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Lennox International Reports Record Second Quarter Sales, Net Income and Earnings Per Share; Reaffirms Full-Year Earnings Guidance

DALLAS, July 27 /PRNewswire-FirstCall/ -- Lennox International Inc. (NYSE: LII) today announced record second quarter net income of $64 million, or $0.85 diluted earnings per share (EPS). This compares very favorably with $41 million in net income, or $0.59 diluted EPS, in the second quarter of 2005. Total company sales increased 15% to a record $1 billion.

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

Adjusted income from continuing operations, a non-GAAP measure, was $54 million or $0.72 per diluted share, compared with $39 million or $0.56 per diluted share in the second quarter for 2005. A reconciliation of this measure to U.S. GAAP is provided in the attached table.

"We are very pleased with our record results in the second quarter," said Bob Schjerven, chief executive officer. "Favorable cooling season weather supported our residential businesses, while domestic and international demand for commercial equipment continues to improve. Our new lines of 13 and higher SEER cooling equipment have been well received by our customers, and we were well-positioned to meet their needs. The futures contracts we had in place and the price increases we implemented in response to rising commodities costs allowed us to cover those increases in the quarter. Our strong balance sheet is allowing us to continue to invest in our core businesses for continued growth."

Second quarter results reflect a pre-tax gain of $27 million, which includes $23 million in gains on futures contracts for copper and aluminum that settled in the quarter, as these contracts were marked to higher market prices for copper and aluminum. The remaining $4 million represents net unrealized gains on open futures contracts and reflects the expectation of higher commodity prices that will be realized when those contracts settle. In addition, the company incurred pre-tax restructuring charges of $2 million, relating to the consolidation of operations into South Carolina, as well as a non-recurring $9 million benefit from the reversal of a valuation allowance on deferred tax assets, offset by other related charges.

In line with expectations, the company generated $14 million in cash from operations in the second quarter and invested $17 million in capital expenditures, resulting in a free cash outflow of $3 million. Total debt at June 30, 2006 was $136 million, down from $275 million from the same time a year ago. Debt-to-total capital ratio was 14%, a dramatic improvement over 35% a year ago. The company used $46 million to repurchase 1.5 million shares of its common stock in the second quarter.

"We had very solid results in the first half of 2006 and are reaffirming our expectation of full-year diluted earnings per share in the range of $2.00 to $2.10," Schjerven said. "This range assumes gains and other positive non- operating items during the year offset restructuring charges for the South Carolina consolidation project. Also, based on our performance in the first half, we now expect revenue growth of approximately 10% in each of our equipment businesses and mid-single digit top-line growth for our Service Experts business segment."

Business segment highlights

The following business segment results reflect market prices for commodities in cost of goods sold with the benefit from futures contracts related gains recorded in gains, losses and other expenses.

Heating & Cooling: LII's Residential Heating & Cooling revenue rose 24% to $539 million. Adjusting for fluctuations in exchange rates, sales increased 23%. Segment profit of $52.4 million was down slightly from $55.7 million last year. Higher volume, mix benefits and improved pricing were offset by higher input costs and $6 million in additional warranty expense for a heating product no longer in production. Thirteen and higher SEER products accounted for 98% of cooling equipment sales.

Commercial Heating & Cooling revenue rose 6% to $181 million, an increase of 5% when adjusted for currency fluctuations, driven by North American growth. The segment added 19 new national accounts so far this year, and has increased replacement sales through regional distribution centers. Segment operating profit declined slightly to $14.1 million from $14.7 million in 2005. Higher commodity and freight costs more than offset volume and price improvement. Despite a sales decline in Europe, profitability in that region improved, driven by product mix benefits.

Service Experts: Benefiting from a good start to the cooling season, segment sales increased 6%, or 4% when adjusted for currency fluctuations, to $178 million. Segment profit was $9.5 million, an increase of 3% from the prior year. Higher volumes and vendor rebates offset lower margins, higher advertising and promotion charges, and higher fuel costs.

Refrigeration: Revenue rose 11% and was not meaningfully impacted by foreign exchange. The segment's domestic business performed well in the quarter, with strong sales increases to supermarket, OEM, and cold storage customers. Segment profit increased to $10.6 million from $9.5 million last year, driven by higher volumes in domestic and European markets.

A conference call to discuss the company's second quarter 2006 results will be held on Thursday, July 27 at 9:30 a.m. (CDT). All interested parties are invited to listen as Bob Schjerven, CEO, and Sue Carter, CFO, comment on the company's operating results. To listen, please call the conference call line at 651-291-0900 ten minutes prior to the scheduled start time and use reservation number 835874. The number of connections for this call is limited. The conference call will also be webcast live 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 3:00 p.m. July 27 through August 3, 2006 by dialing 800-475-6701, access code 835874. This call will also be archived on the company's web site.

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. A list of these risks and uncertainties - which includes the impact of higher raw material prices, the company's ability to implement price increases for products and services, the impact of unfavorable weather on demand for the company's products and services, a decline in new construction activity on the demand for the company's products and services, and the potential impact on operations related to implementation of the new NAECA efficiency standards - is included in the company'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 Six Months Ended June 30, 2006 and 2005
               (Unaudited, in millions, except per share data)

                                        For the                For the
                                   Three Months Ended     Six Months Ended
                                        June 30,               June 30,
                                    2006        2005       2006        2005
    NET SALES                     $1,002.0    $ 867.8    $1,801.5    $1,568.1
    COST OF GOODS SOLD               686.2      576.6     1,232.3     1,057.1
       Gross Profit                  315.8      291.2       569.2       511.0
    OPERATING EXPENSES:
      Selling, general and
       administrative expense        250.6      224.9       480.7       429.2
      (Gains), losses and other
       expenses, net                 (27.2)      (6.0)      (45.3)      (17.5)
      Restructuring charge             2.3        2.2         8.6         2.2
        Operational income from
         continuing operations        90.1       70.1       125.2        97.1
    INTEREST EXPENSE, net              1.8        4.6         2.4        10.1
    OTHER EXPENSE (INCOME), net        ---       (0.6)        1.0        (0.5)
        Income from continuing
         operations before income
         taxes                        88.3       66.1       121.8        87.5
    PROVISION FOR INCOME TAXES        24.3       24.6        36.8        32.4
        Income from continuing
         operations                   64.0       41.5        85.0        55.1
    DISCONTINUED OPERATIONS:
      Loss from operations of
       discontinued operations         ---        0.2         ---         1.8
      Income tax benefit               ---        ---         ---        (0.4)
      Loss on disposal of
       discontinued operations         ---        ---         ---         0.1
      Income tax benefit               ---        ---         ---        (0.2)
        Loss from discontinued
         operations                    ---        0.2         ---         1.3
          Net income                 $64.0      $41.3       $85.0       $53.8

    INCOME PER SHARE FROM CONTINUING
    OPERATIONS:
      Basic                          $0.90      $0.67       $1.19       $0.89
      Diluted                        $0.85      $0.59       $1.13       $0.80

    LOSS PER SHARE FROM DISCONTINUED
     OPERATIONS:
      Basic                           $---       $---        $---      $(0.02)
      Diluted                         $---       $---        $---      $(0.02)

    NET INCOME PER SHARE:
      Basic                          $0.90      $0.67       $1.19       $0.87
      Diluted                        $0.85      $0.59       $1.13       $0.78

    AVERAGE SHARES OUTSTANDING:
      Basic                           71.5       62.0        71.4        61.7
      Diluted                         75.2       72.8        75.4        72.5

    CASH DIVIDENDS DECLARED
     PER SHARE                       $0.11      $0.10       $0.22       $0.20



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                    SEGMENT REVENUES AND OPERATING PROFIT
       For the Three Months and Six Months Ended June 30, 2006 and 2005
                           (Unaudited, in millions)

                                           For the               For the
                                     Three Months Ended     Six Months Ended
                                           June 30,             June 30,
                                       2006       2005       2006       2005
    Net Sales
      Residential                     $539.2     $434.7     $955.6     $777.4
      Commercial                       181.1      171.2      314.0      297.4
        Heating and Cooling            720.3      605.9    1,269.6    1,074.8
    Service Experts                    177.8      167.8      318.8      303.7
    Refrigeration                      129.9      116.9      255.7      228.8
    Eliminations                       (26.0)     (22.8)     (42.6)     (39.2)
                                    $1,002.0     $867.8   $1,801.5   $1,568.1

    Segment Profit (Loss) (A)
      Residential                      $52.4      $55.7      $89.2      $84.1
      Commercial                        14.1       14.7       20.0       19.1
        Heating and Cooling             66.5       70.4      109.2      103.2
    Service Experts                      9.5        9.2        3.3        2.9
    Refrigeration                       10.6        9.5       21.4       17.9
    Corporate and other                (21.0)     (22.9)     (45.1)     (42.2)
    Eliminations                        (0.4)       0.1       (0.3)       ---
        Segment Profit                  65.2       66.3       88.5       81.8
    Reconciliation to income (loss)
     from continuing operations
     before income taxes:
      (Gains), losses and other
       expenses, net                   (27.2)      (6.0)     (45.3)     (17.5)
      Restructuring charge               2.3        2.2        8.6        2.2
      Interest expense, net              1.8        4.6        2.4       10.1
      Other expense (income), net        ---       (0.6)       1.0       (0.5)
                                       $88.3      $66.1     $121.8      $87.5

     (A)  Segment profit (loss) is based upon income (loss) from continuing
          operations before income taxes included in the accompanying
          consolidated statements of operations excluding Restructurings,
          (Gains), losses and other expenses, net, Interest expense, net and
          Other expense, net.



                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS
                  As of June 30, 2006 and December 31, 2005
                (In millions, except share and per share data)

                                    ASSETS
                                                      June 30,    December 31,
                                                       2006          2005
                                                    (unaudited)
    CURRENT ASSETS:
      Cash and cash equivalents                       $100.1        $213.5
      Accounts and notes receivable, net               611.0         508.4
      Inventories                                      348.4         242.4
      Deferred income taxes                             18.5          20.3
      Other assets                                      76.3          62.6
        Total current assets                         1,154.3       1,047.2
    PROPERTY, PLANT AND EQUIPMENT, net                 269.3         255.7
    GOODWILL                                           232.4         223.9
    DEFERRED INCOME TAXES                               87.1          71.9
    OTHER ASSETS                                       145.1         138.9
        TOTAL ASSETS                                $1,888.2      $1,737.6

                       LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Short-term debt                                   $4.1          $1.2
      Current maturities of long-term debt              11.3          11.3
      Accounts payable                                 353.3         296.8
      Accrued expenses                                 309.9         321.7
      Income taxes payable                              43.0          24.8
      Liabilities held for sale                          ---           0.7
        Total current liabilities                      721.6         656.5
    LONG-TERM DEBT                                     121.0         108.0
    POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS        16.1          15.1
    PENSIONS                                            82.3          80.8
    OTHER LIABILITIES                                   89.5          82.8
        Total liabilities                            1,030.5         943.2

    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,
       76,315,001 shares and 74,671,494 shares issued
       for 2006 and 2005 respectively                    0.8           0.7
      Additional paid-in capital                       686.2         649.3
      Retained earnings                                260.3         191.0
      Accumulated other comprehensive income            15.7           0.4
      Treasury stock, at cost, 5,517,535 shares
       and 3,635,947 shares for 2006 and
       2005 respectively                              (105.3)        (47.0)
        Total stockholders' equity                     857.7         794.4
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $1,888.2      $1,737.6



                  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 income from continuing operations

                                          For the Three Months Ended June 30,
                                          2006       EPS      2005       EPS
    Net income, as reported              $ 64.0    $ 0.85    $ 41.3    $ 0.59
      Loss from discontinued operations     ---       ---       0.2       ---
    Income from continuing operations      64.0      0.85      41.5      0.59
      (Gains), losses and other expenses,
       net of income tax (A)              (16.9)    (0.22)     (5.3)    (0.07)
    Realized gains on settled futures
     contracts, net of income tax (A)      14.3      0.19       1.8      0.02
    Restructuring charge, net
     of income tax                          1.5      0.02       1.4      0.02
    Reversal of valuation allowance
     on deferred tax assets, offset
     by other related charges              (9.1)    (0.12)      ---       ---
    Adjusted income from continuing
     operations                          $ 53.8    $ 0.72    $ 39.4    $ 0.56

Note: Management uses adjusted income from continuing operations, 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 charge and the reversal of valuation allowance on deferred tax assets, offset by other related charges. Management believes that excluding these effects is helpful in assessing the overall performance of the Company.



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

                                                   For the Three Months Ended
                                                         June 30, 2006
                                                   Pre-tax     Tax   After-tax
                                                    Gain    Provision    Loss
    Realized gains on settled futures contracts     $(22.9)    $8.6    $(14.3)
    Unrealized gains on open futures contracts        (4.3)     1.7      (2.6)
    (Gains), losses and other expenses, net         $(27.2)   $10.3    $(16.9)

                                                    For the Three Months Ended
                                                            June 30, 2005
                                                                        After-
                                                     Pre-tax     Tax     tax
                                                      (Gain)  (Benefit) (Gain)
                                                       Loss   Provision  Loss
    Realized gains on settled futures contracts       $(2.8)    $1.0    $(1.8)
    Unrealized gains on open futures contracts          5.5     (2.0)     3.5
    Gain on sale of LII's 45% interest in its heat
     transfer joint venture to Outokumpu               (9.3)     2.3     (7.0)
    Estimated on-going remediation costs in
     conjunction with the joint remediation
     agreement LII entered into with Outokumpu          2.2     (0.8)     1.4
    Other items, net                                   (1.6)     0.2     (1.4)
    (Gains), losses and other expenses, net           $(6.0)    $0.7    $(5.3)



                                             For the Six Months Ended June 30,
                                              2006     EPS      2005     EPS
    Net income, as reported                  $85.0    $1.13    $53.8    $0.78
    Loss from discontinued operations          ---      ---      1.3     0.02
    Income from continuing operations         85.0     1.13     55.1     0.80
    (Gains), losses and other expenses,
     net of income tax (B)                   (28.3)   (0.38)   (12.7)   (0.17)
    Realized gains on settled futures
     contracts, net of income tax (B)         20.0     0.27      3.1     0.04
    Restructuring charge, net of income tax    5.6     0.07      1.4     0.02
    Reversal of valuation allowance on
     deferred tax assets, offset by
     other related charges                    (9.1)   (0.12)     ---      ---
    Adjusted income from continuing
     operations                              $73.2    $0.97    $46.9    $0.69



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

      For the Six Months Ended June 30, 2006

                                                   Pre-tax              After-
                                                   (Gain)      Tax       tax
                                                    Loss    Provision    Gain
    Realized gains on settled futures contracts    $(32.0)    $12.0    $(20.0)
    Net unrealized gains on open futures contracts  (13.4)      5.0      (8.4)
    Other items, net                                  0.1       ---       0.1
    (Gains), losses and other expenses, net        $(45.3)    $17.0    $(28.3)



                                                     For the Six Months Ended
                                                         June 30, 2005
                                                                        After-
                                                   Pre-tax      Tax      tax
                                                    (Gain)   (Benefit)  (Gain)
                                                     Loss    Provision   Loss
    Realized gains on settled futures contracts     $(4.8)     $1.7     $(3.1)
    Unrealized gains on open futures contracts       (4.0)      1.4      (2.6)
    Gain on sale of LII's 45% interest in its
     heat transfer joint venture to Outokumpu        (9.3)      2.3      (7.0)
    Estimated on-going remediation costs in
     conjunction with the joint remediation
     agreement LII entered into with Outokumpu        2.2      (0.8)      1.4
    Other items, net                                 (1.6)      0.2      (1.4)
    (Gains), losses and other expenses, net        $(17.5)     $4.8    $(12.7)



    Free Cash Flow
                                                    For the Three  For the Six
                                                    Months Ended  Months Ended
                                                       June 30,     June 30,
                                                         2006        2006
    Net cash provided by (used in) operating
     activities                                          $13.8      $(36.5)
      Purchase of property, plant and equipment          (16.5)      (31.4)
    Free cash flow                                       $(2.7)     $(67.9)



    Operational Working Capital - Continuing Operations

                                                    June 30,          June 30,
                                                      2006              2005
                                                    Trailing          Trailing
                                          June 30,   12 Mo.  June 30,   12 Mo.
                                            2006      Avg.     2005      Avg.
    Accounts and Notes Receivable, Net     $611.0             $541.6
      Allowance for Doubtful Accounts        18.4               19.5
    Accounts and Notes Receivable, Gross    629.4    $552.4    561.1   $503.3

    Inventories                             348.4              257.5
      Excess of current Cost Over
       Last-in, First-out                    58.7               57.4
    Inventories as Adjusted                 407.1     351.8    314.9    327.3

    Accounts Payable                       (353.3)   (323.1)  (294.7)  (260.3)

    Operating Working Capital (a)           683.2     581.1    581.3    570.3

    Net Sales, Trailing Twelve Months (b) 3,599.6   3,599.6  3,081.4  3,081.4

    Operational Working Capital Ratio (a/b)  19.0%     16.1%    18.9%    18.5%

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.
07/27/2006
CONTACT:
Bill Moltner, vice president, investor relations of Lennox International Inc.
1-972-497-6670