PR Newswire | Oct 19, 2020 07:30AM EDT

2020 Guidance

10/19 06:30 CDT

Lennox International Reports Record Third Quarter Revenue and Profit and Raises 2020 Guidance- Revenue up 2% to third-quarter record $1.06 billion, led by 13% Residential growth- GAAP EPS from continuing operations up 16% to record $3.42- Adjusted EPS from continuing operations up 6% to third-quarter record $3.53- Raising 2020 guidance for adjusted revenue from a decline of 10-15% to a decline of 5-9%- Raising 2020 guidance for GAAP EPS from continuing operations from $7.31-$8.11 to $8.35-$8.95- Raising 2020 guidance for adjusted EPS from continuing operations from $7.90-$8.70 to $9.05-$9.65 DALLAS, Oct. 19, 2020

DALLAS, Oct. 19, 2020 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported financial results for the third quarter of 2020. All comparisons are to the prior-year period. The company's prior-year insurance references relate to the July 2018 tornado damage at a Residential manufacturing facility in Iowa. Adjusted revenue and profit for the first nine months of 2019 exclude non-core Refrigeration businesses divested in the first half of that year.

Lennox International reported record third-quarter revenue of $1.06 billion, up 2%. GAAP operating income was a third-quarter record $167 million, up 7%. GAAP earnings per share from continuing operations was a record $3.42, up 16%. The third quarter of 2019 included an insurance benefit of $2 million.

Total adjusted segment profit was a third-quarter record $177 million, up 1% from the prior-year quarter that included $16 million of insurance benefit. Total adjusted segment margin was 16.7% compared to the third-quarter record 17.0% in the prior-year quarter with the insurance benefit. Adjusted earnings per share from continuing operations was a third-quarter record $3.53, up 6%.

"Lennox International posted record third-quarter revenue and profit driven by the performance of our Residential business in the quarter," said Chairman and CEO Todd Bluedorn. "Residential revenue rose 13% and set a new record for any quarter at $722 million. Revenue from replacement business was up low-double digits, and revenue from new construction was up mid-teens. Residential segment profit grew 21% to a third-quarter record $153 million, and segment margin expanded 140 basis points to a third-quarter record 21.2%. On an operational basis excluding $16 million of insurance benefit in the prior-year quarter, segment profit was up 38% and segment margin expanded 390 basis points.

"Turning to our commercial-facing businesses, both Commercial and Refrigeration continued to be more impacted than Residential from the pandemic, but the year-over-year decline moderated in the third quarter from what we saw in the second quarter this year. In Commercial, revenue and profit were down 18%. Commercial equipment revenue was down 20%, and service revenue was down low-double digits. Segment margin expanded 10 basis points to 18.7%. In the Refrigeration segment, revenue was down 14% at constant currency, with North America down high-teens and Europe down high-single digits. Refrigeration profit declined 34%, and segment margin contracted 350 basis points to 10.4%.

"We continue to face highly uncertain economic conditions in the fourth quarter and remain cautious on the potential impact from the pandemic heading into the winter season. The company remains competitively well-positioned to capitalize on market opportunities with a seasoned team experienced in managing through downturns, while continuing to invest and advance the company's position for the future. For 2020, we are raising revenue guidance from a decline of 10-15% to a decline of 5-9% for the full year. We are raising 2020 guidance for adjusted EPS from continuing operations from a range of $7.90-$8.70 to $9.05-$9.65. And we are raising free cash flow guidance from approximately $340 million to $425 million this year as the company maintains a strong balance sheet with strong cash generation."

FINANCIAL HIGHLIGHTS

Revenue:Revenue was a third-quarter record $1.06 billion, up 2% with volume, price and mix favorable to revenue. Foreign exchange was neutral to revenue.

Gross Profit:Gross profit was $323 million, up 8%, and gross margin was 30.6%, up 170 basis points. Gross profit was positively impacted by favorable price, lower material and other product costs, higher factory productivity, lower distribution and freight costs, and favorable foreign exchange. Partial offsets included unfavorable mix and tariffs.

Income from Continuing Operations: On a GAAP basis, income from continuing operations for the third quarter was $131.7 million, or $3.42 per share, compared to $114.7 million, or $2.94 per share, in the prior-year quarter.

Adjusted income from continuing operations in the third quarter was $136.1 million, or $3.53 per share, compared to $130.0 million, or $3.34 per share, in the prior-year quarter. Adjusted income from continuing operations for the third quarter of 2020 excludes net after-tax charges of $4.4 million, consisting of: a $3.6 million loss from natural disasters, net of insurance recoveries, related to the August 2020 high-wind damage at the company's manufacturing facility in Iowa; $2.2 million for personal protective equipment and facility deep cleaning expenses incurred due to the COVID-19 pandemic; a net charge of $1.4 million for various other items; and a benefit of $2.8 million for excess tax benefits from share-based compensation.

Cash from Operations, Free Cash Flow and Total Debt: Net cash from operations in the third quarter was $440 million, compared to $236 million in the prior-year quarter. Capital expenditures were $12 million in the third quarter, compared to approximately $25 million in the prior-year quarter. Free cash flow was $428 million compared to $211 million in the third quarter a year ago. Total debt at the end of the third quarter was $1.01 billion. Total cash, cash equivalents and short-term investments were $59 million at the end of September. In the third quarter, the company paid approximately $30 million in dividends.

BUSINESS SEGMENT HIGHLIGHTS

Residential Heating & CoolingRevenue in the Residential Heating & Cooling business segment was a record $722 million, up 13%. Foreign exchange was neutral to revenue. Segment profit was a third-quarter record $153 million, up 21% from the prior-year quarter that included $16 million of insurance benefit. Segment margin was a third-quarter record 21.2%, up 140 basis points from the prior-year quarter that included the insurance benefit. Residential results were primarily impacted by higher volume, favorable price, lower material and other product costs, higher factory productivity, and lower distribution and freight costs. Partial offsets included the year-over-year difference in insurance benefit, higher selling and incentive expenses, and tariffs.

Commercial Heating & CoolingRevenue in the Commercial Heating & Cooling business segment was $208 million, down 18%. Foreign exchange was neutral to revenue. Segment profit was $39 million, down 18%, and segment margin was 18.7%, up 10 basis points. Commercial results were primarily impacted by lower volume driven by the COVID-19 pandemic and unfavorable mix. Partial offsets included lower material costs, higher factory productivity, lower distribution costs, and lower SG&A expense.

RefrigerationRevenue in the Refrigeration business segment was $125 million, down 12%. Foreign exchange had a favorable 2% impact on revenue. Segment profit was $13 million, down 34%, and segment margin was 10.4%, down 350 basis points. Refrigeration results were primarily impacted by lower volume and lower factory efficiency due to the COVID-19 pandemic, and unfavorable mix. Partial offsets included favorable price, lower material costs, lower SG&A expense, and favorable foreign exchange.

FULL-YEAR GUIDANCE

The company is updating its 2020 guidance and raising estimates for revenue and EPS from continuing operations.

* Raising guidance for adjusted revenue to be down 5-9% from the prior year compared to previous guidance to be down 10-15%. * Raising guidance for GAAP EPS from continuing operations to $8.35-$8.95 from previous guidance of $7.31-$8.11. * Raising guidance for adjusted EPS from continuing operations to $9.05-$9.65 from previous guidance of $7.90-$8.70. * Corporate expense is now expected to be approximately $90 million, primarily due to higher incentive compensation, compared to prior guidance of $75 million. * The effective tax rate is now expected to be 19-20% on an adjusted basis for the full year compared to prior guidance of 21-22%. * Capital expenditures are now targeted to be approximately $100 million compared to previous guidance of approximately $120 million. * Free cash flow is now expected to be approximately $425 million for the full year, up from prior guidance of approximately $340 million. * The company's remaining 2020 stock repurchase program of $300 million currently remains on hold; the company repurchased $100 million of stock in the first quarter. * The company's quarterly dividend plans remain unchanged at $0.77 per share, or more than $115 million in total for the year.

CONFERENCE CALL INFORMATION

A conference call to discuss the company's third-quarter results and outlook will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 877-336-4440 (U.S.) or 409-207-6984 (international) at least 10 minutes prior to the scheduled start time and use participant code 8252687. The conference call also will be webcast on Lennox International's web site at www.lennoxinternational.com. A replay will be available from approximately 11:00 a.m. Central time on October 19 through November 2, 2020 by dialing 866-207-1041 (U.S.) or 402-970-0847 (international) and using access code 9386544. The call also will be archived on the company's website.

About Lennox International

Lennox International Inc. is a global leader in the heating, air conditioning, and refrigeration markets. Lennox International stock is listed on the New York Stock Exchange and traded under the symbol "LII". Additional information is available at: www.lennoxinternational.com or by contacting Steve Harrison, Vice President, Investor Relations, at 972-497-6670.

FORWARD-LOOKING STATEMENTS

The statements in this news release that are not historical statements, including statements regarding the 2020 full-year outlook and expected consolidated and segment financial results for 2020, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on information currently available as well as management's assumptions and beliefs today. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the statements, and investors should not place undue reliance on them. Risks and uncertainties that could cause actual results to differ materially from such statements include risks associated with the economic impact of the COVID-19 pandemic on the company and its employees, customers and suppliers; risks that the decline in the North American unitary HVAC and refrigeration markets will be greater than current assumptions. Additional statements include, but are not limited to: the impact of higher raw material prices, the impact of new or increased trade tariffs, LII's ability to implement price increases for its products and services, economic conditions in our markets, regulatory changes, the impact of unfavorable weather, and a decline in new construction activity and related demand for products and services. For information concerning these and other 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, except as required by law.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)



(Amounts in millions, For the Three Months EndedFor the Nine Months Endedexcept per share data) September 30, September 30,

2020 2019 2020 2019

Net sales $ 1,055.0$ 1,032.9 $ 2,720.1$ 2,922.2

Cost of goods sold 731.7 734.6 1,955.3 2,090.3

Gross profit 323.3 298.3 764.8 831.9

Operating Expenses:

Selling, general and 151.8 143.4 412.7 441.6 administrative expenses

Losses (gains) and 3.4 2.2 5.6 5.3 other expenses, net

Restructuring charges 0.1 6.1 10.6 6.5

Loss on sale of - 0.2 - 9.1 business

Loss (gain) from natural disasters, net 4.9 (7.1) 7.6 (85.4) of insurance recoveries

Income from equity (4.0) (3.3) (11.2) (10.5) method investments

Operating income 167.1 156.8 339.5 465.3

Pension settlements 0.3 - 0.3 60.6

Interest expense, net 6.5 12.5 22.2 36.5

Other expense (income),1.1 0.6 3.3 1.7 net

Income from continuing operations before 159.2 143.7 313.7 366.5 income taxes

Provision for income 27.5 29.0 68.8 71.5 taxes

Income from continuing 131.7 114.7 244.9 295.0 operations

Discontinued Operations:

Loss from discontinued operations before - - (0.9) (0.4) income taxes

Income tax benefit - - (0.6) (0.1)

Loss from discontinued - - (0.3) (0.3) operations

Net income $ 131.7 $ 114.7 $ 244.6 $ 294.7



Earnings per share - Basic:

Income from continuing $ 3.44 $ 2.97 $ 6.39 $ 7.54 operations

Loss from discontinued - - (0.01) (0.01) operations

Net income $ 3.44 $ 2.97 $ 6.38 $ 7.53

Earnings per share - Diluted:

Income from continuing $ 3.42 $ 2.94 $ 6.35 $ 7.46 operations

Loss from discontinued - - (0.01) - operations

Net income $ 3.42 $ 2.94 $ 6.34 $ 7.46



Weighted Average Number of Shares Outstanding -38.3 38.6 38.3 39.1 Basic

Weighted Average Number of Shares Outstanding -38.6 39.0 38.6 39.5 Diluted

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES Adjusted Segment Net Sales and Profit (Loss) (Unaudited)



(Amounts in millions) For the Three Months EndedFor the Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Adjusted Net Sales

Residential Heating & $ 722.0 $ 637.6 $1,808.8$ 1,792.2 Cooling

Commercial Heating & 207.9 253.3 574.6 687.9 Cooling

Refrigeration ^(1) 125.1 142.0 $336.7 407.8

$ 1,055.0$ 1,032.9 $2,720.1$ 2,887.9

Adjusted Segment Profit (Loss) ^(2)

Residential Heating & $ 153.0 $ 126.5 $312.8 $ 366.6 Cooling

Commercial Heating & 38.8 47.1 93.1 116.0 Cooling

Refrigeration ^(1) 13.0 19.8 22.6 48.3

Corporate and other (28.3) (18.1) (61.3) (54.3)

Total adjusted segment 176.5 175.3 367.2 476.6 profit

Reconciliation to Operating Income:

Special product quality- (0.5) (1.0) (1.0) adjustments

Loss on sale of - 0.2 - 9.1 business

Prior quarter partial advance of insurance - 8.0 - - recoveries related to lost profits

Loss (gain) from natural disasters, net 4.9 1.2 7.6 (11.6) of insurance recoveries

Items in losses (gains) and other expenses, net that are excluded from 4.4 3.5 10.5 7.3 segment profit (loss) ^ (2)

Restructuring charges 0.1 6.1 10.6 6.5

Operating loss from - - - 1.0 non-core business ^(1)

Operating income $ 167.1 $ 156.8 $339.5 $ 465.3



(1)Excludes the non-core business results related to Kysor Warren, which was sold in March 2019.

(2)We define segment profit (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:

? The following items in Losses (gains) and other expenses, net:

* Net change in unrealized (gains) losses on unsettled futures contracts,

* Special legal contingency charges,

* Asbestos-related litigation,

* Environmental liabilities,

* Charges incurred related to COVID-19 pandemic,

* Other items, net,

? Loss on sale of business,

? Special product quality adjustments,

? Prior quarter partial advance of insurance recoveries related to lost profits,

? Loss (gain) from natural disasters, net of insurance recoveries,

? Operating loss (income) from non-core business; and

? Restructuring charges.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Balance Sheets



(Amounts in millions, except shares As of September 30,As of December 31,and par values) 2020 2019

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents $ 55.0 $ 37.3

Short-term investments 4.1 2.9

Accounts and notes receivable, net of allowances of $7.3 and $6.1 in 2020 542.7 477.8 and 2019, respectively

Inventories, net 408.7 544.1

Other assets 53.5 58.8

Total current assets 1,064.0 1,120.9

Property, plant and equipment, net of accumulated depreciation of $862.3 444.9 445.4 and $824.3 in 2020 and 2019, respectively

Right-of-use assets from operating 196.0 181.6 leases

Goodwill 186.7 186.5

Deferred income taxes 15.2 21.5

Other assets, net 74.4 79.0

Total assets $ 1,981.2 $ 2,034.9



LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:

Current maturities of long-term debt 7.0 321.9

Current operating lease liabilities 54.1 52.7

Accounts payable 361.0 372.4

Accrued expenses 287.8 255.7

Income taxes payable 1.1 -

Total current liabilities 711.0 1,002.7

Long-term debt 1,006.6 849.3

Long-term operating lease liabilities144.5 131.0

Pensions 92.9 87.4

Other liabilities 141.9 134.7

Total liabilities 2,096.9 2,205.1

Commitments and contingencies

Stockholders' deficit:

Preferred stock, $0.01 par value, 25,000,000 shares authorized, no - - shares issued or outstanding

Common stock, $0.01 par value, 200,000,000 shares authorized, 0.9 0.9 87,170,197 shares issued

Additional paid-in capital 1,109.4 1,093.5

Retained earnings 2,303.7 2,148.7

Accumulated other comprehensive loss (114.9) (103.8)

Treasury stock, at cost, 48,883,807 shares and 48,575,901 shares for 2020(3,414.8) (3,309.5) and 2019, respectively

Total stockholders' deficit (115.7) (170.2)

Total liabilities and stockholders' $ 1,981.2 $ 2,034.9 deficit

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)



(Amounts in millions) For the Nine Months Ended September 30,

2020 2019

Cash flows from operating activities:

Net income $244.6 $294.7

Adjustments to reconcile net income to net cash provided by operating activities:

Loss on sale of business - 9.1

Insurance recoveries received for property damage - (11.6) incurred from natural disaster

Income from equity method investments (11.2) (10.5)

Dividends from affiliates 9.3 9.3

Restructuring charges, net of cash paid 3.5 6.0

Provision for credit losses 5.0 4.0

Unrealized losses (gains), net on derivative 0.5 (0.1) contracts

Stock-based compensation expense 18.4 15.6

Depreciation and amortization 55.4 53.1

Deferred income taxes 5.6 17.0

Pension expense 7.7 65.9

Pension contributions (2.8) (1.7)

Other items, net 2.0 (0.4)

Changes in assets and liabilities, net of effects of divestitures:

Accounts and notes receivable (69.3) (178.2)

Inventories 137.6 (107.0)

Other current assets 2.0 1.5

Accounts payable (2.4) (24.5)

Accrued expenses 29.6 7.6

Income taxes payable / receivable 6.8 (8.2)

Other, net 3.9 (17.1)

Net cash provided by operating activities 446.2 124.5

Cash flows from investing activities:

Proceeds from the disposal of property, plant and 0.7 1.2 equipment

Purchases of property, plant and equipment (55.9) (77.0)

Net proceeds from sale of business - 43.5

Purchases of short-term investments (1.3) (2.4)

Insurance recoveries received for property damage - 11.6 incurred from natural disaster

Net cash used in investing activities (56.5) (23.1)

Cash flows from financing activities:

Short-term debt payments (4.6) (5.3)

Short-term debt borrowings 4.6 5.3

Asset securitization borrowings 91.0 155.5

Asset securitization payments (376.0) (58.0)

Long-term debt payments (5.4) (35.0)

Long-term debt borrowings 600.0 -

Borrowings from credit facility 1,509.5 1,938.5

Payments on credit facility (1,980.5) (1,608.5)

Payments of deferred financing costs (7.1) -

Proceeds from employee stock purchases 2.2 2.5

Repurchases of common stock (100.0) (400.0)

Repurchases of common stock to satisfy employee (10.1) (16.9) withholding tax obligations

Cash dividends paid (88.6) (80.9)

Net cash used in financing activities (365.0) (102.8)

Increase in cash and cash equivalents 24.7 (1.4)

Effect of exchange rates on cash and cash (7.0) 1.2 equivalents

Cash and cash equivalents, beginning of period 37.3 46.3

Cash and cash equivalents, end of period $55.0 $46.1



Supplemental disclosures of cash flow information:

Interest paid $19.0 $31.5

Income taxes paid (net of refunds) $55.1 $78.7

Insurance recoveries received $- $138.0

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Reconciliation to U.S. GAAP (Generally Accepted Accounting Principles) Measures

(Unaudited, in millions, except per share and ratio data)



Use of Non-GAAP Financial Measures



To supplement the Company's consolidated financial statements and segment netsales and profit presented in accordance with U.S. GAAP, additional non-GAAP financial measures are provided and reconciled in the following tables. In addition to these non-GAAP measures, the Company also provides rates of revenue change at constant currency on a consolidated and segment basis if different than the reported measures. The Company believes that these non-GAAP financial measures, when considered together with the GAAP financialmeasures, provide information that is useful to investors in understanding period-over-period operating results. The Company believes that these non-GAAP financial measures enhance the ability of investors to analyze the Company's business trends and operating performance. During the first quarterof 2019, the Company completed the sale of its Kysor Warren business. The results from operations for this business have been shown in the tables belowas "Non-core business results".



Reconciliation of Income from Continuing Operations, a GAAP measure, to Adjusted Income from Continuing Operations, a Non-GAAP measure



For the Three Months Ended September 30,

(Unaudited)

2020 2019

Tax After Tax After Pre-Tax Impact Tax Pre-Tax Impact Tax (e) (e)

Income from continuing $159.2$(27.5)$131.7$143.7$(29.0)$114.7operations, a GAAP measure

Restructuring 0.1 - 0.1 6.1 (1.3) 4.8 charges

Pension settlement 0.3 (0.1) 0.2 - - -

Special product quality adjustments - - - (0.5) 0.1 (0.4) (b)

Special legal contingency charges 0.2 (0.1) 0.1 0.3 (0.1) 0.2 (a)

Asbestos-related 2.4 (0.6) 1.8 1.5 (0.3) 1.2 litigation (a)

Net change in unrealized (gains) losses on unsettled (1.4) 0.3 (1.1) 0.1 (0.1) - futures contracts (a)

Environmental 0.3 (0.1) 0.2 1.1 (0.2) 0.9 liabilities (a)

Excess tax benefits from share-based - (2.8) (2.8) - (1.7) (1.7) compensation (c)

Other tax items, net- 0.1 0.1 - 2.7 2.7 (c)

Loss on sale of - - - 0.2 - 0.2 business

Charges incurred related to COVID-19 3.0 (0.8) 2.2 - - - pandemic (a)

Prior quarter partial advance of insurance recoveries- - - 8.0 (2.1) 5.9 related to lost profits (f)

Loss from natural disasters, net of 4.9 (1.3) 3.6 1.2 (0.2) 1.0 insurance recoveries

Other items, net (a)(0.1) 0.1 - 0.6 (0.1) 0.5

Adjusted income from continuing $168.9$(32.8)$136.1$162.3$(32.3)$130.0operations, a non-GAAP measure



Earnings per share from continuing operations - $3.42 $2.94 diluted, a GAAP measure

Restructuring - 0.12 charges

Pension settlement 0.01 -

Special product quality adjustments - (0.01) (b)

Special legal contingency charges - 0.01 (a)

Asbestos-related 0.05 0.03 litigation (a)

Net change in unrealized (gains) losses on unsettled (0.03) - futures contracts (a)

Environmental 0.01 0.02 liabilities (a)

Excess tax benefits from share-based (0.07) (0.04) compensation (c)

Other tax items, net - 0.07 (c)

Loss on sale of - 0.01 business

Charges incurred related to COVID-19 0.05 - pandemic (a)

Prior quarter partial advance of insurance recoveries - 0.15 related to lost profits (f)

Loss from natural disasters, net of 0.09 0.03 insurance recoveries

Other items, net (a) - 0.01

Change in share counts from - - share-based compensation (d)

Adjusted earnings per share from continuing $3.53 $3.34 operations - diluted, a non-GAAP measure



(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations

(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d) The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts. The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this amount..

(e) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

(f) During the second quarter of 2019, the Company received a partial advanceof $8 million related to lost profits incurred in the second quarter. The Company included this amount in adjusted income in the third quarter as the lost profits related to the second quarter were collected in full.



For the Nine Months Ended September 30,

(Unaudited)

2020 2019

Tax After Tax After Pre-Tax Impact Tax Pre-Tax Impact Tax (e) (e)

Income from continuing $313.7$(68.8)$244.9$366.5$(71.5)$295.0operations, a GAAP measure

Restructuring 10.6 (2.4) 8.2 6.5 (1.4) 5.1 charges

Pension settlements 0.3 (0.1) 0.2 60.6 (15.1) 45.5

Special product quality adjustments (1.0) 0.2 (0.8) (1.0) 0.2 (0.8) (b)

Special legal contingency charges 0.9 (0.2) 0.7 0.5 (0.1) 0.4 (a)

Asbestos-related 1.9 (0.4) 1.5 3.3 (0.7) 2.6 litigation (a)

Net change in unrealized gains on - - - (0.2) - (0.2) unsettled futures contracts (a)

Environmental 1.5 (0.3) 1.2 2.4 (0.5) 1.9 liabilities (a)

Excess tax benefits from share-based - (2.8) (2.8) - (7.0) (7.0) compensation (c)

Other tax items, net- 8.2 8.2 - 3.3 3.3 (c)

Loss on sale of - - - 9.1 (3.5) 5.6 business

Charges incurred related to COVID-19 6.4 (1.6) 4.8 - - - pandemic (a)

Loss (gain) from natural disasters, 7.6 (1.9) 5.7 (11.6) 2.9 (8.7) net of insurance recoveries

Other items, net (a)(0.2) 0.1 (0.1) 1.3 (0.2) 1.1

Non-core business - - - 1.3 (0.3) 1.0 results (f)

Adjusted income from continuing $341.7$(70.0)$271.7$438.7$(93.9)$344.8operations, a non-GAAP measure



Earnings per share from continuing operations - $6.35 $7.46 diluted, a GAAP measure

Restructuring 0.21 0.13 charges

Pension settlements 0.01 1.15

Special product quality adjustments (0.02) (0.02) (b)

Special legal contingency charges 0.02 0.01 (a)

Asbestos-related 0.04 0.07 litigation (a)

Net change in unrealized gains on - (0.01) unsettled futures contracts (a)

Environmental 0.03 0.05 liabilities (a)

Excess tax benefits from share-based (0.07) (0.18) compensation (c)

Other tax items, net 0.21 0.08 (c)

Loss on sale of - 0.14 business

Charges incurred related to COVID-19 0.12 - pandemic (a)

Loss (gain) from natural disasters, 0.15 (0.22) net of insurance recoveries

Other items, net (a) - 0.03

Non-core business - 0.03 results (f)

Change in share counts from - 0.02 share-based compensation (d)

Adjusted earnings per share from continuing $7.05 $8.74 operations - diluted, a non-GAAP measure



(a) Recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations

(b) Recorded in Cost of goods sold in the Consolidated Statements of Operations

(c) Recorded in Provision for income taxes in the Consolidated Statements of Operations

(d) The impact of excess tax benefits from the change in share-based compensation also impacts the Company's diluted share counts. The reconciliation of average outstanding diluted shares on a GAAP and non-GAAP basis is included in this document.

(e) Tax impact based on the applicable tax rate relevant to the location and nature of the adjustment.

(f) Non-core business results represent the Kysor Warren business, not included elsewhere in the reconciliation.

For the Three For the Nine Months Months Ended Ended September 30, September 30,

2020 2019 2020 2019

Components of Losses (gains) and other expenses, net (pre-tax):

Realized losses on settled future contracts ^ $- $0.1$0.2$0.4(a)

Foreign currency exchange gains ^(a) (0.4)(0.3)(3.0)(1.0)

Gain on disposal of fixed assets ^(a) (0.2)- (0.4)(0.2)

Other operating income ^(a) (0.4)(1.2)(1.7)(1.2)

Net change in unrealized (gains) losses on (1.4)0.1 - (0.2)unsettled futures contracts^ (b)

Special legal contingency charges ^(b) 0.2 0.3 0.9 0.5

Asbestos-related litigation ^(b) 2.4 1.5 1.9 3.3

Environmental liabilities ^(b) 0.3 1.1 1.5 2.4

Charges incurred related to COVID-19 pandemic 3.0 - 6.4 - ^(b)

Other items, net ^(b) (0.1)0.6 (0.2)1.3

Losses (gains) and other expenses, net $3.4$2.2$5.6$5.3(pre-tax)



(a) Included in both segment profit (loss) and Adjusted income from continuing operations

(b) Excluded from both segment profit (loss) and Adjusted income from continuing operations

Reconciliation of Earnings per Share from Continuing Operations - Diluted, a GAAP measure, to Estimated Adjusted Earnings per Share from Continuing Operations - Diluted, a Non-GAAP measure

For the Year Ended December 31, 2020 ESTIMATED

Earnings per share from continuing operations - $8.35-$8.95 diluted, a GAAP measure

Other non-core EBIT charges and other non-core tax (0.70) items, net, incurred in 1Q 2020, 2Q 2020 and 3Q 2020

Adjusted Earnings per share from continuing operations$9.05-$9.65 - diluted, a Non-GAAP measure

Reconciliation of Average Shares Outstanding - Diluted, a GAAP measure, to Adjusted Average Shares Outstanding - Diluted, a Non-GAAP measure (shares in millions):

For the Three Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Average shares outstanding - 38.6 $39.0 38.6 $39.5 diluted, a GAAP measure

Impact on diluted shares from excess tax benefits from (0.1) (0.1) (0.1) - share-based compensation

Adjusted average shares outstanding - diluted, a Non-GAAP 38.5 38.9 38.5 39.5 measure



Reconciliation of Net Sales, a GAAP measure, to Adjusted Net Sales, a Non-GAAP measure (dollars in millions)

Refrigeration Consolidated Segment

For the Three Months For the Three Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Net sales, a GAAP measure $125.1$142.0$1,055.0$1,032.9

Net sales from non-core business - - - -

Adjusted net sales, a Non-GAAP $125.1$142.0$1,055.0$1,032.9measure





Refrigeration Consolidated Segment

For the Nine Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Net sales, a GAAP measure $336.7$442.1$2,720.1$2,922.2

Net sales from non-core business - 34.3 - 34.3 (a)

Adjusted net sales, a Non-GAAP $336.7$407.8$2,720.1$2,887.9measure

[(a) Non-Core businesses represent the Kysor Warren business.]



Reconciliation of Gross Profit, a GAAP measure, to Adjusted Gross Profit, a Non-GAAP measure (dollars in millions)

Refrigeration Consolidated Segment

For the Three Months For the Three Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Gross profit, a GAAP measure $38.5 $47.4 $323.3 $298.3

Non-GAAP adjustments to gross - - - 0.5 profit

Adjusted Gross profit, a Non-GAAP $38.5 $47.4 $323.3 $297.8 measure





Refrigeration Consolidated Segment

For the Nine Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Gross profit, a GAAP measure $98.2 $135.6$764.8 $831.9

Non-GAAP adjustments to gross - - 1.0 1.0 profit

Gross profit from non-core - 3.6 - 3.6 business (a)

Adjusted Gross profit, a Non-GAAP $98.2 $132.0$763.8 $827.3 measure

[(a) Non-Core businesses represent the Kysor Warren business.]



Reconciliation of Segment Profit, a GAAP measure, to Adjusted Segment profit,a Non-GAAP measure (dollars in millions)

Refrigeration Consolidated Segment

For the Three Months For the Three Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Segment profit, a Non-GAAP measure$13.0 $19.8 $176.5 $175.3

(Loss) profit from non-core - - - - business

Adjusted Segment profit, a $13.0 $19.8 $176.5 $175.3 Non-GAAP measure





Refrigeration Consolidated Segment

For the Nine Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Segment profit, a Non-GAAP measure$22.6 $47.3 $367.2 $475.6

(Loss) profit from non-core - (1.0) - (1.0) business (a)

Adjusted Segment profit, a $22.6 $48.3 $367.2 $476.6 Non-GAAP measure

[(a) Non-Core businesses represent the Kysor Warren business.]



Reconciliation of Selling, general and administrative expenses, a GAAP measure, to Adjusted Selling, general and administrative expenses, a Non-GAAPmeasure (dollars in millions)

Refrigeration Consolidated Segment

For the Three Months For the Three Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Selling, general and administrative expenses, a GAAP $27.3 $30.4 $151.8 $143.4 measure

Selling, general and administrative expenses from - - - - non-core business

Adjusted Selling, general and administrative expenses, a Non-GAAP measure $27.3 $30.4 $151.8 $143.4





Refrigeration Consolidated Segment

For the Nine Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Selling, general and administrative expenses, a GAAP $80.9 $96.3 $412.7 $441.6 measure

Selling, general and administrative expenses from - 4.6 - 4.6 non-core business (a)

Adjusted Selling, general and administrative expenses, a Non-GAAP measure $80.9 $91.7 $412.7 $437.0

[(a) Non-Core businesses represent the Kysor Warren business.]





Reconciliation of Net Cash Provided by Operating Activities, a GAAP measure, to Free Cash Flow, a Non-GAAP measure (dollars in millions)

For the Three Months For the Nine Months Ended September Ended September 30, 30,

2020 2019 2020 2019

Net cash provided by operating $439.7$235.5$446.2 $124.5 activities

Purchases of property, plant and (12.4) (23.5) (55.9) (77.0) equipment

Proceeds from the disposal of 0.4 0.4 0.7 1.2 property, plant and equipment

Insurance recoveries received for property damage incurred from - (1.2) - 11.6 natural disaster

Free cash flow, a Non-GAAP measure427.7 211.2 391.0 60.3



Trailing Calculation of Debt to EBITDA Ratio Twelve (dollars in millions): Months to September 30, 2020

Adjusted EBIT (a) $ 500.4

Depreciation and amortization expense (b)72.2

EBITDA (a + b) $ 572.6

Total debt at September 30, 2020 (c) $ 1,013.6

Total Debt to EBITDA ratio ((c / (a + b))1.8





Reconciliation of Adjusted EBIT, a Non-GAAP measure, to Income From Continuing Operations Before Income Taxes, a GAAP measure (dollars in millions)

Trailing Twelve Months to September 30, 2020

Income from continuing operations before $ 455.1 income taxes, a GAAP measure

Items in Losses (gains) and other expenses, net that are excluded from 14.5 segment profit

Special product quality adjustments (0.6)

Restructuring charges 14.4

Interest expense, net 33.1

Pension settlements 38.9

Loss on sale of business 1.5

Insurance recoveries received for property damage incurred from natural (60.4) disaster

Other expense (income), net 3.9

Adjusted EBIT per above, a Non-GAAP $ 500.4 measure

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SOURCE Lennox International Inc.