EXHIBIT 99.1
LENNOX INTERNATIONAL REPORTS FIRST QUARTER 2003 EARNINGS;
FINANCIAL IMPROVEMENT TREND CONTINUES
(DALLAS, TX -- April 22, 2003) -- Lennox International Inc. (NYSE:LII)
announced first quarter 2003 diluted earnings per share of $0.04, continuing a
trend of improved financial performance despite continued softness in end-market
demand.
Sales decreased 4% to $650 million from $674 million in last year's
first quarter. In constant currencies and adjusting for the loss of $46 million
heat transfer revenue, most of which is now part of the company's joint venture
with Outokumpu and no longer reported by LII, total sales were up 1%.
International sales (sales outside the U.S. and Canada) generated 13% of total
LII revenues.
Consolidated operating income rose 20% to $10.6 million from $8.8
million. First quarter 2002 operating earnings included $700,000 in pre-tax
restructuring charges associated with the closure of LII's Toronto manufacturing
facility. The first quarter 2003 operating margin was 1.6%, compared with 1.3%
last year.
Net income was $2.5 million, contrasted with a net loss of $248.7
million last year. Last year's net loss was affected by a $249.2 million
after-tax goodwill impairment charge. Diluted earnings per share were $0.04
compared with a loss per share of $4.38 in first quarter 2002. Pro-forma diluted
earnings per share for first quarter 2002, adjusting for the goodwill impairment
charge and $400,000 in after-tax restructuring charges, was $0.02. Foreign
exchange benefited earnings per share by $0.01 in the first quarter of 2003.
"While the first quarter is typically the weakest quarter for us, our
results improved on a year-over-year basis and continued the trend of improved
financial performance that began in 2002," said Bob Schjerven, chief executive
officer. "As has been the case through the prolonged economic downturn, our
strong brands, quality products and services, and close customer relationships
have differentiated our business in a very soft marketplace. Given the difficult
competitive environment, we are pleased with LII's start for 2003."
LII also further strengthened its balance sheet in the first quarter,
supported by a continued focus on lean enterprise initiatives. As of March 31,
2003, total debt was down $135 million from a year ago and is currently at $389
million. Total debt to capitalization declined dramatically to 45.1% from 56.3%.
Free cash flow in the first quarter was a usage of $52 million, due primarily to
pre-season inventory build, compared with $8 million in free cash flow generated
in the first quarter of 2002. Due to the seasonal nature of many of the
company's businesses it is not unusual for LII to use free cash flow in the
first half of the year and generate free cash flow in the second half.
Operational working capital improved 270 basis points to 19.3% of sales from
22.0%.
The tables following the text in this news release provide financial
detail and reconcile the information provided to U.S. Generally Accepted
Accounting Principles (GAAP) measures.
BUSINESS SEGMENT HIGHLIGHTS:
HEATING & COOLING: Heating & Cooling business revenues rose 7% to $387
million. Adjusting for fluctuations in currency exchange rates, sales were up
5%. Segment operating income increased 37% to $21.0 million from $15.3 million
last year and operating margins expanded 110 basis points to 5.4% from 4.3% last
year.
The Residential Heating & Cooling segment had a very strong first
quarter, with sales up 7% to $294 million. Sales increases were achieved by all
of the company's home comfort equipment brands, including hearth products.
Segment operating income increased 41% for the quarter to $21.8 million from
$15.5 million last year. Operating margins expanded 170 basis points to 7.4%,
through pricing improvement on replacement sales, a favorable mix of higher-end
product, and improved hearth products profitability. This improvement was
partially offset by margin pressure in LII's residential new construction
business.
Commercial Heating & Cooling segment revenues rose 7% to $93 million,
but were flat when adjusted for currency fluctuations. The segment operating
loss was $0.7 million, compared with a loss of $0.2 million last year. Operating
margins were (0.8%), down 60 basis points from 2002. Higher insurance and wage
expenses and a skew toward lower margin parts sales in the company's domestic
operation, combined with pricing-related margin pressure in Europe, were
responsible for the decline. Several initiatives, including the recent signing
of 16 new national accounts and the planned closing of a 120,000-square-foot
factory in Northampton, England, position the commercial segment for improved
performance going forward.
SERVICE EXPERTS: The Service Experts segment had an operating loss of
$4.7 million, or 2.4% of sales, compared with a loss of $2.8 million, or 1.4% of
sales, last year. Higher insurance expenses and lower commercial business
margins more than offset improved residential performance. Revenues declined 4%,
or 5% when adjusted for currency translation, to $197 million.
Year-over-year sales in the service and replacement businesses and in
the residential new construction business - which represent almost 85% of total
segment revenues -- increased slightly, although soft demand compounded what is
typically the weakest quarter for this business. The decline in segment revenue
is entirely in the commercial new construction sector due in part to severe
weather in key sales areas. "We remain confident we have identified and are
implementing the right strategies to improve the performance of this segment,"
Schjerven said.
REFRIGERATION: Segment revenues were up 3% to $90 million but were down
4% when adjusted for currency exchange. Segment operating income was essentially
flat at $8.3 million, with strict cost control helping to offset lower sales.
Operating margins contracted to 9.2%, primarily due to pricing-related margin
pressure in Europe. While demand for commercial refrigeration equipment has
declined, the refrigeration segment is maintaining its market share.
BUSINESS OUTLOOK
The company reaffirmed its guidance for 2003, anticipating revenues to
be relatively flat and earnings per share, based on the continued focus on cost
reduction and the full-year effect of actions taken in 2002, to be in the range
of $1.10 to $1.20. While the company sees no clear signs of sustained underlying
strength in the economy and with a lack of visibility on the timing of economic
recovery, year-over-year improvements are expected to be more concentrated in
the latter half of the year. For the year, the company expects to generate free
cash flow approximately equal to net income.
"We are pleased our performance continues to improve," said Bob
Schjerven. "Our management team remains intensely focused on operating
improvements, which will accelerate with economic recovery."
A conference call to discuss the company's Q1 2003 results will be held
on Wednesday, April 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 612-326-1019 ten
minutes prior to the scheduled start time and use reservation number 681357. 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/ajwz378648386gf12.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. April 23 through April 30, 2003 by dialing
800-475-6701, access code 681357. This call will also be archived on the
company's web site.
A Fortune 500 company operating in over 100 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 Ended March 31, 2003 and 2002
(Unaudited, in thousands, except per share data)
<Table>
<Caption>
For the
Three Months Ended
March 31,
----------------------
2003 2002
--------- ---------
NET SALES ........................................................ $ 649,798 $ 674,269
COST OF GOODS SOLD ............................................... 437,246 467,767
--------- ---------
Gross Profit ............................................ 212,552 206,502
OPERATING EXPENSES:
Selling, general and administrative expense ................. 201,955 197,012
Restructurings .............................................. -- 653
--------- ---------
Income from operations .................................. 10,597 8,837
INTEREST EXPENSE, net ............................................ 7,020 7,883
OTHER INCOME ..................................................... (589) (85)
MINORITY INTEREST ................................................ 90 66
--------- ---------
Income before income taxes and cumulative effect of
accounting change ...................................... 4,076 973
PROVISION FOR INCOME TAXES ....................................... 1,588 402
--------- ---------
Income before cumulative effect of accounting change .... 2,488 571
--------- ---------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ........................... -- 249,224
--------- ---------
Net income (loss) ....................................... $ 2,488 $(248,653)
========= =========
INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE:
Basic ....................................................... $ 0.04 $ 0.01
Diluted ..................................................... $ 0.04 $ 0.01
CUMULATIVE EFFECT OF ACCOUNTING CHANGE PER SHARE:
Basic ........................................................ $ -- $ (4.39)
Diluted ...................................................... $ -- $ (4.39)
NET INCOME (LOSS) PER SHARE:
Basic ........................................................ $ 0.04 $ (4.38)
Diluted ...................................................... $ 0.04 $ (4.38)
</Table>
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
SEGMENT REVENUES AND OPERATING PROFIT
For the Three Months Ended March 31, 2003 and 2002
(Unaudited, in Thousands)
<Table>
<Caption>
For the
Three Months Ended
March 31,
----------------------
2003 2002
--------- ---------
Net Sales
Residential ...................................... $ 294,300 $ 273,852
Commercial ....................................... 92,833 86,793
--------- ---------
Heating and Cooling ......................... 387,133 360,645
Service Experts .................................. 197,053 205,014
Refrigeration .................................... 90,205 87,941
Corporate and other (a) .......................... -- 45,861
Eliminations ..................................... (24,593) (25,192)
--------- ---------
$ 649,798 $ 674,269
========= =========
Segment Profit (b)
Residential ...................................... $ 21,794 $ 15,502
Commercial ....................................... (747) (163)
--------- ---------
Heating and Cooling ......................... 21,047 15,339
Service Experts .................................. (4,737) (2,793)
Refrigeration .................................... 8,274 8,237
Corporate and other (a) .......................... (12,755) (10,711)
Eliminations ..................................... (1,232) (582)
--------- ---------
Segment Profit .............................. 10,597 9,490
Reconciliation to Income before Income Taxes:
Restructurings ................................ -- 653
Interest Expense, net ......................... 7,020 7,883
Minority Interest and Other ................... (499) (19)
--------- ---------
$ 4,076 $ 973
========= =========
</Table>
(a) In the third quarter of 2002, the Company formed joint ventures with
Outokumpu by selling to Outokumpu a 55 percent interest in the Company's
heat transfer business segment for approximately $55 million in cash and
notes. The Company accounts for its remaining 45% interest using the equity
method of accounting and includes such amounts in the Corporate and other
segment. The historical net sales, results of operations and total assets
of the Corporate and other segment have been restated to include the
portions of the heat transfer business segment that was sold to Outokumpu.
The results of operations of the heat transfer business segment now
presented in the Corporate and other segment were $(0.9) million for the
three months ended March 31, 2003. The historical net sales and results of
operations for the three months ended March 31, 2002 were $45.9 million and
$(0.8) million.
(b) During the second quarter of 2002, the Company changed its measure of
segment profit. Segment profit is based upon income from operations
included in the accompanying consolidated statement of operations except
that it excludes restructuring charges and other operating gains, losses
and expenses. All historical amounts have been restated to conform with the
current year presentation. Restructuring charges excluded from segment
profit generally consist of long-lived asset impairments, severance,
contract termination and other costs associated with exiting activities
within the segment and are considered non-recurring in nature.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2003 and December 31, 2002
(Unaudited, in thousands, except share data)
<Table>
<Caption>
ASSETS
March 31, December 31,
2003 2002
------------ ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 54,145 $ 76,369
Accounts and notes receivable, net ................................ 321,294 307,334
Inventories ....................................................... 272,154 219,682
Deferred income taxes ............................................. 32,851 33,270
Other assets ...................................................... 60,159 38,400
------------ ------------
Total current assets ........................................ 740,603 675,055
PROPERTY, PLANT AND EQUIPMENT, net ................................... 226,852 231,042
GOODWILL, net ........................................................ 427,253 420,802
DEFERRED INCOME TAXES ................................................ 80,376 82,666
OTHER ASSETS ......................................................... 119,235 112,153
------------ ------------
TOTAL ASSETS ................................................ $ 1,594,319 $ 1,521,718
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt ................................................... $ 10,438 $ 9,255
Current maturities of long-term debt .............................. 13,478 13,871
Accounts payable .................................................. 245,529 247,598
Accrued expenses .................................................. 283,311 253,929
Income taxes payable .............................................. 23,405 12,808
------------ ------------
Total current liabilities ................................... 576,161 537,461
LONG-TERM DEBT ....................................................... 364,805 356,747
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS ......................... 13,927 13,472
PENSIONS ............................................................. 88,336 85,434
OTHER LIABILITIES .................................................... 75,501 74,214
------------ ------------
Total liabilities ........................................... 1,118,730 1,067,328
------------ ------------
MINORITY INTEREST .................................................... 1,829 1,591
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,
63,251,382 shares and 63,039,254 shares issued
for 2003 and 2002 respectively ................................. 633 630
Additional paid-in capital ........................................ 407,107 404,723
Retained earnings ................................................. 168,277 171,316
Accumulated other comprehensive loss .............................. (58,999) (79,636)
Deferred compensation ............................................. (12,108) (13,518)
Treasury stock, at cost, 3,043,828 and 3,009,656 shares
for 2003 and 2002, respectively ............................... (31,150) (30,716)
------------ ------------
Total stockholders' equity .................................. 473,760 452,799
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 1,594,319 $ 1,521,718
============ ============
</Table>
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) Measures
(Unaudited, in thousands, except per share and ratio data)
PRO FORMA NET INCOME AND PRO FORMA DILUTED EPS (EARNINGS PER SHARE)
<Table>
<Caption>
For the Three Months Ended March 31,
-------------------------------------------------------
2003 2002
2003 Diluted EPS 2002 Diluted EPS
----------- ----------- ----------- -----------
Net Income (Loss), as Reported $ 2,488 $ 0.04 $ (248,653) $ (4.38)
Restructurings, Net of Income Tax -- -- 402 0.01
Cumulative Effect of Accounting Change -- -- 249,224 4.39
----------- ----------- ----------- -----------
Pro Forma Net Income $ 2,488 $ 0.04 $ 973 $ 0.02
=========== =========== =========== ===========
</Table>
FREE CASH FLOW
<Table>
<Caption>
For the Three Months
Ended March 31,
--------------------
2003 2002
-------- --------
Net Cash Provided Used in Operating Activities $(30,458) $ (6,435)
Purchases of Property, Plant and Equipment (5,242) (4,685)
Change in Asset Securitization (16,100) 18,300
Cash Restructuring Charges -- 653
-------- --------
Free Cash Flow $(51,800) $ 7,833
======== ========
</Table>
OPERATIONAL WORKING CAPITAL
<Table>
<Caption>
As of March 31, 2003 As of March 31, 2002
March 31, Trailing Twelve March 31, Trailing Twelve
2003 Months Avg 2002 Months Avg
---------- --------------- ---------- ---------------
Accounts and Notes Receivable, Net $ 321,294 $ 339,748
Allowance for Doubtful Accounts 22,845 25,585
Asset Securitization 115,100 124,800
---------- ----------
Accounts and Notes Receivable, Gross 459,239 $ 518,195 490,133 $ 545,303
Inventories 272,154 297,586
Excess of Current Cost Over Last-in, First-out 47,902 46,968
---------- ----------
Inventories Adjusted 320,056 316,334 344,554 370,317
Accounts Payable (245,529) (255,652) (271,251) (239,068)
---------- ---------- ---------- ----------
Operational Working Capital (a) 533,766 578,877 563,436 676,552
Net Sales - Trailing Twelve Months (b) 3,001,296 3,001,296 3,073,206 3,073,206
---------- ---------- ---------- ----------
Operational Working Capital Ratio (a/b) 17.8% 19.3% 18.3% 22.0%
========== ========== ========== ==========
</Table>
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