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Lennox International Reports Solid Fourth Quarter and Strong Full Year Results; Reaffirms 2008 Guidance
  • 4Q07 adjusted earnings per share of $0.55, 4Q07 GAAP earnings per share of $0.59, up 20% and 2%, respectively
  • Full year adjusted earnings per share of $2.50, GAAP earnings per share of $2.43, up 15% and 8%, respectively
  • Full year free cash flow of $170 million, up 35% over 2006; 2007 cash from operations of $238 million
  • Reaffirms 2008 guidance
DALLAS, Feb 06, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Lennox International Inc. (NYSE: LII) today reported solid fourth quarter and strong full year results.

(Logo: http://www.newscom.com/cgi-bin/prnh/20020304/DAM053LOGO)

For the fourth quarter, revenue was $887 million, up 1% over the prior year, with foreign exchange contributing 4% to growth. Diluted earnings per share on an adjusted basis, a non-GAAP measure, were $0.55 compared to $0.46 in the year ago quarter, growth of 20%. Diluted earnings per share on a GAAP basis grew 2% to $0.59 compared to $0.58 in the year ago quarter.

For the full year, revenue was $3.7 billion, up 1% over the prior year, with foreign exchange contributing 2% to growth. Diluted earnings per share on an adjusted basis, a non-GAAP measure, were $2.50 compared to $2.18 in the prior year, growth of 15%. Diluted earnings per share on a GAAP basis were $2.43 compared to $2.26 in the prior year, growth of 8%.

"Lennox International had a solid fourth quarter and strong results for the year," said Todd Bluedorn, chief executive officer. "Three of our four businesses -- Commercial, Service Experts, and Refrigeration -- had outstanding performance, with profit growth in the double-digits and margin expansion. In the face of a tough market, our residential business took aggressive cost reduction actions and ended the year with solid results.

"We reaffirm our 2008 outlook provided in December of adjusted earnings per share in the range of $2.85 to $3.00 and GAAP earnings per share in the range of $2.73 to $2.88. While the residential market will be soft entering 2008, we will continue our focus on the cost side of the equation and execute on our strategic priorities."

(Note: See attached schedules for full financial details, reconciliations of non-GAAP financial measures, and a description of adjusting items.)

FOURTH QUARTER 2007 FINANCIAL HIGHLIGHTS

Revenue: Revenue for the fourth quarter was $887 million, up 1% over the prior year.

Gross Profit: Adjusted gross profit in the fourth quarter was $248 million, up 11% from $224 million in the year ago quarter. Adjusted gross profit margin increased to 28% compared to 26% in the year ago quarter, primarily due to price increases and lower operating and manufacturing costs. Gross profit on a GAAP basis, which includes the gain for the warranty program adjustment, was $265 million compared to $224 million in a year ago quarter.

Net Income: For the fourth quarter, adjusted net income was $36 million, or $0.55 diluted earnings per share, compared to $33 million, or $0.46 diluted earnings per share in the fourth quarter of 2006. On a GAAP basis, fourth quarter 2007 net income was $39 million, or $0.59 diluted earnings per share. Fourth quarter 2006 GAAP net income was $41 million, with diluted earnings per share of $0.58.

Adjusted net income results for the fourth quarter of 2007 exclude a net after tax gain of $3 million, which are derived from:

  • $7 million charge from restructuring activities in Refrigeration, Hearth Products, and corporate
  • $1 million charge primarily from the net change in unrealized losses on open futures contracts
  • $11 million gain for the Pulse furnace warranty program adjustment
FULL YEAR 2007 FINANCIAL HIGHLIGHTS

Revenue: For the full year, revenue was $3.7 billion, up 1% over the prior year, with foreign exchange contributing 2% to sales growth.

Gross Profit: Adjusted gross profit for the year was $1.0 billion, up 8% from $960 million in the year ago quarter. Adjusted gross profit margin increased to 28% compared to 26% for the year ago primarily due to price increases and lower operating and manufacturing costs. Gross profit for the year on a GAAP basis, which includes the gain for the warranty program adjustment, was $1.1 billion, compared to $960 million in 2006.

Net Income: Adjusted net income for the full year was $174 million, or $2.50 diluted earnings per share, compared to $160 million, or $2.18 diluted earnings per share in 2006. On a GAAP basis, net income was $169 million, or $2.43 diluted earnings per share, compared to $166 million, or $2.26 diluted earnings per share in 2006.

Adjusted net income results for 2007 exclude net after tax charges of $5 million, which are derived from:

  • $16 million charges from restructuring activities in Refrigeration, Residential Heating and Cooling, and corporate,
  • $3 million charge primarily from the net change in unrealized losses on open futures contracts
  • $11 million gain for the Pulse furnace warranty program adjustment
  • $3 million gain due to change in an estimated tax gain

Free Cash Flow and Total Debt: Cash generated from operations for the year was $238 million and the company invested $68 million in capital assets, resulting in free cash flow of $170 million versus $126 million in 2006. Total debt as of December 31, 2007 was $208 million.

During 2007, the company returned $282 million to shareholders through share repurchases of $247 million and dividend payments of $35 million. The company repurchased 7,136,987 shares during 2007 of which 5,878,987 shares were repurchased under the 2007 Share Repurchase Program announced in July, representing 40.7% of the $500 million authorization. The company is on track to complete the share repurchase plan by third quarter 2008.

BUSINESS SEGMENT FINANCIAL HIGHLIGHTS

Residential Heating and Cooling

  • 4Q07 revenue of $354 million, down 11% from $397 million in the year ago quarter
  • 4Q07 segment profit of $31 million, down 27% from $43 million in 4Q06
  • 4Q07 segment profit margin of 9% versus 11% in 4Q06
  • 2007 revenue of $1.7 billion, down 10% from $1.9 billion in 2006
  • 2007 segment profit of $174 million, down 18% from $212 million in 2006
  • 2007 profit margin of 10% versus 11% in 2006

Fourth quarter and full year results were impacted by lower volume and partially offset by price increases, favorable product mix, and lower expenses due to cost reduction activity.

Commercial Heating and Cooling

  • 4Q07 revenue of $224 million, up 14% from $197 million in year ago quarter
  • 4Q07 segment profit of $24 million, up 26% from $19 million in 4Q06
  • 4Q07 segment profit margin of 11% versus 10% in 4Q06
  • 2007 revenue of $875 million, up 16% from $751 million in 2006
  • 2007 segment profit of $101 million, up 39% from $73 million in 2006
  • 2007 profit margin of 12% versus 10% in 2006

Fourth quarter and full year segment profit improvement were primarily driven by price increases, favorable product mix and foreign exchange gains.

Service Experts

  • 4Q07 revenue of $169 million, up 5% from $161 million in the year ago quarter
  • 4Q07 segment profit of $7 million, down 14% from $8 million in 4Q06
  • 4Q07 segment profit margin of 4% versus 5% in 4Q06
  • 2007 revenue of $681 million, up 4% from $654 million in 2006
  • 2007 segment profit of $25 million, up 38% from $18 million in 2006
  • 2007 profit margin of 4% versus 3% in 2006

The improvement in revenue and segment profit was primarily driven by a shift in product mix to higher margin service and replacement, geographic mix, and cost-reduction efforts.

Refrigeration

  • 4Q07 revenue of $158 million, up 17% from $135 million in the year ago quarter
  • 4Q07 segment profit of $15 million, up 27% from $12 million in 4Q06
  • 4Q07 segment profit margin of 9%, an 80 bps improvement over 4Q06
  • -- 2007 revenue of $608 million, up 15% from $530 million in 2006 -- 2007 segment profit of $62 million, up 18% from $52 million in 2006 -- 2007 profit margin of 10%, a 30 bps improvement over last year

The year over year improvement in financial results for the quarter and full year was due to favorable international market conditions, pricing, and cost reduction initiatives.

2008 FULL YEAR OUTLOOK

The company reaffirmed its 2008 outlook originally provided on December 12th, 2007.

  • Total company revenue growth of approximately 2% to 5%
  • Adjusted earnings per share in the range of $2.85 to $3.00 (excludes $0.12 per share of restructuring charges)
  • GAAP earnings per share in the range of $2.73 to $2.88
  • Capital expenditures of approximately $90 million
  • Tax rate of 36% to 37%

CONFERENCE CALL INFORMATION

A conference call to discuss the company's fourth quarter results will be held this morning at 9:30 a.m. (Central). To listen, please call the conference call line at 612-332-0806 ten minutes prior to the scheduled start time and use reservation number 907885. This conference call will also be webcast on Lennox International's web site at http://www.lennoxinternational.com.

If you are unable to participate in this conference call, a replay will be available from 12:00 p.m. (Central) February 6, 2008 through February 13, 2008 by dialing 800-475-6701 (USA) or 320-365-3844 (International) using access code 907885. This call will also be archived on the company's web site.

Lennox International Inc. is a global leader in the heating, 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 Karen Fugate, 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 including the impact of higher raw material prices, LII's ability to implement price increases for its products and services, and the impact of unfavorable weather and a decline in new construction activity on the demand for products and services that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see LII's publicly available filings with the Securities and Exchange Commission. LII 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 Years Ended December 31, 2007 and 2006
                     (In millions, except per share data)

                                    For the                 For the
                               Three Months Ended          Years Ended
                                  December 31,             December 31,
                               2007         2006         2007         2006
                            (unaudited)  (unaudited)  (unaudited)
    NET SALES                 $886.6       $873.7     $3,749.7     $3,715.4
    COST OF GOODS SOLD         621.3        649.9      2,697.1      2,755.4
       Gross profit            265.3        223.8      1,052.6        960.0
    OPERATING EXPENSES:
     Selling, general and
      administrative expenses  196.1        188.1        778.7        778.0
     (Gains), losses and
      other expenses, net       (1.3)         0.8         (6.4)       (46.6)
     Restructuring charges      11.0          0.1         25.2         13.3
     Equity in earnings of
      unconsolidated affiliates (1.7)        (0.5)       (10.6)        (8.0)
       Operational income       61.2         35.3        265.7        223.3
    INTEREST EXPENSE, net        2.0          0.8          6.8          4.4
    OTHER EXPENSE (INCOME), net  0.5          0.4          0.7          0.5
    Income before income taxes  58.7         34.1        258.2        218.4
    PROVISION FOR INCOME TAXES  19.9         (7.0)        89.2         52.4
         Net income            $38.8        $41.1       $169.0       $166.0

    NET INCOME PER SHARE:
      Basic                    $0.61        $0.61        $2.55        $2.37
      Diluted                  $0.59        $0.58        $2.43        $2.26

    AVERAGE SHARES OUTSTANDING:
      Basic                     63.4         67.4         66.4         69.9
      Diluted                   66.3         71.1         69.4         73.5

    CASH DIVIDENDS DECLARED
     PER SHARE                 $0.14        $0.13        $0.53        $0.46



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                    SEGMENT REVENUES AND OPERATING PROFIT
       For the Three Months and Years Ended December 31, 2007 and 2006
                           (Unaudited, in millions)

                                 For the                    For the
                            Three Months Ended            Years Ended
                                December 31,              December 31,
                             2007         2006         2007         2006
    Net Sales
      Residential
      Heating & Cooling     $354.1       $397.1     $1,669.6     $1,861.2
      Commercial Heating
       & Cooling             224.4        197.1        875.0        751.2
      Service Experts        169.5        161.3        681.5        654.1
      Refrigeration          157.6        135.2        607.7        529.9
      Eliminations (A)       (19.0)       (17.0)       (84.1)       (81.0)
                            $886.6       $873.7     $3,749.7     $3,715.4

    Segment Profit (Loss) (B)
      Residential Heating &
       Cooling               $31.2        $43.0       $174.4       $211.6
      Commercial Heating &
       Cooling                24.4         19.4        101.0         72.6
      Service Experts          6.8          7.9         25.2         18.2
      Refrigeration           14.9         11.7         61.5         51.9
      Corporate and other    (20.9)       (31.7)       (85.0)       (98.2)
      Eliminations (A)         0.8          0.5          0.6          0.8
        Subtotal that includes
         segment profit and
         eliminations         57.2         50.8        277.7        256.9
      Reconciliation to income
       before income taxes:
        Warranty program
         adjustment          (16.9)          --        (16.9)          --
        (Gains), losses and
         other expenses, net  (1.3)         0.8         (6.4)       (46.6)
        Restructuring charges 11.0          0.1         25.2         13.3
        Interest expense, net  2.0          0.8          6.8          4.4
        Other expense (income),
         net                   0.5          0.4          0.7          0.5
        Less: Realized gains on
              settled futures
              contracts not
              designated as cash
              flow hedges and
              the ineffective
              portion of settled
              cash flow
              hedges (C)       0.7         13.7          3.9         66.0
        Less: Foreign currency
              exchange gains
              (losses)(C)      2.5          0.9          6.2          0.9
                             $58.7        $34.1       $258.2       $218.4

    (A) Eliminations consist of intercompany sales between business segments,
        such as products sold to Service Experts by the Residential Heating &
        Cooling segment.

    (B) The Company defines segment profit (loss) as a segment's income (loss)
        from continuing operations before income taxes included in the
        accompanying Consolidated Statements of Operations excluding unusual
        and nonrecurring items; (gains), losses and other expenses, net;
        restructuring charges; goodwill impairment; interest expense, net; and
        other expense (income), net; less (plus) realized gains (losses) on
        settled futures contracts not designated as cash flow hedges and the
        ineffective portion of settled cash flow hedges; and less (plus)
        foreign currency exchange gains (losses).  For the three months and
        year ended December 31, 2007, the Company excluded a $16.9 million
        reduction in warranty expenses related to a one-time change in its
        Residential Heating & Cooling segment's warranty program.

    (C) Realized gains (losses) on settled futures contracts not designated
        as cash flow hedges, the ineffective portion of settled cash flow
        hedges and foreign currency gains (losses) are components of (Gains),
        Losses and Other Expenses, net in the accompanying Consolidated
        Statements of Operations.



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                As of December 31, 2007 and December 31, 2006
                (In millions, except share and per share data)

                                                  December 31,    December 31,
                                                      2007            2006
                                                  (unaudited)
    ASSETS
    CURRENT ASSETS:
      Cash and cash equivalents                       $145.5         $144.3
      Short-term investments                            27.7             --
      Accounts and notes receivable, net               492.5          502.6
      Inventories, net                                 325.7          305.5
      Deferred income taxes                             30.9           22.2
      Other assets                                      48.4           43.8
        Total current assets                         1,070.7        1,018.4
    PROPERTY, PLANT AND EQUIPMENT, net                 317.9          288.2
    GOODWILL, net                                      262.8          239.8
    DEFERRED INCOME TAXES                               94.0          104.3
    OTHER ASSETS                                        69.2           69.1
        TOTAL ASSETS                                $1,814.6       $1,719.8

               LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Short-term debt                                   $4.8           $1.0
      Current maturities of long-term debt              36.4           11.4
      Accounts payable                                 289.8          278.6
      Accrued expenses                                 352.1          326.3
      Income taxes payable                               1.1           33.8
        Total current liabilities                      684.2          651.1
    LONG-TERM DEBT                                     166.7           96.8
    POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS        16.2           12.9
    PENSIONS                                            34.8           49.6
    OTHER LIABILITIES                                  104.2          105.0
        Total liabilities                            1,006.1          915.4

    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, 81,897,439 shares and
       76,974,791 shares issued for 2007 and 2006,
       respectively                                      0.8            0.8
    Additional paid-in capital                         760.7          706.6
    Retained earnings                                  447.4          312.5
    Accumulated other comprehensive income (loss)       63.6           (5.1)
    Treasury stock, at cost, 19,844,677 shares and
     9,818,904 shares for 2007 and 2006,
     respectively                                     (464.0)        (210.4)
        Total stockholders' equity                     808.5          804.4
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,814.6       $1,719.8



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

    Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles)
                                   Measures
          (Unaudited, in millions, except per share and ratio data)

    Reconciliation of Net Income to Adjusted Net Income

                          For the Three Months Ended December 31, 2007

                               Net Change
                              in Unrealized
                                Losses on
                              Open Futures
                                Contracts                 Warranty
                        As      and Other  Restructuring  Program        As
                     Reported  Items, Net     Charges    Adjustment  Adjusted

    NET SALES         $886.6         $-          $-         $-        $886.6
    COST OF GOODS
     SOLD              621.3          -           -       16.9         638.2
        Gross profit
         (loss)        265.3          -           -      (16.9)        248.4
    OPERATING EXPENSES:
      Selling, general
       and
       administrative
       expenses        196.1          -           -          -         196.1
      (Gains), losses
       and other
       expenses, net(1) (1.3)      (1.9)          -          -          (3.2)
      Restructuring
       charges          11.0          -       (11.0)         -             -
      Equity in
       earnings of
       unconsolidated
       affiliates       (1.7)         -           -          -          (1.7)
        Operational
         income (loss)  61.2        1.9        11.0      (16.9)         57.2
    INTEREST EXPENSE,
     net                 2.0          -           -          -           2.0
    OTHER EXPENSE,
     net                 0.5          -           -          -           0.5
        Income (loss)
         before income
         taxes          58.7        1.9        11.0     (16.9)          54.7
    PROVISION FOR
     (BENEFIT FROM)
      INCOME TAXES      19.9        0.8         4.1      (6.4)          18.4
          Net income
           (loss)      $38.8       $1.1        $6.9    $(10.5)         $36.3

    NET INCOME
     (LOSS) PER
     SHARE -
     DILUTED           $0.59      $0.02       $0.10   $ (0.16)         $0.55

    Note: Management uses adjusted net income, which is not defined by U.S.
    GAAP, to measure the Company's operating performance and to analyze year-
    over-year changes in operating income with and without the effects of
    certain (gains), losses and other expenses, net, restructuring charges,
    unusual and nonrecurring items and certain income tax items. Management
    believes that excluding these effects is helpful in assessing the overall
    performance of the Company.

    (1) (Gains), losses and other expenses, net include the following:



                                         For the Three Months Ended
                                             December 31, 2007
                                    Pre-tax     Tax (Benefit)     After-tax
                                  (Gain) Loss     Provision      (Gain) Loss
    Realized gains on settled
     futures contracts               $(0.7)          $0.2           $(0.5)
    Net change in unrealized losses
     on open futures contracts         2.2           (0.8)            1.4
    Foreign currency exchange gain    (2.5)           0.7            (1.8)
    Other items, net                  (0.3)            --            (0.3)
    (Gains), losses and other
     expenses, net                   $(1.3)          $0.1           $(1.2)



                         For the Three Months Ended December 31, 2006

                            Net Change in
                              Unrealized
                              Losses on
                             Open Futures
                            Contracts and
                       As    Other Items,  Restructuring  Income Tax     As
                    Reported     Net         Charges       Items(3)   Adjusted

    NET SALES        $873.7         $-          $-           $-       $873.7
    COST OF GOODS
     SOLD             649.9          -           -            -        649.9
        Gross profit  223.8          -           -            -        223.8
    OPERATING
     EXPENSES:
      Selling, general
       and
       administrative
       expenses       188.1          -           -            -        188.1
      (Gains), losses
       and other
       expenses, net(2) 0.8      (15.4)          -            -        (14.6)
      Restructuring
       charges          0.1          -        (0.1)           -            -
      Equity in
       earnings of
       unconsolidated
       affiliates      (0.5)         -           -            -         (0.5)
        Operational
         income        35.3       15.4         0.1            -         50.8
    INTEREST
     EXPENSE, net       0.8          -           -            -          0.8
    OTHER EXPENSE,
     net                0.4          -           -            -          0.4
        Income before
         income taxes  34.1       15.4         0.1            -         49.6
    PROVISION FOR
     (BENEFIT FROM)
      INCOME TAXES     (7.0)       5.8         0.1         18.1         17.0
          Net income
           (loss)     $41.1       $9.6          $-       $(18.1)       $32.6

    NET INCOME
     (LOSS) PER
     SHARE -
     DILUTED          $0.58      $0.14          $-      $(0.26)        $0.46

    (2)(Gains), losses and other expenses, net include the following:



                                          For the Three Months Ended
                                              December 31, 2006
                                    Pre-tax      Tax (Benefit)    After-tax
                                  (Gain) Loss      Provision     (Gain) Loss
    Realized gains on settled
     futures contracts              $(13.7)            $5.2         $(8.5)
    Net change in unrealized losses
     on open futures contracts        15.6             (5.8)          9.8
    Foreign currency exchange gain    (0.9)             0.3          (0.6)
    Other items, net                  (0.2)              --          (0.2)
    (Gains), losses and other
     expenses, net                    $0.8            $(0.3)         $0.5

    (3) Income tax items include the following:



                                                                For the
                                                           Three Months Ended
                                                          December 31, 2006

    Revaluation of deferred tax asset valuation allowances       $(3.8)
    Release of income tax reserves related to prior years,
     net (excluding interest)                                    (14.3)
    Income tax items                                            $(18.1)



                              For the Year Ended December 31, 2007

                          Net Change in
                           Unrealized
                            Losses on                  Warranty
                          Open Futures                  Program
                          Contracts and               Adjustment
                     As   Other Items, Restructuring  and Income        As
                  Reported     Net         Charges    Tax Items(5)   Adjusted

    NET SALES     $3,749.7       $-            $-           $-       $3,749.7
    COST OF
     GOODS SOLD    2,697.1        -             -         16.9        2,714.0
        Gross profit
         (loss)    1,052.6        -             -        (16.9)       1,035.7
    OPERATING
     EXPENSES:
      Selling,
       general and
       administrative
       expenses      778.7        -             -            -          778.7
      (Gains),
       losses
       and other
       expenses,
       net(4)         (6.4)    (3.7)             -           -          (10.1)
      Restructuring
       charges        25.2        -          (25.2)          -              -
      Equity in
       earnings of
       unconsolidated
       affiliates    (10.6)        -             -           -          (10.6)
        Operational
         income
         (loss)      265.7      3.7          25.2        (16.9)         277.7
    INTEREST EXPENSE,
     net               6.8        -             -            -            6.8
    OTHER EXPENSE,
     net               0.7        -             -            -            0.7
        Income (loss)
         before income
         taxes       258.2      3.7          25.2        (16.9)         270.2
    PROVISION FOR
     (BENEFIT FROM)
     INCOME TAXES     89.2      1.2           9.4         (3.2)          96.6
          Net income
           (loss)   $169.0     $2.5         $15.8       $(13.7)        $173.6

    NET INCOME
     (LOSS) PER
     SHARE -
     DILUTED         $2.43    $0.04         $0.23      $(0.20)          $2.50

    (4)(Gains), losses and other expenses, net include the following:



                                       For the Year Ended December 31, 2007
                                      Pre-tax     Tax (Benefit)     After-tax
                                     (Gain) Loss    Provision      (Gain) Loss
    Realized gains on settled
     futures contracts                 $(3.9)          $1.3           $(2.6)
    Net change in unrealized losses
     on open futures contracts           3.3           (1.2)            2.1
    Foreign currency exchange gain      (6.2)           2.1            (4.1)
    Other items, net                     0.4             --             0.4
    (Gains), losses and other
     expenses, net                     $(6.4)          $2.2           $(4.2)

    (5)Warranty program adjustment and income tax items include the following:



                                      For the Year Ended December 31, 2007
                                      Pre-tax     Tax (Benefit)     After-tax
                                       Gain         Provision         Gain

    Warranty program adjustment       $(16.9)          $6.4          $(10.5)
    Change in estimated tax gain
     from prior year                      --           (3.2)           (3.2)
    (Gains), losses and other
     expenses, net                    $(16.9)          $3.2          $(13.7)



                             For the Year Ended December 31, 2006

                            Net Change in
                             Unrealized
                              Losses on
                            Open Futures
                            Contracts and
                     As     Other Items,  Restructuring Income Tax     As
                  Reported       Net         Charges     Items(7)   Adjusted

    NET SALES      $3,715.4          $-           $-          $-    $3,715.4
    COST OF
     GOODS SOLD     2,755.4           -            -           -     2,755.4
        Gross profit  960.0           -            -           -       960.0
    OPERATING
     EXPENSES:
      Selling,
       general and
       administrative
       expenses       778.0           -            -           -       778.0
      (Gains), losses
       and other
       expenses,
       net (6)        (46.6)      (20.3)           -           -       (66.9)
      Restructuring
       charges         13.3           -        (13.3)          -           -
      Equity in
       earnings of
       unconsolidated
       affiliates      (8.0)          -            -           -        (8.0)
        Operational
         income       223.3        20.3         13.3           -       256.9
    INTEREST
     EXPENSE, net       4.4           -            -           -         4.4
    OTHER EXPENSE,
     net                0.5           -            -           -         0.5
        Income before
         income taxes 218.4        20.3         13.3           -       252.0
    PROVISION FOR
     INCOME TAXES      52.4         7.5          4.8        27.0        91.7
          Net income
           (loss)    $166.0       $12.8         $8.5      $(27.0)     $160.3

    NET INCOME
     (LOSS) PER
     SHARE -
     DILUTED          $2.26       $0.17        $0.12      $(0.37)      $2.18

    (6)(Gains), losses and other expenses, net include the following:



                                       For the Year Ended December 31, 2006
                                     Pre-tax       Tax (Benefit)    After-tax
                                   (Gain) Loss      Provision      (Gain) Loss
    Realized gains on settled
     futures contracts               $(66.0)           $24.8         $(41.2)
    Net change in unrealized losses
     on open futures contracts         20.8             (7.7)          13.1
    Foreign currency exchange gain     (0.9)             0.3           (0.6)
    Other items, net                   (0.5)             0.2           (0.3)
    (Gains), losses and other
     expenses, net                   $(46.6)           $17.6         $(29.0)


    (7)Income tax items include the following:

                                                            For the Year Ended
                                                             December 31, 2006
    Revaluation of deferred tax asset valuation allowances        $(3.8)
    Reversal of valuation allowance on deferred tax assets,
     offset by other related charges                               (8.9)
    Release of income tax reserves related to prior years,
    net (excluding interest)                                      (14.3)
    Income tax items                                             $(27.0)



    Free Cash Flow
                                                     For the        For the
                                                    Year Ended     Year Ended
                                                   December 31,   December 31,
                                                       2007           2006

    Net cash provided by operating activities         $238.1         $199.7
    Purchase of property, plant and equipment          (68.4)         (73.8)
    Free cash flow                                    $169.7         $125.9



                                                     For the        For the
                                                   Three Months   Three Months
                                                      Ended          Ended
                                                   December 31,   December 31,
                                                      2007           2006

    Net cash provided by operating activities        $127.6         $115.0
    Purchase of property, plant and equipment         (23.9)         (24.0)
    Free cash flow                                   $103.7          $91.0



    Operational Working Capital
                                      December 31,                December 31,
                                          2007                      2006
                         December 31,   Trailing    December 31,   Trailing
                            2007       12 Mo. Avg.     2006      12 Mo. Avg.

    Accounts and Notes
     Receivable, Net        $492.5                    $502.6
      Allowance for Doubtful
       Accounts               17.1                      16.7
    Accounts and Notes
     Receivable, Gross       509.6       $580.5        519.3       $565.9

    Inventories              325.7                     305.5
      Excess of Current Cost
       Over Last-in,
       First-out              70.4                      56.9
    Inventories as Adjusted  396.1        445.5        362.4        397.4

    Accounts Payable        (289.8)      (340.8)      (278.6)      (336.6)

    Operating Working
     Capital (a)             615.9        685.2        603.1        626.7

    Net Sales, Trailing
     Twelve Months (b)     3,749.7      3,749.7      3,715.4      3,715.4

    Operational Working
     Capital Ratio (a/b)      16.4%        18.3%        16.2%        16.9%


    Note: Management uses free cash flow and operational working capital,
    which are not defined by U.S. GAAP, to measure the Company's operating
    performance. Free cash flow and operational working capital are also two
    of several measures used to determine incentive compensation for certain
    employees.

SOURCE Lennox International Inc.

http://www.lennoxinternational.com