EXHIBIT 99.1
LENNOX INTERNATIONAL REPORTS Q4 AND FULL-YEAR 2002 EARNINGS IN LINE WITH
GUIDANCE
(Dallas, TX - February 5, 2003) -- Lennox International Inc. (NYSE:
LII) announced today its fourth quarter and full-year 2002 earnings, in line
with previous guidance.
FOURTH QUARTER 2002 RESULTS
LII's net sales for the fourth quarter of 2002 decreased 3% to $704
million. Excluding the effects of the heat transfer joint venture and the
activities of other non-core operations, company-wide sales, in constant
currencies, were up 2%. Operating income was $13 million, contrasted with an
operating loss of $43 million last year, reflecting improvements in all of LII's
business segments. Operating margins expanded to 1.8%.
Net income was $5 million, or $0.08 per diluted share, compared with a
loss in the prior year of $40 million, or $0.72 per diluted share. Changes in
foreign exchange rates benefited earnings per share in the fourth quarter by
$0.01. The prior year fourth quarter net loss included restructuring charges of
$28 million, net of tax, or $0.50 per share.
FULL-YEAR 2002 RESULTS
Sales for full-year 2002 were $3 billion, down 3% from 2001, with
changes in foreign exchange rates benefiting revenues by less than 1%. Sales in
the company's core businesses, in constant currencies, were down less than 1%.
Favorable weather supported LII's domestic residential businesses in 2002, while
demand from commercial customers for heating, cooling, and refrigeration
equipment and services remained soft. Sales outside the U.S. and Canada
accounted for 13% of total LII revenues.
Operating income for the year increased to $126 million from an
operating loss of $1 million in 2001. Higher volumes in LII's Heating & Cooling
and Refrigeration businesses, along with lower cost structures across all LII
operations, contributed to improved operating margins of 4.2% in 2002.
Including the $249 million goodwill impairment charge the company
recorded in the first quarter, LII reported a net loss of $190 million, or $3.23
per diluted share, in 2002, compared with a loss in the previous year of $42
million, or $0.75 per diluted share. This full-year loss per share included
restructuring charges; gains, losses, and other items; and FAS 142 impairment of
goodwill, totaling a diluted loss per share of $4.19. Excluding these items,
LII's diluted earnings per share of $0.96 were in line with the company's
previously stated guidance of $0.90-$1.00, as reconciled in the table below.
LENNOX INTERNATIONAL INC. - PRO FORMA NET INCOME RECONCILIATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
FOR THE TWELVE
MONTHS ENDED DILUTED EARNINGS
DEC. 31, 2002 PER SHARE
-------------- ----------------
Net Loss, as Reported $ (190,423) $ (3.23)
Cumulative Effect of Accounting Change 249,224 4.23
Restructurings, Net of Income Tax 6,121 0.10
(Gains) Losses and Other Expenses, Net of Income Tax (5,210) (0.09)
Adjustment to Prior Year Taxes (3,000) (0.05)
-------------- ----------------
Pro Forma Net Income $ 56,712 $ 0.96
============== ================
</Table>
LII generated full-year free cash flow of $191 million, allowing the
company to reduce its total debt by $138 million from the end of 2001. As
historically defined by LII, free cash flow is cash from operations less capital
expenditures, before dividends, asset securitizations, restructurings and gains,
losses and other items. Reflecting its continued focus on the balance sheet, LII
has lowered debt by over $310 million in the past 24 months.
"Despite a challenging global economic environment, LII made dramatic
progress improving financial performance in 2002," said Bob Schjerven, chief
executive officer. "We performed in line with our recent guidance, while forging
the structure of a strong, focused company poised to deliver enhanced
shareholder value going forward."
FOURTH QUARTER AND FULL-YEAR 2002 RESULTS: SEGMENT PERFORMANCE
The following tables show LII's operating performance. Segment
operating income is defined as income from operations as reported in the
company's statement of operations, adjusted to exclude restructuring charges;
other operating gains, losses and expenses; and amortization of goodwill.
LENNOX INTERNATIONAL INC. - SEGMENT OPERATING INCOME RECONCILIATION
(IN THOUSANDS)
<Table>
<Caption>
GOODWILL & SEGMENT
THREE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING
DECEMBER 31, 2002: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME
- ------------------ ----------- ------------ -------------- ------------------ ---------
Residential $ 27,392 $ -- $ 112 $ -- $ 27,504
Commercial 6,086 -- -- -- 6,086
----------- ------------ -------------- ------------------ ---------
Heating and Cooling 33,478 -- 112 -- 33,590
Service Experts (2,055) -- -- -- (2,055)
Refrigeration 8,726 -- (207) -- 8,519
Corporate and other (27,255) -- (693) 1,039 (26,909)
Eliminations (86) -- -- -- (86)
----------- ------------ -------------- ------------------ ---------
Income from Operations $ 12,808 $ -- $ (788) $ 1,039 $ 13,059
=========== ============ ============== ================== =========
</Table>
<Table>
<Caption>
GOODWILL & SEGMENT
THREE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING
DECEMBER 31, 2001: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME
- ------------------ ----------- ------------ -------------- ------------------ ---------
Residential $ 2,392 $ 742 $ 7,183 $ -- $ 10,317
Commercial (293) 81 4,720 4,508
----------- ------------ -------------- ------------------ ---------
Heating and Cooling 2,099 823 11,903 -- 14,825
Service Experts (8,880) 2,959 -- -- (5,921)
Refrigeration 3,960 304 305 -- 4,569
Corporate and other (41,051) 425 18,502 -- (22,124)
Eliminations 531 -- -- -- 531
----------- ------------ -------------- ------------------ ---------
Income from Operations $ (43,341) $ 4,511 $ 30,710 $ -- $ (8,120)
=========== ============ ============== ================== =========
</Table>
<Table>
<Caption>
GOODWILL & SEGMENT
TWELVE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING
DECEMBER 31, 2002: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME
- ------------------- ----------- ------------ -------------- ------------------ ---------
Residential $ 111,466 $ -- $ 1,582 $ -- $ 113,048
Commercial 19,127 -- -- -- 19,127
----------- ------------ -------------- ------------------ ---------
Heating and Cooling 130,593 -- 1,582 -- 132,175
Service Experts 24,114 -- -- -- 24,114
Refrigeration 32,276 -- 2,275 -- 34,551
Corporate and other (60,555) -- 3,972 (7,892) (64,475)
Eliminations (783) -- -- -- (783)
----------- ------------ -------------- ------------------ ---------
Income from Operations $ 125,645 $ -- $ 7,829 $ (7,892) $ 125,582
=========== ============ ============== ================== =========
</Table>
<Table>
<Caption>
GOODWILL & SEGMENT
TWELVE MONTHS ENDED INCOME FROM TRADEMARK (GAINS) LOSSES AND OPERATING
DECEMBER 31, 2001: OPERATIONS AMORTIZATION RESTRUCTURINGS OTHER EXPENSES INCOME
- ------------------- ----------- ------------ -------------- ------------------ ---------
Residential $ 74,480 $ 3,178 $ 7,183 $ -- $ 84,841
Commercial 18,193 395 4,720 -- 23,308
----------- ------------ -------------- ------------------ ---------
Heating and Cooling 92,673 3,573 11,903 -- 108,149
Service Experts (48,802) 12,231 34,631 -- (1,940)
Refrigeration 24,519 1,274 305 -- 26,098
Corporate and other (69,003) 1,560 18,502 -- (48,941)
Eliminations (83) -- -- -- (83)
----------- ------------ -------------- ------------------ ---------
Income from Operations $ (696) $ 18,638 $ 65,341 $ -- $ 83,283
=========== ============ ============== ================== =========
</Table>
To facilitate comparisons of operating performance in the fourth
quarter, the segment data below are adjusted for restructuring, other
non-recurring charges, and the new goodwill accounting standard.
HEATING & COOLING revenues rose 6% in the fourth quarter of 2002 to
$398 million. Segment operating income more than doubled to $33.6 million from
$14.8 million last year. Operating margins for the quarter rose to 8.4% from
3.9% in 2001.
In the Residential Heating & Cooling segment, revenues rose 8% during
the quarter to $284 million. Operating income increased to $27.5 million from
$10.3 million last year, with operating margins expanding 580 basis points to
9.7%. Seasonally favorable weather and strong performances by Lennox Industries'
Dave Lennox Signature(TM) Collection product line, along with exceptionally
strong performances from LII's Ducane and Advanced Distributor Products (ADP)
units, led the residential segment.
Revenues in the Commercial Heating & Cooling segment were flat at $114
million, and were down 4% when adjusted for changes in foreign exchange rates.
Operating income increased 35% to $6.1 million, while operating margins expanded
140 basis points to 5.3%. Paring back of unprofitable operations in Asia and
Australia during 2002 and an improved domestic product mix contributed to strong
commercial business improvements.
SERVICE EXPERTS revenues declined 3% when compared to the previous
year, primarily because there was one fewer week of operations included in this
year's quarter. Excluding the effects of the additional week of operations in
the previous year and the effect of centers closed in 2001, same-store sales
increased 2%.
Service Experts posted an operating loss of $2.1 million for the
quarter, with results negatively impacted by approximately $4.6 million in
increased expenses due to a change in estimates in self-insured insurance costs.
These results mark a substantial improvement over the segment operating loss of
$5.9 million reported a year ago.
REFRIGERATION segment revenue rose 8%, or 3% in constant currencies.
Segment operating income was $8.5 million, up 86% from last year. Operating
margins increased to 9.4% from 5.4% in fourth quarter 2001. Every LII global
refrigeration operation achieved improved performance for the quarter.
OUTLOOK FOR 2003
After a record year for industry shipments of residential equipment and
with the timing for economic recovery unclear, company revenues are expected to
be relatively flat in 2003. However, earnings are anticipated to improve based
on continued focus on cost reduction initiatives and the full-year effects of
other actions taken in 2002. Earnings per share are anticipated to be in the
range of $1.10 to $1.20, a 15-25% improvement over this year's result. Continued
strength in free cash flow is expected, with 2003 free cash flow approximately
equal to net income.
"LII is well-positioned for the future," Schjerven said. "Continued
improvements in our core businesses are generating the cash needed to take
advantage of important opportunities down the road, while a stronger balance
sheet provides more flexibility for growth initiatives. We are encouraged by our
progress in 2002, and look forward to continued improvement this year."
CONFERENCE CALL SCHEDULED
LII has scheduled a conference call to discuss financial results for
the fourth quarter and full-year 2002 on Thursday, February 6 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 612-326-1003 ten minutes prior to the
scheduled start time and use reservation number 671379. The number of
connections for this call is limited to 200.
This conference call will be broadcast live on the Internet by
PRNewswire and can be accessed at
http://www.firstcallevents.com/service/ajwz372512125gf12.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. February 06 through
February 13, 2003 on the Internet or by dialing 800-475-6701, access code
671379.
A Fortune 500 company operating in over 70 countries, Lennox
International Inc. is a global leader in the heating, ventilation, air
conditioning, and refrigeration markets. 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 Twelve Months Ended December 31, 2002 and 2001
(In thousands, except per share data)
<Table>
<Caption>
For the For the
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------- --------------------------
2002 2001(a) 2002 2001(a)
------------ ----------- ------------ -----------
NET SALES ............................................................ $ 704,364 $ 727,085 $ 3,025,767 $ 3,113,649
COST OF GOODS SOLD ................................................... 483,422 534,225 2,074,027 2,199,261
------------ ----------- ------------ -----------
Gross profit .................................................. 220,942 192,860 951,740 914,388
OPERATING EXPENSES:
Selling, general and administrative expense ....................... 207,883 205,491 826,158 849,743
Restructurings(b) ................................................. (788) 30,710 7,829 65,341
(Gains) Losses and other expenses ................................. 1,039 -- (7,892) --
------------ ----------- ------------ -----------
Income (loss) from operations ............................... 12,808 (43,341) 125,645 (696)
INTEREST EXPENSE, net ................................................ 6,756 8,536 31,842 43,144
OTHER ................................................................ (379) 146 (1,198) 431
MINORITY INTEREST .................................................... 117 (10) 321 125
------------ ----------- ------------ -----------
Income (loss) before income taxes and cumulative
effect of accounting change ................................... 6,314 (52,013) 94,680 (44,396)
PROVISION FOR (BENEFIT FROM) INCOME TAXES ............................ 1,288 (11,695) 35,879 (1,998)
------------ ----------- ------------ -----------
Income (loss) before cumulative effect of accounting change ... 5,026 $ (40,318) 58,801 $ (42,398)
------------ ----------- ------------ -----------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................... -- -- 249,224 --
------------ ----------- ------------ -----------
Net income (loss) ............................................. $ 5,026 $ (40,318) $ (190,423) $ (42,398)
============ =========== ============ ===========
INCOME (LOSS) PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE:
Basic .......................................................... $ 0.09 $ (0.72) $ 1.03 $ (0.75)
Diluted ........................................................ $ 0.08 $ (0.72) $ 1.00 $ (0.75)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE PER SHARE:
Basic ........................................................... $ -- $ -- $ (4.35) $ --
Diluted ......................................................... $ -- $ -- $ (4.23) $ --
NET INCOME (LOSS) PER SHARE:
Basic ........................................................... $ 0.09 $ (0.72) $ (3.32) $ (0.75)
Diluted ......................................................... $ 0.08 $ (0.72) $ (3.23) $ (0.75)
</Table>
(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) Twelve months ended December 31, 2001 restructurings totaled $73,173, of
which $7,832 is included in Cost of Goods Sold.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT
For the Three Months and Twelve Months Ended December 31, 2002 and 2001
(In thousands)
<Table>
<Caption>
For the Three Months Ended Dec. 31, For the Twelve Months Ended Dec. 31,
----------------------------------- ------------------------------------
NET SALES 2002 2001 2002 2001
- --------- ------------ ------------ ------------ ------------
Residential .................. $ 283,975 $ 262,499 $ 1,249,106 $ 1,195,110
Commercial ................... 114,276 114,603 442,357 469,965
------------ ------------ ------------ ------------
Heating & Cooling ........... 398,251 377,102 1,691,463 1,665,075
Service Experts .............. 235,726 243,164 943,779 1,002,564
Refrigeration ................ 90,642 84,312 363,794 348,087
Corporate and other(a) ....... 1,156 43,639 129,306 200,505
Eliminations ................. (21,411) (21,132) (102,575) (102,582)
------------ ------------ ------------ ------------
$ 704,364 $ 727,085 $ 3,025,767 $ 3,113,649
============ ============ ============ ============
</Table>
<Table>
<Caption>
INCOME (LOSS) FROM OPERATIONS - For the Three Months Ended Dec. 31, For the Twelve Months Ended Dec. 31,
BEFORE RESTRUCTURINGS, ---------------------------------------- ----------------------------------------
(GAINS) LOSSES & OTHER EXPENSES 2002 2001 2001 Adj.(b) 2002 2001 2001 Adj.(b)
- ------------------------------- ---------- ---------- ------------ ---------- ---------- ------------
Residential ................... $ 27,504 $ 9,575 $ 10,317 $ 113,048 $ 81,663 $ 84,841
Commercial .................... 6,086 4,427 4,508 19,127 22,913 23,308
---------- ---------- ------------ ---------- ---------- ------------
Heating & Cooling ............ 33,590 14,002 14,825 132,175 104,576 108,149
Service Experts ............... (2,055) (8,880) (5,921) 24,114 (14,171) (1,940)
Refrigeration ................. 8,519 4,265 4,569 34,551 24,824 26,098
Corporate and other(a) ........ (26,909) (22,549) (22,124) (64,475) (50,501) (48,941)
Eliminations .................. (86) 531 531 (783) (83) (83)
---------- ---------- ------------ ---------- ---------- ------------
$ 13,059 $ (12,631) $ (8,120) $ 125,582 $ 64,645 $ 83,283
========== ========== ============ ========== ========== ============
</Table>
(a) In the third quarter of 2002, the Company formed a joint venture with
Outokumpu ("Outokumpu") Oyj 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 twelve months ended December 31, 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 December 31, 2002 and December 31, 2001
(In thousands, except share data)
<Table>
<Caption>
ASSETS
December 31, December 31,
2002 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 76,369 $ 34,393
Accounts and notes receivable, net ................................ 307,334 291,485
Inventories ....................................................... 219,682 281,170
Deferred income taxes ............................................. 33,270 42,662
Other assets ...................................................... 38,400 63,655
------------ ------------
Total current assets ........................................ 675,055 713,365
PROPERTY, PLANT AND EQUIPMENT, net ................................... 231,042 291,531
GOODWILL, net ........................................................ 420,802 704,713
OTHER ASSETS ......................................................... 194,819 84,379
------------ ------------
TOTAL ASSETS ................................................ $ 1,521,718 $ 1,793,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ................................................... $ 9,255 $ 23,701
Current maturities of long-term debt .............................. 13,871 28,895
Accounts payable .................................................. 247,598 242,534
Accrued expenses .................................................. 253,929 249,546
Income taxes payable .............................................. 12,808 9,870
------------ ------------
Total current liabilities ................................... 537,461 554,546
LONG-TERM DEBT ....................................................... 356,747 465,163
DEFERRED INCOME TAXES ................................................ -- 673
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS ......................... 13,472 14,014
OTHER LIABILITIES .................................................... 159,648 103,301
------------ ------------
Total liabilities ........................................... 1,067,328 1,137,697
MINORITY INTEREST .................................................... 1,591 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,
63,039,254 shares and 60,690,198 shares issued
for 2002 and 2001, respectively ................................ 630 607
Additional paid-in capital ........................................ 404,723 372,877
Retained earnings ................................................. 171,316 383,566
Accumulated other comprehensive loss .............................. (79,636) (68,278)
Deferred compensation ............................................. (13,518) (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 .................................. 452,799 654,640
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 1,521,718 $ 1,793,988
============ ============
</Table>
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