Lennox International Reports Record Fourth Quarter Margin and Profit to Cap Record Year and Raises 2018 EPS Guidance for U.S. Tax Legislation

DALLAS, Feb. 6, 2018 /PRNewswire/ -- Lennox International Inc. (NYSE: LII) today reported fourth-quarter and full-year 2017 results. All comparisons are against the prior-year period. As previously noted, the first quarter of 2017 had 6% more days and the fourth quarter of 2017 had 6% fewer days than their respective prior-year periods.

For the fourth quarter, revenue was $892 million, down 1%. At constant currency, revenue was down 2%. GAAP operating income was $104 million, up 53%. GAAP earnings per share from continuing operations was $1.02, up 9%. Total segment profit increased 1% to a fourth-quarter record $106 million, and margin expanded 20 basis points to a fourth-quarter record 11.9%. Adjusted earnings per share from continuing operations rose 12% to a fourth-quarter record $1.68.

For the full year, revenue was $3.84 billion, up 5%. Foreign exchange was neutral to revenue. GAAP operating income was a record $495 million, up 15%. GAAP earnings per share from continuing operations was a record $7.17, up 13%. Total segment profit increased 10% to a record $515 million as total segment margin expanded 50 basis points to a record 13.4%. Adjusted earnings per share from continuing operations for the full year rose 14% to a record $7.92.

"Lennox International posted a record year of revenue, margin, and profit in 2017, and the company is well-positioned for another year of strong growth and margin expansion in 2018," said Chairman and CEO Todd Bluedorn. "The company's performance was led by our Residential business, which set new highs for revenue, margin, and profit. Our Commercial business set new highs for revenue and profit, and we continued to see improvement in our Refrigeration segment with margin and profit up for the second consecutive year.

"In the fourth quarter, the reported results were impacted from having 6% fewer days in the quarter. Residential revenue was relatively flat at fourth-quarter record levels. Segment profit was down 7%, and margin declined 120 basis points to 16.0% on lower factory absorption than a year ago, the timing of other product costs, and unfavorable mix with replacement business down slightly and new construction up. In Commercial, revenue, margin, and profit established new fourth-quarter highs. Commercial revenue was up 1% at constant currency, and segment profit rose 12% as margin expanded 150 basis points to 17.4%. In Refrigeration, revenue declined 9% at constant currency, but segment profit rose 8% and margin expanded 140 basis points to 10.2% as the business hit its margin target for the year of 10.0%, up 50 basis points.

"Looking ahead, we are reiterating 2018 guidance for revenue growth of 3-7% and are raising EPS guidance by $1.10, incorporating the net benefits from U.S. tax legislation, to a new range of $9.75-$10.35 for the full year. After generating $227 million of free cash flow in 2017, below guidance of approximately $285 million, the company is raising 2018 free cash flow guidance from approximately $330 million to $395 million to align with working capital timing between the two years, as well as the cash benefit from U.S. tax legislation in 2018. We will continue to invest in the business to drive growth and profitability, grow the dividend with earnings over time, and repurchase stock. For 2018, we are increasing our stock repurchase plans from $300 million to $350 million."

FOURTH QUARTER 2017 FINANCIAL HIGHLIGHTS

Revenue: Revenue for the fourth quarter was $892 million, down 1%. Foreign exchange was favorable to revenue growth by 1 percentage point. Volume and mix were down, and price was up from the fourth quarter a year ago.

Gross Profit: Gross profit in the fourth quarter was $260 million, down 3%. Gross margin was 29.1%, down 70 basis points. Gross profit was impacted by lower volume and factory absorption, unfavorable mix, higher commodity costs, the timing of other product costs, and investments in distribution. Partial offsets included higher price, sourcing and engineering-led cost reductions, and favorable foreign exchange.

Income from Continuing Operations: On a GAAP basis, fourth quarter income from continuing operations was $43.1 million, or $1.02 diluted earnings per share, compared to $40.7 million, or $0.94 diluted earnings per share, in the prior-year quarter. The fourth quarter of 2017 included a non-cash, after-tax charge of $40.2 million, or $0.95 per share, related to U.S. tax legislation and the associated write-down of deferred tax assets. The fourth quarter of 2016 included a $20.5 million after-tax charge, or $0.47 per share, for a one-time, lump-sum pension buyout program to certain vested participants.

For the fourth quarter of 2017, adjusted income from continuing operations was $71.0 million, or $1.68 diluted earnings per share, compared to $65.2 million, or $1.50 diluted earnings per share, in the prior-year quarter. Adjusted income from continuing operations for the fourth quarter of 2017 excludes net after-tax charges of $27.9 million: $40.2 million related to U.S. tax legislation and the associated write-down of deferred tax assets, $1.7 million for other items, net, and a benefit of $14.0 million for excess tax benefits from share-based compensation.

FULL YEAR 2017 FINANCIAL HIGHLIGHTS

Revenue: For the full year, revenue was $3.84 billion, up 5%. Foreign exchange was neutral to revenue. Volume and price were up, and mix was down from the prior year.

Gross Profit: Gross profit for the full year was $1.13 billion, up 5%. Gross margin was 29.3%, down 30 basis points. Gross profit was impacted by unfavorable mix, higher commodity costs, lower factory productivity, investments in distribution expansion, and other product costs. Partial offsets included higher volume, higher price, sourcing and engineering-led cost reductions, and favorable foreign exchange.

Income from Continuing Operations: On a GAAP basis, income from continuing operations for 2017 was $307 million, or $7.17 diluted earnings per share, compared to $279 million, or $6.34 diluted earnings per share, in the prior year. The year 2017 included a non-cash, after-tax charge of $40.2 million, or $0.94 per share, related to U.S. tax legislation and the associated write-down of deferred tax assets. The year 2016 included a $20.5 million after-tax charge, or $0.47 per share, for a one-time, lump-sum pension buyout program to certain vested participants.

Adjusted income from continuing operations for 2017 was $338 million, or $7.92 diluted earnings per share, compared to $306 million, or $6.95 diluted earnings per share, in the prior year. Adjusted income from continuing operations for 2017 excludes net after-tax charges of $30.8 million: $40.2 million related to U.S. tax legislation and the associated write-down of deferred tax assets, $3.5 million for special product quality adjustments, $3.3 million for special legal contingency charges, a total of $7.4 million for other items, and a benefit of $23.6 million for excess tax benefits from share-based compensation.

Free Cash Flow and Total Debt: For the full year, cash from operations was $325 million compared to $374 million in the prior year. Capital expenditures were $98 million compared to $84 million in the prior year. Free cash flow was $227 million for the full year compared to $290 million in the prior year. In 2017, the company paid approximately $80 million in dividends and repurchased $250 million of company stock. Ending the year, total debt was $1.0 billion, and the company's debt-to-EBITDA ratio stood at 1.7. Total cash and cash equivalents were $68 million at the end of the year.

BUSINESS SEGMENT FINANCIAL HIGHLIGHTS

Residential Heating and Cooling

    --  4Q17 revenue a fourth-quarter record $477 million, flat; neutral foreign
        exchange
    --  4Q17 segment profit $76 million, down 7%
    --  4Q17 segment margin 16.0%, down 120 basis points
    --  2017 revenue a record $2.14 billion, up 7%; neutral foreign exchange
    --  2017 segment profit a record $374 million, up 7%
    --  2017 segment margin a record 17.5%, up 10 basis points

Fourth-quarter results were impacted by lower factory absorption than a year ago, unfavorable mix, higher commodity costs, the timing of other product costs, and distribution investments. Partial offsets included higher price, sourcing and engineering-led cost reductions, lower SG&A, and favorable foreign exchange. Full-year results were positively impacted by higher volume, higher price, sourcing and engineering-led cost reductions, lower warranty expense, and favorable foreign exchange. Partial offsets included unfavorable mix, higher commodity and other product costs, investments in distribution expansion, and investments in research and development, information technology and other SG&A.

Commercial Heating and Cooling

    --  4Q17 revenue a fourth-quarter record $250 million, up 3%; up 1% at
        constant currency
    --  4Q17 segment profit a fourth-quarter record $44 million, up 12%
    --  4Q17 segment margin a fourth-quarter record 17.4%, up 150 basis points
    --  2017 revenue a record $974 million, up 6%; up 5% at constant currency
    --  2017 segment profit a record $157 million, up 5%
    --  2017 segment margin 16.2%, down 10 basis points

Fourth-quarter results were positively impacted by higher volume, higher price, sourcing and engineering-led cost reductions, lower other product costs, and lower SG&A. Partial offsets included higher commodity costs and warranty expense. Full-year results were positively impacted by higher volume, higher price, and sourcing and engineering-led cost reductions. Offsets included unfavorable mix, higher commodity and other product costs, factory productivity, higher warranty expense, investments in distribution, and higher SG&A.

Refrigeration

    --  4Q17 revenue $165 million, down 7%; down 9% at constant currency
    --  4Q17 segment profit $17 million, up 8%
    --  4Q17 segment margin 10.2%, up 140 basis points
    --  2017 revenue $725 million, up slightly; down 1% at constant currency
    --  2017 segment profit $73 million, up 5%
    --  2017 segment margin 10.0%, up 50 basis points

Fourth-quarter results were positively impacted by favorable mix, sourcing and engineering-led cost reductions, lower other product costs, and lower SG&A. Partial offsets included lower volume and factory absorption, and higher commodity costs. Full-year results were positively impacted by higher price and favorable mix, sourcing and engineering-led cost reductions, and lower other product costs. Partial offsets included higher commodity costs, factory productivity, higher freight and distribution costs, and higher SG&A.

2018 FULL-YEAR OUTLOOK

The company is raising 2018 guidance for EPS from continuing operations due to a lower effective tax rate following U.S. tax legislation and increasing the stock repurchase amount planned for the year.

    --  Reiterating revenue growth of 3-7%, with a minimal impact from foreign
        exchange
    --  Raising GAAP and adjusted EPS from continuing operations from
        $8.65-$9.25 to $9.75-$10.35
    --  Reiterating corporate expenses of approximately $85 million
    --  Lowering the effective tax rate from 31-32% to 22-24% on a full-year
        basis
    --  Reiterating capital expenditures of approximately $100 million
    --  Increasing 2018 stock repurchase plans from $300 million to $350 million

CONFERENCE CALL INFORMATION

A conference call to discuss the company's fourth-quarter and full-year 2017 results will be held this morning at 8:30 a.m. Central time. To listen, call the conference call line at 612-288-0329 at least 10 minutes prior to the scheduled start time and use reservation number 442711. The conference call also will be webcast on Lennox International's web site at www.lennoxinternational.com. A replay will be available from 11:00 a.m. Central time on February 6 through February 20, 2018, by dialing 800-475-6701 (U.S.) or 320-365-3844 (international) and using access code 442711. The call also will 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 listed on the New York Stock Exchange and traded under the symbol "LII". Additional information on Lennox International 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 2018 full-year outlook, expected consolidated and segment financial results for 2018, and expected share repurchases, 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, but are not limited to: the impact of higher raw material prices, 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



    (Amounts in millions,
     except per share data)       For the Three Months Ended                              For the Years Ended
                                         December 31,                                         December 31,

                                        (Unaudited)

                                     2017                   2016                      2017                   2016
                                     ----                   ----                      ----                   ----

    Net sales                                $891.8                                          $897.3               $3,839.6  $3,641.6

    Cost of goods sold              632.0                              629.7                             2,714.4    2,565.1
                                    -----                              -----                             -------    -------

    Gross profit                    259.8                              267.6                             1,125.2    1,076.5

    Operating Expenses:

    Selling, general and
     administrative expenses        158.2                              164.9                               637.7      621.0

    (Gains) Losses and other
     expenses, net                  (0.4)                               5.8                                 8.2       11.3

    Restructuring charges             1.2                                0.7                                 3.2        1.8

    Pension settlement                  -                              31.4                                   -      31.4

    Income from equity
     method investments             (2.9)                             (3.2)                             (18.4)    (18.4)
                                     ----                               ----                               -----      -----

    Operating income                103.7                               68.0                               494.5      429.4

    Interest expense, net             7.3                                7.4                                30.6       27.0

    Other income, net                   -                             (0.1)                              (0.1)     (0.3)
                                      ---                              ----                                ----       ----

    Income from continuing
     operations before
     income taxes                    96.4                               60.7                               464.0      402.7

    Provision for income
     taxes                           53.3                               20.0                               156.9      124.1
                                     ----                               ----                               -----      -----

    Income from continuing
     operations                      43.1                               40.7                               307.1      278.6

    Discontinued Operations:

    Income (Loss) from
     discontinued operations
     before income taxes              0.1                              (0.5)                              (2.2)     (1.3)

    Provision for (Benefit
     from) income taxes               0.1                              (0.2)                              (0.8)     (0.5)
                                      ---                               ----                                ----       ----

    Loss from discontinued
     operations                         -                             (0.3)                              (1.4)     (0.8)
                                      ---                              ----                                ----       ----

    Net income                                $43.1                                           $40.4                 $305.7    $277.8
                                              =====                                           =====                 ======    ======


    Earnings per share - Basic:

    Income from continuing
     operations                               $1.03                                           $0.95                  $7.28     $6.41

    Loss from discontinued
     operations                         -                            (0.01)                             (0.03)    (0.02)
                                      ---                             -----                               -----      -----

    Net income                                $1.03                                           $0.94                  $7.25     $6.39
                                              =====                                           =====                  =====     =====

    Earnings per share - Diluted:

    Income from continuing
     operations                               $1.02                                           $0.94                  $7.17     $6.34

    Loss from discontinued
     operations                         -                            (0.01)                             (0.03)    (0.02)
                                      ---                             -----                               -----      -----

    Net income                                $1.02                                           $0.93                  $7.14     $6.32
                                              =====                                           =====                  =====     =====


    Weighted Average Number
     of Shares Outstanding -
     Basic                           41.8                               42.9                                42.2       43.4

    Weighted Average Number
     of Shares Outstanding -
     Diluted                         42.5                               43.4                                42.8       44.0


    Cash dividends declared
     per share                                $0.51                                           $0.43                  $1.96     $1.65


                                                                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                                                                      Segment Net Sales and Profit (Loss)


    (Amounts in millions)                 For the Three Months Ended                              For the Years Ended
                                                 December 31,                                         December 31,
                                                  (Unaudited)

                                             2017                   2016                      2017                   2016
                                             ----                   ----                      ----                   ----

    Net Sales

    Residential Heating & Cooling                    $476.6                                          $476.3               $2,140.4  $2,000.8

    Commercial Heating & Cooling            250.3                              243.3                               973.8      917.9

    Refrigeration                           164.9                              177.7                               725.4      722.9


                                                     $891.8                                          $897.3               $3,839.6  $3,641.6
                                                     ======                                          ======               ========  ========


    Segment Profit (Loss) (1)

    Residential Heating & Cooling                     $76.2                                           $81.9                 $373.9    $348.8

    Commercial Heating & Cooling             43.5                               38.7                               157.3      149.3

    Refrigeration                            16.9                               15.6                                72.6       68.9

    Corporate and other                    (30.6)                            (31.6)                             (89.2)    (97.4)
                                            -----                              -----                               -----      -----

    Total segment profit                    106.0                              104.6                               514.6      469.6



    Reconciliation to Operating income:



    Special product quality adjustments     (0.3)                                 -                                5.4      (0.4)

    Items in (Gains) Losses and other
     expenses, net that are excluded from
     segment profit (loss) (1)                1.4                                4.5                                11.5        7.4

    Restructuring charges                     1.2                                0.7                                 3.2        1.8

    Pension settlement                          -                              31.4                                   -      31.4

    Operating income                                 $103.7                                           $68.0                 $494.5    $429.4


    (1)  The Company defines segment
         profit (loss) as a segment's
         operating income included in
         the accompanying Consolidated
         Statements of Operations,
         excluding:

        --          Special product quality
                   adjustments;

        --          The following items in
                   (Gains) Losses and other
                   expenses, net:

                  ?                          Net change in unrealized gains and/or losses on
                                             unsettled futures contracts,

                  ?                         Special legal contingency charges,

                  ?                         Asbestos-related litigation,

                  ?                         Environmental liabilities,

                  ?                         Contractor tax payments,

                  ?                         Acquisition/disposition costs, and

                  ?                         Other items, net;

        --          Restructuring charges;
                   and

        --         Pension settlement.


                                  LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                                          Consolidated Balance Sheets



    (Amounts in millions,
     except shares and par
     values)                            As of December 31,                   As of December 31,
                                                      2017                                 2016
                                                      ----                                 ----


                                                   ASSETS

    Current assets:

    Cash and cash
     equivalents                                                  $68.2                              $50.2

    Accounts and notes
     receivable, net of
     allowances of $5.9 and
     $6.7 in 2017 and 2016,
     respectively                                    506.5                                  469.8

    Inventories, net                                 484.2                                  418.5

    Other assets                                      78.4                                   67.4
                                                      ----                                   ----

    Total current assets                           1,137.3                                1,005.9

    Property, plant and
     equipment, net of
     accumulated
     depreciation of $774.2
     and $717.2 in 2017 and
     2016, respectively                              397.8                                  361.4

    Goodwill                                         200.5                                  195.1

    Deferred income taxes                             94.4                                  136.7

    Other assets, net                                 61.5                                   61.2
                                                      ----                                   ----

    Total assets                                               $1,891.5                           $1,760.3
                                                               ========                           ========


                                    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current Liabilities:

    Short-term debt                                                $0.9                              $52.4

    Current maturities of
     long-term debt                                   32.6                                  200.1

    Accounts payable                                 348.6                                  361.2

    Accrued expenses                                 270.3                                  265.9

    Income taxes payable                               2.1                                    9.0
                                                       ---                                    ---

    Total current
     liabilities                                     654.5                                  888.6

    Long-term debt                                   970.5                                  615.7

    Post-retirement
     benefits, other than
     pensions                                          2.6                                    2.8

    Pensions                                          84.5                                   87.5

    Other liabilities                                129.3                                  127.7
                                                     -----                                  -----

    Total liabilities                              1,841.4                                1,722.3

    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,
     87,170,197 shares
     issued                                            0.9                                    0.9

    Additional paid-in
     capital                                       1,061.5                                1,046.2

    Retained earnings                              1,575.9                                1,353.0

    Accumulated other
     comprehensive loss                            (157.4)                               (195.1)

    Treasury stock, at cost,
     45,361,145 shares and
     44,195,250 shares for
     2017 and 2016,
     respectively                                (2,430.8)                             (2,167.4)

    Noncontrolling interests                             -                                   0.4
                                                       ---                                   ---

    Total stockholders'
     equity                                           50.1                                   38.0
                                                      ----                                   ----

    Total liabilities and
     stockholders' equity                                      $1,891.5                           $1,760.3
                                                               ========                           ========


                                             LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

                                                Consolidated Statements of Cash Flow


    (Amounts in millions)                                        For the Years Ended December 31,

                                                                       2017                   2016
                                                                       ----                   ----

    Cash flows from operating activities:

    Net income                                                                 $305.7                         $277.8

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

       Income from equity method investments                         (18.4)                           (18.4)

       Dividends from affiliates                                       14.7                              14.9

       Restructuring expenses, net of cash paid                         0.8                             (0.8)

       Provision for bad debts                                          3.9                               2.4

       Unrealized gains, net on derivative
        contracts                                                     (2.0)                            (0.7)


       Stock-based compensation expense                                24.9                              31.7

       Depreciation and amortization                                   64.6                              58.1

       Deferred income taxes                                           43.3                             (4.0)

       Pension expense                                                  5.3                              37.7

       Pension contributions                                          (3.5)                           (53.9)

       Other items, net                                                 1.3                               0.9

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

       Accounts and notes receivable                                 (28.4)                           (50.6)

       Inventories                                                   (56.4)                              0.3

       Other current assets                                           (6.1)                              0.1

       Accounts payable                                              (18.5)                             40.1

       Accrued expenses                                                 0.3                              36.2

       Income taxes payable and receivable                            (6.7)                            (0.1)

       Other, net                                                       0.3                               2.2

    Net cash provided by operating activities                         325.1                             373.9

    Cash flows from investing activities:

    Proceeds from the disposal of property,
     plant and equipment                                                0.2                               0.2

    Purchases of property, plant and equipment                       (98.3)                           (84.3)

    Net cash used in investing activities                            (98.1)                           (84.1)

    Cash flows from financing activities:

    Short-term borrowings, net                                        (1.5)                            (2.4)

    Asset securitization borrowings                                   315.0                             145.0

    Asset securitization payments                                    (89.0)                          (295.0)

    Long-term debt borrowings                                             -                            350.0

    Long-term debt payments                                         (200.9)                           (58.8)

    Borrowings from credit facility                                 2,376.5                           2,336.5

    Payments on credit facility                                   (2,265.5)                        (2,346.0)

    Payments of deferred financing costs                              (0.2)                            (4.2)

    Proceeds from employee stock purchases                              3.1                               2.6

    Repurchases of common stock                                     (250.0)                          (300.0)

    Repurchases of common stock to satisfy
     employee withholding tax obligations                            (26.1)                           (33.3)

    Cash dividends paid                                              (79.7)                           (69.0)
                                                                      -----                             -----

    Net cash used in financing activities                           (218.3)                          (274.6)

    Increase in cash and cash equivalents                               8.7                              15.2

    Effect of exchange rates on cash and cash
     equivalents                                                        9.3                             (3.9)

    Cash and cash equivalents, beginning of
     year                                                              50.2                              38.9
                                                                       ----                              ----

    Cash and cash equivalents, end of year                                      $68.2                          $50.2
                                                                                =====                          =====

    Supplementary disclosures of cash flow information:

    Cash paid during the year for:

    Interest, net                                                               $32.4                          $26.3
                                                                                =====                          =====

    Income taxes (net of refunds)                                              $119.3                         $127.4
                                                                               ======                         ======


                                                                                                 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 net sales 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 financial measures, 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.



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


                                                                               For the Three Months Ended December 31,

                                                                                                  2017                                                        2016

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

    Income from continuing
     operations, a GAAP
     measure                                       96.4                        (53.3)                   43.1                                               $60.7                             $(20.0)                              $40.7

    Restructuring charges                           1.2                         (0.5)                    0.7                                     0.7                    (0.2)                    0.5

    Special product
     quality adjustments
     (b)                                          (0.3)                          0.1                   (0.2)                                      -                       -                      -

    Special legal
     contingency charges
     (a)                                              -                            -                      -                                    1.4                        -                    1.4

    Asbestos-related
     litigation (a)                               (0.3)                          0.1                   (0.2)                                    4.0                    (1.4)                    2.6

    Net change in
     unrealized (gains)
     losses on unsettled
     future contracts (a)                         (0.1)                          0.1                       -                                  (1.7)                     0.6                   (1.1)

    Environmental
     liabilities (a)                                0.9                         (0.2)                    0.7                                     0.8                    (0.2)                    0.6

    Contractor tax
     payments (a)                                   0.1                             -                    0.1                                       -                       -                      -

    Excess tax benefits
     from share-based
     compensation (c)                                 -                       (14.0)                 (14.0)                                      -                       -                      -

    Tax legislation impact
     (c)                                              -                         40.2                    40.2                                       -                       -                      -

    Pension settlement
     charges                                          -                            -                      -                                   31.4                   (10.9)                   20.5

    Other items, net (a)                            0.8                         (0.2)                    0.6                                       -                       -                      -
                                                    ---                          ----                                                                                    ---                    ---

    Adjusted income from
     continuing
     operations, a non-
     GAAP measure                                                  $98.7                             $(27.7)                                  $71.0                                           $97.3                             $(32.1)                           $65.2
                                                                   =====                              ======                                   =====                                           =====                              ======                            =====


    Earnings per share from continuing
     operations -diluted, a GAAP measure                                                  $1.02                                                                     $0.94

    Restructuring charges                                                     0.02                                                           0.01

    Special product quality adjustments
     (b)                                                                         -                                                             -

    Special legal contingency charges (a)                                        -                                                          0.03

    Asbestos-related litigation (a)                                              -                                                          0.06

    Net change in unrealized (gains)
     losses on unsettled future contracts
     (a)                                                                         -                                                        (0.02)

    Environmental liabilities (a)                                             0.02                                                           0.01

    Contractor tax payments (a)                                                  -                                                             -

    Excess tax benefits from share-based
     compensation (c)                                                       (0.33)                                                             -

    Tax legislation impact (c)                                                0.95                                                              -

    Pension settlement charges                                                   -                                                          0.47

    Other items, net (a)                                                      0.01                                                              -

    Change in share counts from share-
     based compensation (d)                                                 (0.01)                                                             -
                                                                             -----                                                            ---

    Adjusted earnings per share from
     continuing operations - diluted, a
     non-GAAP measure                                                                     $1.68                                                                     $1.50
                                                                                          =====                                                                     =====


           (a)          Recorded in (Gains) Losses 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 our
                        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.



                                                           For the Years Ended December 31,



                                                                           2017                                              2016

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

    Income from continuing
     operations, a GAAP
     measure                                $464.0                           $(156.9)                           $307.1                 $402.7         $(124.1)   $278.6

    Restructuring charges       3.2                     (1.1)                     2.1                               1.8    (0.6)           1.2

    Special product
     quality adjustments
     (b)                        5.4                     (1.9)                     3.5                             (0.4)     0.1          (0.3)

    Special legal
     contingency charges
     (a)                        3.7                     (0.4)                     3.3                               1.9    (0.1)           1.8

    Asbestos-related
     litigation (a)             3.5                     (1.2)                     2.3                               6.3    (2.2)           4.1

    Net change in
     unrealized losses
     (gains) on unsettled
     future contracts (a)       0.9                     (0.3)                     0.6                             (3.6)     1.3          (2.3)

    Environmental
     liabilities (a)            2.2                     (0.6)                     1.6                               1.9    (0.5)           1.4

    Contractor tax
     payments (a)               0.1                         -                     0.1                               0.6    (0.2)           0.4

    Excess tax benefits
     from share-based
     compensation (c)             -                   (23.6)                  (23.6)                                -       -             -

    Tax legislation impact
     (c)                          -                     40.2                     40.2                                 -       -             -

    Pension settlement
     charges                      -                        -                       -                             31.4   (10.9)          20.5

    Other items, net (a)                      $1.1                             $(0.4)                             $0.7            0.4          (0.2)       0.2
                                              ----                              -----                              ----            ---           ----        ---

    Adjusted income from
     continuing
     operations, a non-
     GAAP measure                           $484.1                           $(146.2)                           $337.9                 $443.0         $(137.4)   $305.6
                                            ======                            =======                            ======                 ======          =======    ======


    Earnings per share
     from continuing
     operations -diluted,
     a GAAP measure                                                 $7.17                                                $6.34

    Restructuring charges                               0.05                                                      0.03

    Special product
     quality adjustments
     (b)                                                0.08                                                    (0.01)

    Special legal
     contingency charges
     (a)                                                0.08                                                      0.04

    Asbestos-related
     litigation (a)                                     0.05                                                      0.09

    Net change in
     unrealized losses
     (gains) on unsettled
     future contracts (a)                               0.01                                                    (0.05)

    Environmental
     liabilities (a)                                    0.04                                                      0.03

    Contractor tax
     payments (a)                                          -                                                     0.01

    Excess tax benefits
     from share-based
     compensation (c)                                 (0.55)                                                        -

    Tax legislation impact
     (c)                                                0.94                                                         -

    Pension settlement
     charges                                               -                                                     0.47

    Other items, net (a)                                0.02                                                         -

    Change in share counts
     from share-based
     compensation (d)                                   0.03                                                         -
                                                        ----                                                       ---

    Adjusted earnings per
     share from continuing
     operations -
     diluted, a non-GAAP
     measure                                                        $7.92                                                $6.95
                                                                    =====                                                =====


           (a)          Recorded in (Gains) Losses 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 our
                        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.


                                           For the Three Months Ended           For the Years Ended
                                                  December 31,
                                                  (Unaudited)                       December 31,

                                              2017                  2016          2017                 2016
                                              ----                  ----          ----                 ----

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

    Realized losses on settled future
     contracts (a)                                   $(0.5)                            $(0.2)               $(1.7)    $1.1

    Foreign currency exchange losses (a)     (1.4)                         1.2                      (1.8)       2.2

    Losses on disposal of fixed assets (a)     0.1                          0.3                        0.2        0.5

    Net change in unrealized losses
     (gains) on unsettled futures
     contracts (b)                           (0.1)                       (1.7)                       0.9      (3.6)

    Special legal contingency charges (b)        -                         1.4                        3.7        1.9

    Asbestos-related litigation (b)          (0.3)                         4.0                        3.5        6.3

    Environmental liabilities (b)              0.9                          0.8                        2.2        1.9

    Contractor tax payments (b)                0.1                            -                       0.1        0.6

    Acquisition/disposition expenses (b)       1.1                            -                       1.1        0.4

    Other items, net (b)                     (0.3)                           -                         -         -
                                              ----                          ---                       ---       ---

    (Gains) Losses and other expenses, net
     (pre-tax)                                       $(0.4)                              $5.8                  $8.2    $11.3
                                                      =====                               ====                  ====    =====

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

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


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

                                                                                                                                                               For the Year
                                                                                                                                                                   Ended
                                                                                                                                                               December 31,
                                                                                                                                                                       2018
                                                                                                                                                                 ESTIMATED
                                                                                                                                                                 ---------

     Income per share from continuing operations - diluted, a GAAP measure                                                                                                                                 $9.75-$10.35

    Reconciling items                                                                                                                                                                                              0.00

     Adjusted income per share from continuing operations - diluted, a Non-GAAP measure                                                                                                                    $9.75-$10.35
                                                                                                                                                                                                           ============


    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 Twelve Months
                                                                                  Ended December 31,                              Ended December 31,

                                                                                            2017                          2016                            2017                                 2016
                                                                                            ----                          ----                            ----                                 ----

    Average shares
     outstanding -
     diluted, a GAAP
     measure                                                                                42.5                          43.4                            42.8                                 44.0

    Impact on diluted
     shares from excess
     tax benefits from
     share-based
     compensation                                                                          (0.2)                            -                          (0.2)                                   -


    Adjusted average
     shares outstanding -
      diluted, a Non-
      GAAP measure                                                                          42.3                          43.4                            42.6                                 44.0
                                                                                            ====                          ====                            ====                                 ====



    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 Years
                                                                                  Ended December 31,                              Ended December 31,

                                                                                            2017                          2016                            2017                                 2016
                                                                                            ----                          ----                            ----                                 ----

    Net cash provided by
     operating
     activities, a GAAP
     measure                                                                                        $196.1                                             $247.0                                       $325.1              $373.9

     Purchases of
      property, plant and
      equipment                                                                           (37.8)                       (24.9)                         (98.3)                              (84.3)

     Proceeds from the
      disposal of
      property, plant and
      equipment                                                                                -                          0.2                             0.2                                  0.2
                                                                                             ---                          ---                             ---                                  ---

     Free cash flow, a
      Non-GAAP measure                                                                              $158.3                                             $222.3                                       $227.0              $289.8
                                                                                                    ======                                             ======                                       ======              ======



    Calculation of Debt to EBITDA Ratio
     (dollars in millions):                                                                                                                                      Trailing
                                                                                                                                                                   Twelve
                                                                                                                                                                 Months to
                                                                                                                                                               December 31,
                                                                                                                                                                       2017
                                                                                                                                                                       ----

     Adjusted EBIT (a)                                                                                                                                                                    $514.6

     Depreciation and amortization expense
      (b)                                                                                                                                                              63.5

     EBITDA (a + b)                                                                                                                                                                       $578.1
                                                                                                                                                                                          ------

     Total debt at December 31, 2017 (c)                                                                                                                                                $1,004.0
                                                                                                                                                                                        --------

     Total Debt to EBITDA ratio ((c /(a +
      b))                                                                                                                                                               1.7
                                                                                                                                                                        ===



    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
                                                                                                                                                               December 31,
                                                                                                                                                                       2017
                                                                                                                                                                       ----

     Adjusted EBIT per above, a Non-GAAP measure                                                    $514.6

     Special product quality adjustments                                                                                                                                                                            5.4

     Items in (Gains) Losses and other expenses, net that are excluded from segment profit                                                                                                                         11.5

     Restructuring charges                                                                                                                                                                                          3.2

     Interest expense, net                                                                                                                                                                                         30.6

     Other expenses, net                                                                                                                                                                                          (0.1)

     Income from continuing operations before income taxes, a GAAP measure                          $464.0
                                                                                                    ======

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SOURCE Lennox International Inc.