Exhibit 99.1
LENNOX INTERNATIONAL REPORTS THIRD QUARTER EPS OF $0.46
(DALLAS, TX - October 22, 2002) -- Lennox International Inc. (NYSE: LII)
today reported third quarter results for 2002, showing substantial growth in
margins and profitability. GAAP income for the quarter rose sharply to $28
million, an increase of more than 80% from $15 million in the year ago period.
GAAP earnings per diluted share were up 70% to $0.46 from $0.27 a year ago.
Reported operating income grew 28% to $53 million, while operating margins
expanded to 6.4% from 5.0% last year. These significant improvements were
realized despite a modest 1% decline in total revenues to $819 million from $825
million in third quarter 2001.
If the FAS 142 accounting rule eliminating amortization had been effective
in 2001, operating income in third quarter 2001 would have been $5 million
higher and EPS would have been $0.35. Also, third quarter 2002 earnings
benefited from the favorable outcome of tax contingencies from prior years,
reducing the provision for income taxes by $3 million and adding $0.05 per share
to earnings.
"LII has achieved our third consecutive quarter of improvement from our
previous year's results," said Bob Schjerven, chief executive officer. "While
demand from our commercial customers for heating, cooling, and refrigeration
equipment and services has been soft, favorable weather supported our
residential businesses. Still, despite mixed demand, our profitability grew
significantly, we generated $62 million in free cash, and the debt level on our
balance sheet is at its lowest point since LII went public in 1999."
As of September 30, 2002, the company's total debt was $410 million, down
$157 million from a year ago. Debt to total capital improved to 46.7%.
STRATEGIC FOCUS SHARPENS ON THREE CORE BUSINESSES; REPORTING SIMPLIFIED
The company continues to focus its resources on its three core businesses:
heating and cooling, Service Experts, and refrigeration. Consistent with this
strategic focus and beginning this quarter, LII has streamlined and simplified
its reporting structure to report results in these three business segments.
Several non-recurring events related to narrowing the company's focus to
its core businesses affected third quarter 2002 earnings. A gain on the sale of
55% of LII's heat transfer business to Outokumpu Oyj in late August was almost
entirely offset by charges, as detailed in the comments and table below,
including:
- - A $3.6 million pre-tax charge was incurred to write off the investment in
a joint venture in Argentina, as the company exited the HVAC business in
that very volatile market. This partially offset a pre-tax $12.5 million
gain on the Outokumpu heat transfer joint venture transaction, resulting
in a net pre-tax gain of $8.9 million or $5.8 million after taxes.
- - A charge of $2.1 million in the quarter, with no tax benefit, was incurred
to close a commercial refrigeration equipment factory in Europe
eliminating excess capacity, as part of the restructuring program
announced in the fourth quarter of 2001.
- - A restructuring charge of $4.7 million, or $3.3 million after-tax, was
incurred as the company began to wind down a residual piece of the heat
transfer business that does not fit with LII's strategic focus and was not
included in the joint venture with Outokumpu. LII will continue to wind
down the business through 2003 and anticipates an additional $1 million in
related restructuring charges.
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LENNOX INTERNATIONAL REPORTS THIRD QUARTER RESULTS/PAGE 2
LENNOX INTERNATIONAL INC. - SEGMENT OPERATING INCOME RECONCILIATION
(IN THOUSANDS)
THREE MONTHS ENDED INCOME FROM GOODWILL RESTRUCTURING (GAINS) LOSSES AND ADJUSTED INCOME
SEPTEMBER 30, 2002: OPERATIONS AMORTIZATION CHARGES OTHER EXPENSES FROM OPERATIONS
- ------------------- ---------- ------------ ------- -------------- ---------------
Heating and Cooling $ 41,395 $ -- $ 15 $ -- $ 41,410
Service Experts ... 13,076 -- -- -- 13,076
Refrigeration ..... 6,757 -- 2,061 -- 8,818
Corporate and other (8,745) -- 4,666 (8,931) (13,010)
Eliminations ...... 141 -- -- -- 141
---------- ---------- ---------- ---------- ----------
Income from
Operations ..... $ 52,624 $ -- $ 6,742 $ (8,931) $ 50,435
========== ========== ========== ========== ==========
THREE MONTHS ENDED INCOME FROM GOODWILL RESTRUCTURING (GAINS) LOSSES AND ADJUSTED INCOME
SEPTEMBER 30, 2001: OPERATIONS AMORTIZATION CHARGES OTHER EXPENSES FROM OPERATIONS
Heating and Cooling $ 39,021 $ 843 $ -- -- $ 39,864
Service Experts ... 3,840 3,569 -- -- 7,409
Refrigeration ..... 7,078 313 -- -- 7,391
Corporate and other (9,561) 425 -- -- (9,136)
Eliminations ...... 878 -- -- -- 878
---------- ---------- ---------- ---------- ----------
Income from
Operations ..... $ 41,256 $ 5,150 $ -- -- $ 46,406
========== ========== ========== ========== ==========
BUSINESS SEGMENT HIGHLIGHTS
To facilitate comparisons of operating performance, the segment data below
are adjusted for restructuring and other non-recurring charges, and the new
goodwill accounting standard.
HEATING AND COOLING: This segment includes the company's previously
reported North American residential products and commercial air conditioning
segments. Quarterly revenues increased 4% to $469 million. Segment operating
income for the quarter also increased 4% to $41 million, while segment operating
margins were flat year-over-year at 8.8%. Shipments of the company's residential
equipment increased by 8% due in large part to favorable weather during the
cooling season and low inventory levels in the supply chain. Domestic commercial
shipments declined by only 3% during a period of double-digit industry declines,
caused by depressed construction activity.
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LENNOX INTERNATIONAL REPORTS THIRD QUARTER RESULTS/PAGE 3
SERVICE EXPERTS: The company's retail business segment saw its quarterly
operating profit increase 76% to $13 million, with operating margins expanding
240 basis points from last year to 5.2%. Gross margins improved, and S,G & A
expenses continued to run below last year both at the center and corporate
levels. Revenues declined 6% to $252 million. On a same store basis, adjusting
for dealer centers that were sold or closed, third quarter sales were down 5%.
"We continue to realize operational improvements in this business,"
Schjerven said. "We are also acutely aware the top line remains challenging, and
our Service Experts management is currently exploring numerous marketing and
business development initiatives to address this situation consistent with our
goal of continued improvement in profitability."
REFRIGERATION: Third quarter revenues in LII's refrigeration segment were
up 7% at $93 million. Segment operating income climbed 19% to $9 million, with
operating margins expanding 100 basis points to 9.5%. "Our domestic operation
continues a very solid record of performance, with EBIT margins in the mid-teens
and increasing market share," Schjerven noted.
BUSINESS OUTLOOK: FULL-YEAR 2002
LII management continues to expect revenues from continuing businesses
will be down approximately 2%. Reported company revenues are expected to decline
by about 5%, including the drop in revenue from the heat transfer joint venture
which will not be reported on the company's financial statements in the future.
Based on earnings for the first nine months of this year, the company expects
diluted EPS for full-year 2002 -- excluding restructuring, goodwill impairment
and other non-recurring items -- will be in the range of $0.90 to $1.00,
consistent with previously issued guidance. The company also expects to exceed
the previously stated free cash flow projection of $75 million, based on
performance year-to-date.
"While never satisfied, we are pleased LII's financial improvement
continued in the third quarter," Schjerven said. "Our management team believes
we have the programs and processes in place to deliver on our full-year
projections."
LII has scheduled a conference call to discuss financial results for the
third quarter 2002 on Wednesday, October 23 at 9:30 a.m. Central time. All
interested parties are invited to listen as Bob Schjerven, CEO and Rick Smith,
CFO comment on the company's operating results. To listen, please call the
conference call line at 612-332-0228 ten minutes prior to the scheduled start
time and use reservation number 655944. The number of connections for this call
is limited to 200.
This conference call will be broadcast live on the Internet and can be
accessed at http://www.firstcallevents.com/service/ajwz367093174gf12.html. A
link to the broadcast can also be found on the company's web site at
http://www.lennoxinternational.com. If you are unable to participate in this
conference call, a replay will be available from 1:00 p.m. October 23 through
October 30, 2002 on the Internet or by dialing 800-475-6701, access code 655944.
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LENNOX INTERNATIONAL REPORTS THIRD QUARTER RESULTS/PAGE 4
Selling heating, ventilation, air conditioning, and refrigeration
equipment in over 70 countries, Lennox International Inc. is a global leader in
climate control solutions. Lennox operates in three key business segments:
Heating and cooling, Service Experts, and refrigeration. Lennox International
stock is traded on the New York Stock Exchange under the symbol "LII".
Additional information is available at: http://www.lennoxinternational.com or by
contacting Bill Moltner, vice president, investor relations, at 972-497-6670.
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are subject
to numerous risks and uncertainties that could cause actual results to differ
materially from such statements. For information concerning these risks and
uncertainties, see Lennox' publicly available filings with the Securities and
Exchange Commission. Lennox disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited, in thousands, except per share data)
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------------
2002 2001 (a) 2002 2001 (a)
--------- --------- ----------- -----------
NET SALES ......................................................... $ 818,844 $ 825,060 $ 2,321,403 $ 2,386,564
COST OF GOODS SOLD ................................................ 562,737 575,664 1,590,605 1,665,036
--------- --------- ----------- -----------
Gross profit .............................................. 256,107 249,396 730,798 721,528
OPERATING EXPENSES:
Selling, general and administrative expense ................... 205,672 208,140 618,275 644,252
Restructurings (b) ............................................ 6,742 -- 8,617 34,631
(Gains) Losses and other expenses ............................. (8,931) -- (8,931) --
--------- --------- ----------- -----------
Income from operations .................................... 52,624 41,256 112,837 42,645
INTEREST EXPENSE, net ............................................. 8,945 10,330 25,086 34,608
OTHER ............................................................. (288) (93) (819) 285
MINORITY INTEREST ................................................. 77 2 204 135
--------- --------- ----------- -----------
Income before income taxes and cumulative
effect of accounting change ............................... 43,890 31,017 88,366 7,617
PROVISION FOR INCOME TAXES ....................................... 16,312 15,838 34,591 9,697
--------- --------- ----------- -----------
Income (loss) before cumulative effect of accounting change 27,578 $ 15,179 53,775 $ (2,080)
--------- --------- ----------- -----------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................ -- -- 249,224 --
--------- --------- ----------- -----------
Net income (loss) ......................................... $ 27,578 $ 15,179 $ (195,449) $ (2,080)
========= ========= =========== ===========
INCOME (LOSS) PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE:
Basic ......................................................... $ 0.48 $ 0.27 $ 0.94 $ (0.04)
Diluted ....................................................... $ 0.46 $ 0.27 $ 0.91 $ (0.04)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
PER SHARE:
Basic ......................................................... $ -- $ -- $ (4.36) $ --
Diluted ....................................................... $ -- $ -- $ (4.24) $ --
NET INCOME (LOSS) PER SHARE:
Basic ......................................................... $ 0.48 $ 0.27 $ (3.42) $ (0.04)
Diluted ....................................................... $ 0.46 $ 0.27 $ (3.32) $ (0.04)
(a) Prior year's sales, cost of sales and operating expenses are restated to
conform with current year treatment of certain promotional payments in
line with the adoption of EITF 01-9 in 2002.
(b) Nine months ended September 30, 2001 restructurings totaled $38,000, of
which $3,369 is included in Cost of Goods Sold.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT
For the Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited, in thousands, except per share data)
For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
------------------------------------ -----------------------------------
Net Sales 2002 2001 2002 2001
- --------- ----------- ----------- ----------- -----------
Heating & Cooling ..... $ 468,821 $ 450,657 $ 1,293,212 $ 1,287,973
Service Experts ....... 251,573 266,683 708,053 759,400
Refrigeration ......... 92,811 86,847 273,152 263,775
Corporate and other (a) 33,055 48,548 128,150 156,866
Eliminations .......... (27,416) (27,675) (81,164) (81,450)
----------- ----------- ----------- -----------
$ 818,844 $ 825,060 $ 2,321,403 $ 2,386,564
=========== =========== =========== ===========
Income (Loss) from Operations -
before Restructurings, For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
------------------------------------------- --------------------------------------------
(Gains) Losses & Other Expenses 2002 2001 2001 Adj. (b) 2002 2001 2001 Adj.(b)
- ------------------------------- ---- ---- ------------- ---- ---- ------------
Heating & Cooling ............. $ 41,410 $ 39,021 $ 39,864 $ 98,585 $ 90,574 $ 93,324
Service Experts ............... 13,076 3,840 7,409 26,169 (5,291) 3,981
Refrigeration ................. 8,818 7,078 7,391 26,032 20,559 21,529
Corporate and other (a) ....... (13,010) (9,561) (9,136) (37,566) (27,952) (26,817)
Eliminations .................. 141 878 878 (697) (614) (614)
--------- --------- --------- --------- --------- ---------
$ 50,435 $ 41,256 $ 46,406 $ 112,523 $ 77,276 $ 91,403
========= ========= ========= ========= ========= =========
(a) In the third quarter of 2002, the Company formed a joint venture with
Outokumpu Oyj ("Outokumpu") of Finland by selling to Outokumpu a 55
percent interest in the Company's heat transfer business segment for
approximately $55 million. The net sales and results of operations for the
current periods and all prior periods of the Company's former heat
transfer business segment are now included in Corporate and other.
(b) To facilitate comparisons, the reported segment Income (Loss) from
Operations amounts for the three and nine months ended September 30, 2001
have been adjusted to reflect the discontinuation of goodwill and
trademark amortization under SFAS 142.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2002 and December 31, 2001
(In thousands, except share data)
ASSETS
September 30, December 31,
2002 2001
---- ----
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 55,925 $ 34,393
Accounts and notes receivable, net ........................... 364,252 291,485
Inventories .................................................. 250,340 281,170
Deferred income taxes ........................................ 45,281 42,662
Other assets ................................................. 62,725 63,655
----------- -----------
Total current assets ................................ 778,523 713,365
PROPERTY, PLANT AND EQUIPMENT, net .............................. 238,017 291,531
GOODWILL, net ................................................... 418,003 704,713
OTHER ASSETS .................................................... 146,954 84,379
----------- -----------
TOTAL ASSETS ........................................ $ 1,581,497 $ 1,793,988
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt .............................................. $ 24,778 $ 23,701
Current maturities of long-term debt ......................... 15,278 28,895
Accounts payable ............................................. 261,614 242,534
Accrued expenses ............................................. 278,620 249,546
Income taxes payable ......................................... 35,387 9,870
----------- -----------
Total current liabilities ........................... 615,677 554,546
LONG-TERM DEBT .................................................. 369,992 465,163
DEFERRED INCOME TAXES ........................................... 876 673
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS .................... 13,642 14,014
OTHER LIABILITIES ............................................... 111,467 103,301
----------- -----------
Total liabilities ................................... 1,111,654 1,137,697
MINORITY INTEREST ............................................... 1,412 1,651
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,
62,589,638 shares and 60,690,198 shares issued
for 2002 and 2001, respectively ........................... 626 607
Additional paid-in capital ................................... 396,755 372,877
Retained earnings ............................................ 171,780 383,566
Accumulated other comprehensive loss ......................... (59,516) (68,278)
Deferred compensation ........................................ (10,498) (3,710)
Treasury stock, at cost, 3,009,656 and 2,980,846 shares
for 2002 and 2001, respectively .......................... (30,716) (30,422)
----------- -----------
Total stockholders' equity .......................... 468,431 654,640
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......... $ 1,581,497 $ 1,793,988
=========== ===========
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