Lennox International(LII) - 2019 Q3 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The unaudited consolidated financial statements for the period ended September 30, 2019, show a slight increase in total assets to $2,214.8 million, driven by higher current assets and the adoption of new lease accounting standards (ASC 842) Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $1,317.3 | $1,089.4 | | Total Assets | $2,214.8 | $1,817.2 | | Total Current Liabilities | $1,109.9 | $1,008.5 | | Total Liabilities | $2,492.1 | $1,966.8 | | Total Stockholders' Deficit | $(277.3) | $(149.6) | Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,032.9 | $1,030.2 | $2,922.2 | $3,040.4 | | Gross Profit | $298.3 | $301.9 | $831.9 | $886.6 | | Operating Income | $156.8 | $145.2 | $465.3 | $393.3 | | Net Income | $114.7 | $108.0 | $294.7 | $283.4 | | Diluted EPS | $2.94 | $2.65 | $7.46 | $6.86 | Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $124.5 | $231.3 | | Net cash (used in) provided by investing activities | $(23.1) | $59.3 | | Net cash used in financing activities | $(102.8) | $(316.6) | - In Q1 2019, the company sold its Kysor Warren business, resulting in a net loss of $9.1 million, which included $49.0 million in cash proceeds against $50.5 million in net assets sold and other costs[99] - In Q2 2019, the company transferred $100.0 million of pension plan assets and $105.6 million of related obligations, recognizing a $60.6 million pension settlement charge[88] - The company repurchased 1.5 million shares for $400.0 million in the first nine months of 2019 under its share repurchase plans. As of September 30, 2019, $46 million remained available for future repurchases[92][93] - A subsequent event in October 2019 involved another pension settlement, transferring $75.0 million in assets and $77.9 million in obligations, with an expected pre-tax loss of $38.5 million in Q4 2019[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2019 performance to sales and profit growth in the Residential and Commercial Heating & Cooling segments, offset by a decline in the Refrigeration segment due to recent divestitures Q3 2019 vs Q3 2018 Consolidated Results (in millions) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,032.9 | $1,030.2 | 0.3% | | Gross Profit | $298.3 | $301.9 | (1.2)% | | Operating Income | $156.8 | $145.2 | 8.0% | YTD 2019 vs YTD 2018 Consolidated Results (in millions) | Metric | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,922.2 | $3,040.4 | (3.9)% | | Gross Profit | $831.9 | $886.6 | (6.2)% | | Operating Income | $465.3 | $393.3 | 18.3% | - The Residential Heating & Cooling segment saw a 7% net sales increase in Q3 2019, driven by 6% higher volume and 1% favorable price/mix. Segment profit rose 11.9% to $126.5 million, significantly boosted by $16 million in insurance proceeds for lost profits related to the Marshalltown tornado[162][163] - The Commercial Heating & Cooling segment's net sales grew 7% in Q3 2019, from 4% higher volume and 3% favorable price/mix. Segment profit increased 5.1% to $47.1 million[165][166] - The Refrigeration segment's net sales decreased 28% in Q3 2019, primarily due to a 27% impact from the divestiture of the Kysor Warren and South America businesses. Segment profit fell 20.5% to $19.8 million[167][168] - Cash from operating activities decreased to $124.5 million for YTD 2019 from $231.3 million in YTD 2018, mainly due to the timing of working capital payments and the supply disruption in 2018 caused by the tornado[190] - Total debt increased to $1,451.1 million as of Sep 30, 2019, from $1,041.3 million at year-end 2018, primarily due to increased borrowings on the domestic credit facility to support share repurchases and other financing activities[76][192] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risk, including risks related to commodity prices, interest rates, and foreign currency exchange rates, has not materially changed since the disclosures provided in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There have been no material changes in the company's market risk exposure since December 31, 2018[202] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2019 - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2019[203] - New controls and an IT system were implemented in Q1 2019 to adopt the new lease accounting standard, ASC 842[204] Part II - Other Information Item 1. Legal Proceedings The company is involved in various claims and lawsuits incidental to its business operations, with management believing none will have a material adverse effect on financial position or results - Management believes that ongoing claims and lawsuits will not have a material adverse effect on the company's financial condition or results[206] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred in the company's risk factors since the 2018 Form 10-K filing[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2019, the company repurchased a total of 529,538 shares of its common stock, with $45.8 million remaining available for future repurchases Q3 2019 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Plan | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | July 1 - Sep 30 | 529,538 | - | 520,375 | $45.8 | - The total share repurchases for the first three quarters of 2019 amounted to $400 million ($100M in Q1, $150M in Q2, $150M in Q3)[209] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and officer certifications - Filed exhibits include corporate governance documents, debt indentures, officer certifications (31.1, 31.2, 32.1), and XBRL data files[211][212]