million during the nine months ended September 30, 1999, an increase of $245.3
million, or 32.1%, from $764.1 million for the corresponding nine months in
1998. Of the $245.3 million increase, $202.5 million was due to sales from the
hearth products acquisitions, acquired Dealers and acquired heating and air
conditioning distributors. The remaining $42.8 million increase in North
American residential net sales was primarily due to a 5.6% increase in sales of
our existing business, almost all of which resulted from increased sales
volumes, principally caused by two factors. First, the hot summer in 1998
depleted the inventory levels at our customers and they increased their
purchases in the first quarter of 1999 to refill their inventories. Second, our
volume increased as a result of sales to new dealers, which were added as a
result of programs to expand our dealer base. Sales to Dealers in the U.S. and
Canada which we have acquired are no longer reflected as sales in our existing
business and are instead reflected as sales due to acquisitions. If sales to
these acquired Dealers were included in sales of our existing business, sales
of our existing business would have increased by 7.9%.
Commercial air conditioning net sales increased $51.8 million, or 18.1%, to
$338.0 million for the nine months ended September 30, 1999 compared to the
corresponding nine months in 1998. Of this increase, $26.7 million was due to
increased sales volumes in North America primarily due to the effectiveness of
recently established commercial sales districts and $25.1 million was due to
increased international sales, $6.5 million of which was due to acquisitions.
Net sales related to the commercial refrigeration segment were $238.4 million
during the nine months ended September 30, 1999, an increase of $62.3 million,
or 35.4%, from $176.1 million for the corresponding nine months in 1998. Of
this increase, $58.5 million was due to the international acquisitions of
McQuay do Brasil, Lovelock Luke Pty. Limited and James N. Kirby Pty. Ltd. North
American commercial refrigeration sales increased $5.4 million primarily due to
strong sales volumes to our supermarket customers and increased activity with
our large distributors. Heat transfer revenues increased $25.8 million, or
18.6%, to $164.2 million for the nine months ended September 30, 1999 compared
to the corresponding nine months in 1998. Of this increase, $5.3 million was
due to increased sales volumes in our existing North American business and
$21.3 million was due to the acquisitions of James N. Kirby Pty. Ltd. and
Livernois Engineering Holding Company.
Domestic sales increased $185.1 million, or 16.6% to $1,301.3 million for
the first nine months of 1999 from $1,116.2 million for the first nine months
of 1998. International sales increased $200.1 million, or 80.5% to $448.7
million for the first nine months of 1999 from $248.6 million for the first
nine months of 1998.
Gross profit. Gross profit was $550.3 million for the nine months ended
September 30, 1999 as compared to $434.3 million for the nine months ended
September 30, 1998, an increase of $116.0 million. Gross profit margin was
31.4% for the nine months ended September 30, 1999 and 31.8% for the nine
months ended September 30, 1998. The increase of $116.0 million in gross profit
was primarily attributable to increased sales in the 1999 period as compared to
1998. The gross profit margins of our traditional businesses increased 0.2%
from the first nine months of 1999 compared to the first
13
14
nine months of 1998. The decrease in gross profit margin for the first nine
months of 1999 is due to the acquisition of businesses with lower margins than
our other businesses.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $422.5 million for the nine months ended September
30, 1999, an increase of $91.2 million, or 27.5%, from $331.3 million for the
nine months ended September 30, 1998. Selling, general and administrative
expenses represented 24.1% and 24.2% of total net revenues for the first nine
months of 1999 and 1998, respectively. Of the $91.2 million increase, $64.3
million, or 70.5%, was related to increased infrastructure associated with
acquisitions. The majority of the remaining $26.9 million increase was due to
increases in selling, general and administrative expenses for the North
American residential segment which was primarily comprised of increases in
costs due to additions of personnel, increased information technology costs and
increased sales and marketing expenses.
Other operating expense, net. Other operating expense, net totaled $6.5
million for the nine months ended September 30, 1999, an increase of $0.3
million from $6.2 million for the corresponding nine months in 1998. Other
operating expense, net is comprised of (income) loss from joint ventures,
amortization of goodwill, and other intangibles and miscellaneous items.
Domestic income from operations was $104.3 million during the nine months
ended September 30, 1999, an increase of 9.4% from $95.3 million during the
corresponding period in 1998. International income from operations was $17.1
million during the 1999 period and $4.6 million during the 1998 period.
Interest expense, net. Interest expense, net for the nine months ended
September 30, 1999 increased to $24.2 million from $10.9 million for the same
period in 1998. Of the $13.3 million increase in interest expense, $1.3 million
was due to the incurrence of $75 million in additional long-term borrowings in
April 1998 and $12.0 million was due to increased usage of our credit lines and
short-term borrowings as a result of acquisitions, payments related to the
Pulse inspection program and increased working capital for seasonal needs.
Other. Other expense (income) was $(0.4) million for the nine months ended
September 30, 1999 and $1.3 million for the nine months ended September 30,
1998. Other expense is primarily comprised of currency exchange gains or
losses. The majority of the improvement in other expense (income) was due to
the strengthening of the Canadian dollar.
Minority interest. Minority interest in subsidiaries' net losses of $(0.2)
million for the nine months ended September 30, 1999 and income of $0.6 million
for the nine months ended September 30, 1998 represents the minority interest
in Ets. Brancher and McQuay do Brasil.
Provision for income taxes. The provision for income taxes was $39.8
million for the nine months ended September 30, 1999 and $35.2 million for the
nine months ended September 30, 1998. The effective tax rate of 40.9% and 41.3%
for the nine months ended September 30, 1999 and 1998, respectively, differs from the statutory federal
rate of 35.0% principally due to state and local taxes, non-deductible goodwill
expenses, and foreign operating losses for which no tax benefits have been
recognized.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations andLennox's recent capital requirements from
internally generated funds and, to a lesser extent, borrowings from external
sources. Capital requirements have related principally to
acquisitions, the expansion of production capacity and increased working capital
needs that have accompanied sales growth.
Net cash generatedprovided by operating activities was $17.4$8.7 million for the ninethree
months ended September 30, 1999March 31, 2000 compared to a usage of cash of $18.2$57.2 million for the
ninethree months ended September 30, 1998.March 31, 1999. The increase in cash generatedprovided by operating
activities is primarily due to a decrease in cash used to finance receivables of
$19.l million, an increase in net income, a decreasepayables balances of $20.9 million and an increase
in payments related to the Pulse inspection program and lower inventory levels.accrued expenses of $20.1 million. Net cash used in investing activities
totaled $273.7$200.8 million and $160.9$71.2 million for the ninethree months ended September 30,March 31,
2000 and 1999, and 1998, respectively. The greater use of cash for investing relates
primarily to increased acquisition activity as we spent $226.1$183.4 million and $130.6$51.1 million
was spent for acquisitions in the ninethree months ended September 30,March 31, 2000 and 1999, and 1998,
respectively. Net cash provided by financing activities was $269.6$195.4 million and
$68.3$130.9 million for the ninethree months ended September 30,March 31, 2000 and 1999, respectively.
Net borrowing increased in the first three months of 2000 versus 1999 to finance
the acquisition of the HVAC dealers and 1998, respectively.Service Experts, Inc. Due to the
seasonality of the air conditioning and refrigeration businesses, Lennox
typically uses cash in the first six months of the year and generates cash
during the latter half of the year.
In the first nine
monthspast, Lennox has used a combination of 1999, we increased short-terminternally generated funds,
external borrowings by $96.6 million, which,
along with sales of ourand common stock of $141.8 million from our initial public
offering and exercises of stock options and new long-term debt of $43.9
million, primarily funded the businessto make acquisitions. 14
15
In 1998, we issued $75.0 million of new long-term notes, primarily to finance
business acquisitions. Internally generated cash flow, along with borrowings
under the revolving credit facility, have funded the working capital, capital
expenditure and debt service requirements over the last three years.
We will continueLennox intends to
acquire additional heating and air conditioning Dealersdealers in the U.S. and Canada. TheseCanada,
and plans to finance these acquisitions will be financed with a combination of cash, stock and
debt. As of September 30, 1999, weMarch 31, 2000, Lennox had acquired 57 Dealers225 dealers in the U.S. and
Canada, and 19including dealers acquired through the acquisition of Service Experts,
Inc. The aggregate purchase of these dealers was approximately $580 million as
of March 31, 2000. The Company has signed letters of intent to acquire an
additional 17 dealers in the U.S. for an aggregate purchase price of
approximately $164 million and had signed letters of intent to acquire seven additional
Canadian Dealers and 25 U.S. Dealers for an aggregate purchase price of
approximately $82$73.3 million.
On August 3, 1999, we completed the initial public offering of our common
stock. We sold 8,088,490 shares of our common stock and certain selling
stockholders sold 411,510 shares at an initial price to the public of $18.75
per share. Net proceeds from the offering were $139.7 million, after deducting
estimated expenses and underwriting discounts and commissions. Proceeds from
the offering were used to repay a portion of the borrowings under our former
revolving credit facility and a term credit facility which terminated upon
completion of the offering.
On March 31,April 5, 2000 the Company will purchaseLennox purchased the remaining 30% interest inof Ets. Brancher not
already owned for approximately $17 million.101,800,000 French francs ($16.2 million). In June, 1999, we acquired
James N. Kirby Pty. Ltd. was acquired for approximately $65 million. In
addition, approximately $28$20.5 million of Kirby's debt was assumed. The purchase
price consisted of approximately $16 million in cash, $33 million in deferred
payments and 650,430 shares of common stock. The $33 million in deferred payments will be made in
installments of approximately $11 million per year over the next three years.
This amount may be prepaid. If ourLennox's common stock does not
trade at a price greater than $29.09 per share for five consecutive days from
the period fromof June 2000 to June 2001, then we arethe Company is obligated to pay the
former owners of Kirby the difference between the trading price for the last
five days of this period and $29.09 for 577,500 of the shares of common stock.
Capital expenditures were $53.2$17.5 million for the ninethree months ended September
30, 1999. CapitalMarch
31, 2000. These expenditures for the remainder of the year will relateprimarily related to production equipment
(including tooling), training facilities, leasehold improvements and information
systems.
The majority of these planned capital
expenditures are discretionary. These expenditures will be financed using cash
flow from operations and available borrowings under our revolving credit
facility.
At September 30, 1999, weMarch 31, 2000, Lennox had long-term debt obligations outstanding of
$334.9$756.9 million. The majorityIncluded as part of thethis long-term debt consists of six issues of
notes with an aggregate principal amount of $240.6is $165 million interest rates
ranging from 6.56% to 9.69% and maturities ranging from 2001 to 2008. The notes
contain restrictive covenants, including financial maintenance covenants. The
Company is in compliance with all of its debt covenants. The Company's debt
service requirements (including principal and interest payments) for current
outstanding long-term debt are approximately $40 million for all of 1999.
We haveborrowed
under a new $300 million revolving credit facility withagreement between the Company and a syndicate
of banks
led by Chase Bank of Texas, National Association, as administrative agent,
Wachovia Bank, N.A., as syndication agent, andbanks. The Bank of Nova Scotia, as
documentation agent. The credit facility has restrictivecontains certain financial covenants and maintenance tests identical to those in the notes. Borrowings under this credit
facility bearbears interest,
at ourthe Company's option, at a rate equal to either (a) the greater of the administrative agent'sbank's
prime rate or the federal fundsfund's rate plus 0.5% or (b) the London Interbank
Offered Rate plus a margin equal to 0.5% to 1.125%1.25%, depending upon ourthe ratio of
total funded debt to EBITDA. The facility
requiresCompany pays a commitment fee equal to 0.15%0.10% to
0.30% of the unused commitment, depending upon the ratio of total funded debt to
EBITDA. This credit facility
hasThe agreement provides restrictions on the Company's ability to incur
additional indebtedness, encumber its assets, sell its assets or pay dividends.
On April 3, 2000, the Company borrowed $35.0 million under a term of five years.
We have signed anshelf
agreement with The Prudential Insurance Company of America which will allow us to borrow up to $100 million in the form of senior
notes from time to time within the first three yearsAmerica. Terms of the
agreement. The
minimum amount of notes that can be drawn at any one time will be $10 million
and the maturity andborrowing include an interest rate willof 8%, interest to be selected from alternatives provided
by Prudential atpaid semi-annually and
an ultimate maturity date of June 1, 2010. Terms and conditions of the time the notesborrowing
are issued, up to a maximum maturity of 15
years. The agreement has customary covenants that are substantially similar to those contained in our outstanding series of notes.
We announced a two-phase stock buy-back plan to repurchase, depending on
market conditions and other factors, up to 5 million shares of our common
stock. This may include up to 2 million shares before the closing of the acquisition of Service Experts, Inc., with the remainder to be acquired after
the closing of the acquisition. Purchases under the share repurchase program
will be made on an open-market basis at prevailing market prices. The timing of
any repurchases will depend on market conditions, the market price of our
common stock, and management's assessment of our liquidity and cash flow needs.
15
16
Managementexisting revolving credit agreements.
Lennox believes that cash flow from operations, as well as available
borrowings under its credit facilities will be sufficient to fund our operations and the ongoing
business enterprise endeavors for
the foreseeable future.
We may pursue
additional debt and/or equity financing in connection with acquisitions.
YEAR 2000 COMPLIANCE
The Year 2000 issue concerns the ability of information technology and
non-information technology systems and processes to properly recognize and
process date-sensitive information before, during and after December 31, 1999.
We have a variety of computer software program applications, computer hardware
equipment and other equipment with embedded electronic circuits, including
applications used in our financial business systems, manufacturing processes
and administrative functions, which are collectively referred to as the
"systems." We expect that our systems will be ready for the Year 2000
transition.
In order to identify and resolve Year 2000 issues affecting us, we
established a Year 2000 compliance program. The Year 2000 compliance program is
administered by a task force, consisting of members of senior management as
well as personnel from our accounting, internal audit and legal departments,
which has oversight of the information systems managers and other
administrative personnel charged with implementing our Year 2000 compliance
program. The task force has established a specific compliance team for Lennox
Corporate and for each of our operating locations.
In 1994 we began the replacement of all core business systems for our
domestic subsidiaries. The purpose of this replacement was to upgrade systems
architecture and functionality, improve business integration and implement
process improvements. SAP was selected as the enterprise resource for planning
("ERP") system to replace mission critical software and hardware for Lennox
Industries, Heatcraft's Heat Transfer and Refrigeration Products Divisions and
the Lennox Corporate operations. Fourth Shift was selected as the ERP system
for the Electrical Products Division of Heatcraft and is also being implemented
for various subsidiaries of Lennox Global. A new version of ROI Manage 2000 was
implemented for Armstrong. As of September 30, 1999, all replacements of core
business systems for domestic subsidiaries were complete.
SAP, Fourth Shift and ROI Manage 2000 have certified that these systems are
Year 2000 compliant. Hardware, operating systems and databases installed to
support these systems are also compliant. Other smaller applications integrated
with SAP have been replaced or upgraded with Year 2000 compliant software.
The implementations of SAP, Fourth Shift and ROI Manage 2000 and the
related hardware, operating systems and databases comprise the systems that are
most critical to our operations, which are referred to as "critical systems,"
and address the areas of our business which would have otherwise been
significantly affected by the Year 2000. As of September 30, 1999, we were 100%
complete with the implementation of the Year 2000 compliance program for all
critical systems.
Our Year 2000 Program also addresses compliance in areas in addition to
critical systems, including: voice and data networks, desktop computers,
peripherals, EDI, contracted or purchased departmental software, computer
controlled production equipment, test stations, building security, transport
and heating and air conditioning systems, service providers, key customers and
suppliers and Lennox manufactured and purchased products. As of September 30,
1999, we were more than 95% complete with the implementation of the Year 2000
compliance program for all such areas, and we expect to be 100% complete by
December 31, 1999.
We believe that our most reasonably likely worst case scenario is some
short-term, localized disruptions of systems, transportation or suppliers that
will affect an individual business operation, rather than broad-based and
long-term problems that affect operating segments or our operations as a whole.
For the most part, our manufacturing processes are not affected by Year 2000
issues. The most significant uncertainties relate to critical suppliers,
particularly electrical power, water, natural gas and communications companies,
and suppliers of parts that are vital to the continuity of our operations.
Where possible, contingency plans are being formulated and put into place for
all critical suppliers. These plans include developing the necessary safety
stock levels for single source items.
Our estimated cost to become Year 2000 compliant is approximately $6.4
million, of which we have already spent approximately $4.7 million. All of
these expenses will reduce our net income. Of the $6.4 million in total costs,
approximately $4.1 million relates to application software, including
consulting and training relating to the software, of which approximately $3.5
million has been spent to date. The remaining $2.3 million in total estimated
costs relates to infrastructure and hardware, of which approximately $1.2
million has been spent. Of the remaining $1.1 million, $0.6 million relates to a
lease agreement and is expected to be expensed over a three-year period. The
costs of application and infrastructure changes made for reasons other than the
Year 2000 and which were not accelerated are not included in these
1613
17
estimates. We have not deferred any significant information technology projects
because of our response to Year 2000 issues. All Year 2000 costs are being
funded from our operating cash flows. These costs are generally not incremental
to existing information technology budgets.
The total costs, anticipated impact and the expected dates to complete the
various phases of the project are based on our best estimates using assumptions
about future events. However, no assurance can be given that actual results
will be consistent with such estimates and, therefore, actual costs, completion
dates and impact may differ materially from the plans.
See "Forward Looking Information" below.14
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. This statement, for Lennox, is effective for all fiscal quartersbeginning with the first
quarter of fiscal years
beginning after June 15, 2000. We do2001. Management does not believe that the adoption of this
pronouncement will have a significant impact on ourthe Company's financial
statements.
FORWARD LOOKING INFORMATION
This Report contains forward-looking statements and information that are
based on the beliefs of Lennox's management as well as assumptions made by and
information currently available to management. All statements other than
statements of historical fact included in this Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including but not limited to statements identified by the words "may,"
"will," "should," "plan," "predict," "anticipate," "believe," "intend,"
"estimate" and "expect" and similar expressions. Such statements reflect
Lennox's current views with respect to future events, based on what it believes
are reasonable assumptions; however, such statements are subject to certain
risks, uncertainties and assumptions. These include, but are not limited to,
warranty and product liability claims; our ability to successfully complete and
integrate acquisitions; our ability to manage new lines of business; the
consolidation trend in the HVACR industry; adverse reaction from our customers from ourto
the Company's acquisitions or other activities; the impact of the weather on our
business; competition in the HVACR business; increases in the prices of
components and raw materials; general economic conditions in the U.S. and
abroad; labor relations problems; operating risks;risks and environmental risks; and risks related to Year 2000 problems.risks.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those in the forward- lookingforward-looking statements. Lennox disclaims any intention or
obligation to update or review any forward-looking statements or information,
whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The estimated fair values of our financial instruments approximate their
respective carrying amounts at September 30, 1999, except as follows (in
thousands):
FAIR VALUE
--------------------------
CARRYING INTEREST
AMOUNT AMOUNT RATE
---------- ----------- ----------
9.69% promissory notes................. $ 24,600 $ 26,400 6.75%
9.53% promissory notes................. 21,000 21,700 6.75
We have the ability to prepay these notes within the next twelve months.
OurLennox's results of operations can be affected by changes in exchange
rates. Net sales and expenses in currencies other than the U.S. dollar are
translated into U.S. dollars for financial reporting purposes based on the
average exchange rate for the period. During the ninethree months ended September 30,March 31,
2000 and 1999, and 1998, net sales from outside the U.S. represented 25.6%22.5% and 18.2%21.7%,
respectively, of total net sales. Historically, foreign currency transaction
gains (losses) have not had a material effect on our operations.
We have entered into foreign currency exchange contracts to hedge our
investment in Ets. Brancher. We do not engage in currency speculation. These
contracts do not subject us to risk from exchange rate movements because the
gains or losses on the contracts offset the losses or gains, respectively, on
the assets and liabilities of Ets. Brancher. As of September 30,
17
18
1999, we had entered into foreign currency exchange contracts with a nominal
value of 165.5 million French francs (approximately $27.1 million). These
contracts require us to exchange French francs for U.S. dollars at maturity,
which is in May 2003, at rates agreed to at inception of the contracts. If the
counterparties to the exchange contracts do not fulfill their obligations to
deliver the contracted currencies, we could be at risk for any currency related
fluctuations.
From time to time we enterLennox enters into foreign currency exchange contracts to hedge
receivables andor payables denominated in foreign currencies. These contracts do
not subject usthe Company to risk from exchange rate movements because the gains
or losses on the contracts offset losses or gains, respectively, on the
receivables or payables being hedged. As of September 30, 1999, weMarch 31, 2000, Lennox had obligations to
deliver the equivalent of $20.3$34.1 million of various foreign currencies at various
dates through July 31, 2001, and contracts to take $2.2 million of various
foreign currencies through June 30, 2000 for which the counterparties to the
contracts will pay or receive fixed contract amounts, and obligations to take the
equivalent of $3.2 million of various currencies at various dates through
December 9, 1999.
We haveamounts.
Lennox has contracts with various suppliers to purchase copper and aluminum
for use in our manufacturing processes. As of September 30, 1999, weMarch 31, 2000, Lennox had contracts
to purchase 24.316.2 million pounds of copper through 2000over the next 12 months at fixed
prices that average $0.7337$0.736 per pound ($17.812.0 million) and contracts to purchase
six million pounds of copper at a variable price equal to a market price over
the next 12 months. We. The Company also had
contracts to purchase 6.94.0 million pounds of aluminum at prices that average
$0.6800$0.7058 per pound ($4.72.8 million) over the next 1512 months. Additionally, the CompanyLennox is committedalso
obligated to purchasing 7.2purchase 8.6 million pounds of aluminum fin stock at $1.013an average
price of $1.057 per pound ($7.39.1 million) through 2000.. The fair value of thesethe copper and
aluminum purchase commitments was an asset of $2.4$1.4 million at September 30, 1999.March 31, 2000.
14
15
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
If4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a stockholder wishes to haveSpecial Meeting of Stockholders held on January 21, 2000, the Lennox
stockholders voted on a proposal considered for inclusion in
Lennox's proxy materials for the 2000 annual meetingissuance of stockholders, the
proposal must complyshares of Lennox common
stock in connection with the Securitiesacquisition of Service Experts, Inc. With respect
to such proposal, 33,640,778 votes were cast for, 271,114 votes were cast
against, and Exchange Commission's proxy rules,
be stated in writing and be submitted on or before November 22, 1999. Any
proposals should be mailed to Lennox at 2140 Lake Park Blvd., Richardson, Texas
75080, Attention: Corporate Secretary.53,952 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit Number Description
- -------------- -----------
*3.1 --RestatedExhibit Number Description
* 3.1 -- Restated Certificate of Incorporation of Lennox
(Incorporated herein by reference to Exhibit 3.1 to Lennox's
Registration Statement on Form S-1 (Registration No.
333-75725)).
* 3.2 -- Amended and Restated Bylaws of Lennox (Incorporated herein
by reference to Exhibit 3.2 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
* 4.1 -- Specimen stock certificate for the Common Stock, par value
$.01 per share, of Lennox (Incorporated herein by reference
to Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-75725)).
27.1 -- Financial Data Schedule (filed herewith).
*3.2 --Amended and Restated Bylaws of Lennox (Incorporated herein
by reference to Exhibit 3.2 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
*4.1 --Specimen stock certificate for the Common Stock, par value
$.01 per share, of Lennox (Incorporated herein by reference
to Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-75725)).
10.1 --Master Shelf Agreement, dated as of October 15, 1999,
between Lennox and The Prudential Insurance Company of
America relating to Senior Notes to be issued in a maximum
principal amount of $100,000,000.
27.1 --Financial Data Schedule.
- -------------------
* Incorporated herein by reference as indicated.
Reports on Form 8-K
None.
18A report on Form 8-K dated February 3, 2000 was filed by the Company. The
report includes information under Items 2 and 7 concerning the Company's
acquisition of Service Experts, Inc.
A report on Form 8-K/A dated February 16, 2000 was filed by the Company.
The report includes information under Items 2 and 7 concerning the Company's
acquisition of Service Experts, Inc.
A report on Form 8-K dated February 28, 2000 was filed by the Company. The
report includes information under Items 5 and 7 concerning the Company's
financial results for the fourth quarter and year ended December 31, 1999.
15
1916
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNOX INTERNATIONAL INC.
Date: November 12, 1999May 11, 2000
/s/ Clyde W. Wyant
----------------------------------------------------------------------------
Principal Financial Officer
and Duly Authorized Signatory
19
2017
EXHIBIT INDEX TO EXHIBITS
EXHIBIT NUMBERNO. DESCRIPTION
--------- ----------- -----------
*3.1 --Restated Certificate of Incorporation of Lennox
(Incorporated herein by reference to Exhibit 3.1 to
Lennox's Registration Statement on Form S-1 (Registration
No. 333-75725)).
*3.2 --Amended and Restated Bylaws of Lennox (Incorporated herein
by reference to Exhibit 3.2 to Lennox's Registration
Statement on Form S-1 (Registration No. 333-75725)).
*4.1 --Specimen stock certificate for the Common Stock, par value
$.01 per share, of Lennox (Incorporated herein by reference
to Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Registration No. 333-75725)).
10.1 --Master Shelf Agreement, dated as of October 15, 1999,
between Lennox and The Prudential Insurance Company of
America relating to Senior Notes to be issued in a maximum
principal amount of $100,000,000.
27.1 --FinancialFinancial Data Schedule.Schedule
- -------------------
* Incorporated herein by reference as indicated.