================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-15149
LENNOX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 42-0991521
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2140 LAKE PARK BLVD.
RICHARDSON, TEXAS
75080
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(972) 497-5000
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
---------
As of October 31, 2000, the number of shares outstanding of the
registrant's common stock, par value $.01 per share, was 55,509,455.
1
<PAGE>
LENNOX INTERNATIONAL INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Income (Unaudited) - Three Months
and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (Unaudited) - Nine Months
Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
---- ----
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 45,473 $ 29,174
Accounts and notes receivable, net 475,360 443,107
Inventories 380,427 345,424
Deferred income taxes 36,551 25,367
Other assets 43,783 44,526
----------- -----------
Total current assets 981,594 887,598
INVESTMENTS IN JOINT VENTURES 12,264 12,434
PROPERTY, PLANT AND EQUIPMENT, net 355,642 329,966
GOODWILL, net 676,618 394,252
OTHER ASSETS 53,697 59,423
----------- -----------
TOTAL ASSETS $ 2,079,815 $ 1,683,673
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt $ 30,645 $ 22,219
Current maturities of long-term debt 37,763 34,554
Accounts payable 241,597 196,143
Accrued expenses 258,155 200,221
Income taxes payable 8,406 9,859
----------- -----------
Total current liabilities 576,566 462,996
LONG-TERM DEBT 670,233 520,276
DEFERRED INCOME TAXES 500 928
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS 14,725 15,125
OTHER LIABILITIES 73,377 72,377
----------- -----------
Total liabilities 1,335,401 1,071,702
MINORITY INTEREST 2,010 14,075
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,
59,719,869 shares and 46,161,607 shares issued
for 2000 and 1999, respectively 597 462
Additional paid-in capital 367,442 215,523
Retained earnings 443,993 409,851
Accumulated other comprehensive loss (41,928) (12,706)
Deferred compensation (3,400) (2,848)
Treasury stock, at cost, 2,474,784 and 1,172,200 shares
for 2000 and 1999, respectively (24,300) (12,386)
----------- ------------
Total stockholders' equity 742,404 597,896
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,079,815 $ 1,683,673
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 857,618 $ 669,053 $ 2,468,142 $ 1,749,953
COST OF GOODS SOLD 583,613 456,611 1,667,042 1,199,611
----------- ----------- ----------- -----------
Gross Profit 274,005 212,442 801,100 550,342
OPERATING EXPENSES:
Selling, general and administrative 238,276 157,813 672,164 429,015
----------- ----------- ----------- -----------
Income from operations 35,729 54,629 128,936 121,327
INTEREST EXPENSE, net 13,968 9,093 41,960 24,193
OTHER 497 378 1,243 (403)
MINORITY INTEREST 88 832 (427) 212
----------- ----------- ----------- -----------
Income before income taxes 21,176 44,326 86,160 97,325
PROVISION FOR INCOME TAXES 8,790 17,042 35,757 39,840
----------- ----------- ----------- -----------
Net income $ 12,386 $ 27,284 $ 50,403 $ 57,485
=========== =========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.22 $ 0.65 $ 0.90 $ 1.52
Diluted $ 0.22 $ 0.64 $ 0.89 $ 1.48
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
---------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 50,403 $ 57,485
Adjustments to reconcile net income to net cash provided by operating activities -
Minority interest (427) 212
Joint venture losses 1,106 2,409
Depreciation and amortization 65,018 41,825
Loss on disposal of equipment 1,297 701
Other (220) (994)
Changes in assets and liabilities, net of effects of acquisitions -
Accounts and notes receivable 24,477 (94,086)
Inventories (17,725) (11,873)
Other current assets (217) (3,682)
Accounts payable 12,361 18,718
Accrued expenses 16,333 (9,946)
Deferred income taxes (5,390) 2,184
Income taxes payable and receivable 2,679 17,014
Long-term warranty, deferred income and other liabilities 1,067 (2,559)
--------- ---------
Net cash provided by operating activities 150,762 17,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property, plant and equipment 2,454 746
Purchases of property, plant and equipment (39,749) (53,203)
Investment in joint ventures (1,029) (567)
Acquisitions, net of cash acquired (227,236) (226,127)
Proceeds from sale of business -- 5,490
--------- ---------
Net cash used in investing activities (265,560) (273,661)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving short-term debt 11,697 96,554
Proceeds from revolving long-term debt 106,323 43,917
Proceeds from new long-term debt 60,000 --
Repayment of long-term debt (14,564) (2,619)
Proceeds from issuance of common stock 790 141,799
Repurchases of common stock (15,532) (152)
Cash dividends paid (16,263) (9,924)
--------- ---------
Net cash provided by financing activities 132,451 269,575
INCREASE IN CASH AND CASH EQUIVALENTS 17,653 13,322
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (1,354) (589)
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 29,174 28,389
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 45,473 $ 41,122
========= =========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest $ 39,460 $ 20,830
========= =========
Income taxes $ 41,727 $ 21,637
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION AND OTHER ACCOUNTING INFORMATION:
The accompanying unaudited consolidated balance sheet as of September 30,
2000, and the consolidated statements of income for the three months and nine
months ended September 30, 2000 and 1999 and the consolidated statements of cash
flows for the nine months ended September 30, 2000 and 1999 should be read in
conjunction with Lennox International Inc.'s (the "Company") consolidated
financial statements and the accompanying footnotes as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999. In
the opinion of management, the accompanying consolidated financial statements
contain all material adjustments, consisting principally of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to applicable rules and regulations, although the Company
believes that the disclosures herein are adequate to make the information
presented not misleading. The operating results for the interim periods are not
necessarily indicative of the results to be expected for a full year.
The Company's fiscal year ends on December 31 of each year, and the
Company's quarters are each comprised of 13 weeks. For convenience, throughout
these financial statements, the 13 weeks comprising each three month period are
denoted by the last day of the respective calendar quarter.
2. REPORTABLE BUSINESS SEGMENTS:
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
131, the Company discloses business segment data for its reportable business
segments, which have been determined using the "management approach." The
management approach is based on the way segments are organized within the
Company for making operating decisions and assessing performance. Operations for
the North American retail segment include primarily the retail sale and service
of heating and air conditioning products that have historically been included in
the North American residential segment. As a result of the growth in operations
of this segment, retail segment results have now been stated separately on a
comparative basis. Therefore, the Company's business operations are organized
within the following five reportable business segments (in thousands):
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
NET SALES 2000 1999 2000 1999
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
North American residential $308,370 $328,173 $ 954,040 $ 917,257
North American retail 288,817 66,067 772,283 109,788
Commercial air conditioning 136,368 127,922 354,390 337,985
Commercial refrigeration 88,795 94,176 273,975 238,351
Heat transfer (1) 61,640 60,847 191,421 164,206
Eliminations (26,372) (8,132) (77,967) (17,634)
-------- -------- ---------- ----------
$857,618 $669,053 $2,468,142 $1,749,953
======== ======== ========== ==========
</TABLE>
[FN]
(1) The Heat Transfer segment had intersegment sales of $5,503 and $5,722 for
the three months ended September 30, 2000 and 1999, respectively, and $17,901
and $17,696 for the nine months ended September 30, 2000 and 1999, respectively.
</FN>
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
INCOME (LOSS) FROM OPERATIONS 2000 1999 2000 1999
----------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
North American residential $23,663 $42,824 $ 86,631 $105,812
North American retail 11,822 3,698 36,482 6,174
Commercial air conditioning 6,015 5,138 7,695 6,285
Commercial refrigeration 9,216 9,925 24,711 19,095
Heat transfer 3,525 2,851 12,792 10,308
Corporate and other (1) (16,283) (8,075) (34,223) (23,802)
Eliminations (2,229) (1,732) (5,152) (2,545)
------- ------- --------- ---------
$35,729 $54,629 $128,936 $121,327
======= ======= ======== ========
</TABLE>
[FN]
(1) Includes $5,100 for closing operations in Mexico and Argentina.
</FN>
6
<PAGE>
As of September 30, As of December 31,
TOTAL ASSETS 2000 1999
------------ ---- ----
North American residential $ 571,822 $ 596,895
North American retail 775,662 290,978
Commercial air conditioning 235,449 251,226
Commercial refrigeration 229,240 252,176
Heat transfer 154,785 179,615
Corporate and other 144,221 127,320
Eliminations (31,364) (14,537)
----------- -----------
$ 2,079,815 $ 1,683,673
=========== ===========
3. INVENTORIES:
Components of inventories are as follows (in thousands):
As of September 30, As of December 31,
2000 1999
---- ----
Finished goods $243,583 $219,303
Repair parts 50,776 36,153
Work in process 19,997 20,957
Raw materials 113,598 117,209
-------- --------
427,954 393,622
Reduction for last-in, first-out 47,527 48,198
-------- --------
$380,427 $345,424
======== ========
4. LINES OF CREDIT AND FINANCING ARRANGEMENTS:
The Company has bank lines of credit aggregating $688 million, of which $430
million was outstanding at September 30, 2000 with the remaining $258 million
available for future borrowings, subject to covenant limitations. Included in
the lines of credit are two $300 million domestic facilities governed by
revolving credit facility agreements between the Company and syndicates of
banks. The facilities contain certain financial covenants and bear interest, at
the Company's option, at a rate equal to either (a) the greater of the bank's
prime rate or the federal funds rate plus 0.5% or (b) the London Interbank
Offered Rate plus a margin equal to 0.5% to 1.25%, depending upon the ratio of
total funded debt to EBITDA. The Company pays a commitment fee equal to 0.10% to
0.30% of the unused commitment, depending upon the ratio of total funded debt to
EBITDA. The agreements provide restrictions on the Company's ability to incur
additional indebtedness, encumber its assets, sell its assets, or pay dividends.
On August 29, 2000, the Company borrowed $25.0 million under a shelf
agreement with The Prudential Insurance Company of America. Terms of the
borrowing include an interest rate of 7.75%, interest to be paid semi-annually
and an ultimate maturity date of August 25, 2005. Terms and conditions of the
borrowing are similar to those of the existing revolving credit agreements.
7
<PAGE>
5. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share are computed by dividing net income by the sum of the weighted average
number of shares outstanding and the number of equivalent shares assumed
outstanding, if dilutive, under the Company's stock-based compensation plans and
from convertible securities. Diluted earnings per share are computed as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $12,386 $27,284 $50,403 $57,485
======= ======= ======= =======
Weighted average shares outstanding 56,308 42,164 56,070 37,910
Effect of diluted securities attributable to stock
options and performance share awards 487 737 355 878
------- ------- ------- -------
Weighted average shares outstanding, as
adjusted 56,795 42,901 56,425 38,788
======= ======= ======= =======
Diluted earnings per share $ 0.22 $ 0.64 $ 0.89 $ 1.48
======= ======= ======= =======
</TABLE>
6. INVESTMENTS IN SUBSIDIARIES:
SERVICE EXPERTS, INC.
On January 21, 2000, the Company acquired Service Experts, Inc., a holding
company owning retail outlets for heating and air conditioning products and
services. The acquisition took place in the form of a merger wherein 0.67 of a
share of the Company's common stock was exchanged for each share of Service
Experts, Inc. common stock. The 12.2 million shares so exchanged were valued at
approximately $140.5 million. In addition, transaction costs of approximately
$4.1 million were paid, and $162.7 million of Service Experts, Inc. debt was
assumed and concurrently repaid, resulting in a total purchase price of $307.3
million. The acquisition was accounted for under the purchase method of
accounting. Based on current estimates, which may be revised at a later date,
approximately $169.0 million was allocated to the fair value of the assets
acquired, approximately $105.0 million was allocated to the fair value of
liabilities assumed, and $243.3 million was allocated to goodwill, which is
being amortized on a straight-line basis over 40 years. The results of Service
Experts, Inc. have been fully consolidated with those of the Company since the
date of acquisition.
DEALERS
In September of 1998, the Company initiated a program to acquire high
quality heating and air conditioning dealers in metropolitan areas of the United
States and Canada (the "Dealers"). During the first nine months of 2000, nine
Dealers in the United States and two Dealers in Canada were purchased for a
total price of approximately $40.6 million. In addition, approximately $21.8
million was paid in the first nine months of 2000 as additional payments on
Dealers acquired in 1999. Of this $21.8 million, $6.3 million was in the form of
558,835 shares of the Company's common stock. The purchase of the Dealers in the
first nine months of 2000 and the additional payments on Dealers acquired in
1999 were accounted for under the purchase method of accounting. Based on
current estimates, which may be revised at a later date, approximately $12.9
million was allocated to the fair value of assets acquired, $8.5 million was
allocated to the fair value of liabilities assumed and $57.9 million was
allocated to goodwill which is being amortized on a straight-line basis over 40
years. The results of the acquired Dealers have been fully consolidated with
those of the Company since the respective dates of acquisition.
As of September 30, 2000, the Company had commitments to acquire two
additional Dealers for approximately $8.0 million.
8
<PAGE>
The following table presents the pro forma results as if the above companies
had been acquired on January 1, 1999 (in thousands, except per share data):
For the For the
Three Months Ended Nine Months Ended
September 30 September 30,
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales $859,008 $846,117 $2,516,773 $2,226,415
Net income 12,481 29,859 51,661 70,122
Basic earnings per share 0.22 0.54 0.92 1.38
Diluted earnings per share 0.22 0.54 0.92 1.36
7. TREASURY STOCK:
On November 1, 1999, the Company's Board of Directors authorized the
purchase of up to 5,000,000 shares of the issued and outstanding common stock.
As of September 30, 2000, 2,729,300 of such shares had been purchased at a total
cost of $27.8 million. On March 6, 2000, the Company entered into forward
purchase contracts to purchase 1,557,100 shares of its common stock. On May 5,
2000, the Company entered into forward purchase contracts to purchase an
additional 858,000 shares of its common stock. In accordance with the terms of
these contracts, settlement is permitted on either a net cash settlement, net
share settlement, or a physical settlement basis. Therefore, the shares so
contracted remain issued and outstanding until such time as the contracts are
settled. The Company settled the first of the forward contracts to acquire
shares of its common stock. On July 7, 2000, 1,557,100 shares were purchased for
a net cash settlement of $15.4 million. The Company expects to settle the
remaining contracts in the fourth quarter of 2000. (See SUBSEQUENT EVENTS for
further information.)
8. RECENT ACCOUNTING PRONOUNCEMENTS:
In September 2000, the Emerging Issues Task Force issued EITF00-10 which
requires disclosure of shipping and handling costs that are not included in
costs of goods sold. These costs, for the Company, are included in the
Consolidated Statements of Income under OPERATING EXPENSES as part of selling,
general and administrative expense. Following are the amounts for shipping and
handling (in thousands):
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
$32,240 $29,505 $93,783 $85,614
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. This statement, for the Company, is effective beginning with the
first quarter of 2001. Management does not believe that the adoption of this
pronouncement will have a significant impact on the Company's financial
statements.
9. COMPREHENSIVE INCOME:
Comprehensive income is computed as follows (in thousands):
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 12,386 $27,284 $ 50,403 $ 57,485
Cumulative foreign currency
translation adjustments (12,741) 2,949 (29,222) (3,487)
-------- -------- -------- --------
Total comprehensive income (loss) $ (355) $30,233 $ 21,181 $53,998
========= ======= ======== =======
9
<PAGE>
10. OTHER EVENTS:
On July 27, 2000, the Board of Directors of the Company declared a dividend
of one right ("Right") for each outstanding share of its common stock to
stockholders of record at the close of business on August 7, 2000. Each Right
entitles the registered holder to purchase from the Company a unit consisting of
one one-hundredth of a share (a "Fractional Share") of Series A Junior
Participating Preferred Stock, par value $.01 per share, at a purchase price of
$75.00 per Fractional Share, subject to adjustment.
11. SUBSEQUENT EVENTS:
The Company settled the last of the forward contracts to acquire shares of
its common stock. On October 6, 2000, 858,000 shares were purchased for a net
cash settlement of $9.8 million.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Lennox participates in five reportable business segments of the heating,
ventilation, air conditioning and refrigeration ("HVACR") industry. The first
segment is the North American residential market, in which Lennox manufactures
and markets a full line of heating, air conditioning and hearth products for the
residential replacement and new construction markets in the United States and
Canada. The second segment is the North American retail market which includes
sales and installation of, and maintenance and repair services for, HVACR
equipment by Lennox-owned dealers in the United States and Canada. The third
segment is the global commercial air conditioning market, in which Lennox
manufactures and sells rooftop products and applied systems for commercial
applications. The fourth segment is the global commercial refrigeration market,
which consists of unit coolers, condensing units and other commercial
refrigeration products. The fifth segment is the heat transfer market, in which
Lennox designs, manufactures and sells evaporator and condenser coils, copper
tubing and related manufacturing equipment to original equipment manufacturers
and other specialty purchasers on a global basis.
Lennox sells its products and services to numerous types of customers,
including distributors, installing dealers, homeowners, national accounts and
original equipment manufacturers. The demand for Lennox's products is influenced
by national and regional economic and demographic factors, such as interest
rates, the availability of financing, regional population and employment trends
and general economic conditions, especially consumer confidence. In addition to
economic cycles, demand for Lennox's products is seasonal and dependent on the
weather. Hotter than normal summers generate strong demand for replacement air
conditioning and refrigeration products and colder than normal winters have the
same effect on heating products. Conversely, cooler than normal summers and
warmer than normal winters depress sales of HVACR products.
The principal components of cost of goods sold are labor, raw materials,
component costs, factory overhead and estimated costs of warranty expense. The
principal raw materials used in Lennox's manufacturing processes are copper,
aluminum and steel. In instances where Lennox is unable to pass on to its
customers increases in the costs of copper and aluminum, Lennox may enter into
forward contracts for the purchase of those materials. Lennox attempts to
minimize the risk of price fluctuations in key components by entering into
contracts, typically at the beginning of the year, which generally provide for
fixed prices throughout the year. These hedging strategies enable Lennox to
establish product prices for the entire model year while minimizing the impact
of price increases of components and raw materials on its margins. Warranty
expense is estimated based on historical trends and other factors.
Lennox acquired James N. Kirby Pty. Ltd., an Australian company that
participates in the commercial refrigeration and heat transfer markets in
Australia, in June 1999 for approximately $65 million in cash, common stock and
seller financing. In addition, Lennox assumed approximately $20.5 million of
Kirby's debt.
Lennox, through its Excel Comfort Systems subsidiary, purchased the heating,
ventilation and air conditioning ("HVAC") related assets of The Ducane Company,
Inc. in October 1999 for approximately $53 million in cash. This purchase adds
to the brands offered in the North American residential segment.
In September 1998, Lennox initiated a program to acquire high quality
heating and air conditioning dealers in metropolitan areas in the United States
and Canada to market "Lennox" and other brands of heating and air conditioning
products. This strategy enables Lennox to extend its distribution directly to
the consumer and permits it to participate in the revenues and margins available
at the retail level while strengthening and protecting its brand equity. Lennox
believes that the retail sales and service market represents a significant
growth opportunity because this market is large and highly fragmented. The
retail sales and service market in the United States is comprised of over 30,000
dealers. In addition, Lennox believes that the heating and air conditioning
service business is somewhat less seasonal than the business of manufacturing
and selling heating and air conditioning products. As of September 30, 2000,
Lennox had acquired over 225 dealers in the U.S. and Canada, including the
dealers acquired through the acquisition of Service Experts, Inc. The aggregate
purchase price of these dealers was approximately $611 million as of September
30, 2000.
11
<PAGE>
On January 21, 2000, Lennox completed the acquisition of Service Experts,
Inc., an HVAC company comprised of HVAC retail businesses across the United
States, for approximately 12.2 million shares of Lennox common stock and the
assumption of approximately $163 million of debt, which was concurrently repaid.
The success of the Service Experts acquisition, along with Lennox's other
acquisitions, will depend on Lennox's ability to integrate these businesses into
its business without substantial costs, delays or other operational or financial
difficulties. The acquisition added over 120 dealers to the U.S. retail network.
Lennox's fiscal year ends on December 31 of each year, and its fiscal
quarters are each comprised of 13 weeks. For convenience, throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the 13 week periods comprising each fiscal quarter are denoted by
the last day of the calendar quarter.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, income data
for the three months and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 68.1 68.2 67.5 68.6
------ ------ ----- ------
Gross profit 31.9 31.8 32.5 31.4
Selling, general and administrative expenses 27.7 23.6 27.3 24.5
------ ------ ----- ------
Income from operations 4.2 8.2 5.2 6.9
Interest expense, net 1.6 1.4 1.6 1.3
Other 0.1 0.1 0.1 0.0
Minority interest -- 0.1 -- --
------- ------- ----- ------
Income before income taxes 2.5 6.6 3.5 5.6
Provision for income taxes 1.1 2.5 1.5 2.3
------- ------- ----- ------
Net income 1.4% 4.1% 2.0% 3.3%
======= ======= ===== ======
</TABLE>
The following table sets forth net sales by business segment and geographic
market (dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 2000 1999
----------------- ----------------- ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ - ------- - ------ - ------ -
BUSINESS SEGMENT:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North American residential $308.4 36.0% $328.1 49.0% $ 954.0 38.7% $ 917.3 52.4%
North American retail 288.8 33.7 66.1 9.9 772.3 31.3 109.7 6.3
Commercial air conditioning 136.4 15.8 127.9 19.1 354.4 14.3 338.0 19.3
Commercial refrigeration 88.8 10.4 94.2 14.1 274.0 11.1 238.4 13.6
Heat transfer 61.6 7.2 60.9 9.1 191.4 7.8 164.2 9.4
Eliminations (26.4) (3.1) (8.1) (1.2) (78.0) (3.2) (17.6) (1.0)
------ ----- ------ ----- -------- ----- -------- -----
Total net sales $857.6 100.0% $669.1 100.0% $2,468.1 100.0% $1,750.0 100.0%
====== ===== ====== ===== ======== ===== ======== =====
GEOGRAPHIC MARKET:
U.S $684.6 79.8% $475.5 71.1% $1,952.1 79.1% $1,301.3 74.4%
International 173.0 20.2 193.6 28.9 516.0 20.9 448.7 25.6
------ ----- ------ ----- -------- ----- -------- -----
Total net sales $857.6 100.0% $669.1 100.0% $2,468.1 100.0% $1,750.0 100.0%
====== ===== ====== ===== ======== ===== ======== =====
</TABLE>
12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET SALES. Net sales increased $188.5 million, or 28.2%, to $857.6 million
for the quarter ended September 30, 2000 from $669.1 million for the quarter
ended September 30, 1999.
Net sales related to the North American residential segment were $308.4
million for the quarter ended September 30, 2000, a decrease of $19.7 million,
or 6.0%, from $328.1 million for the quarter ended September 30, 1999. Included
in the third quarter of 2000 are $16.0 million of sales from the acquired Ducane
operations. Excluding these acquired sales, North American residential net sales
decreased $35.7 million, or 10.9%, compared to the third quarter of 1999.
Over 50% of Lennox's North American residential equipment sales are
concentrated in geographic locations that had a cold summer in 2000. Cooling
degree days through August of this year were 50% below last year's levels in the
Northeast region of the United States and 27% below last year's levels in the
Midwest region of the United States. This unusually cool summer reduced the
stress on existing air conditioning equipment, which depressed equipment sales
and reduced demand for profitable add-on air conditioning in those markets where
air conditioning is a discretionary purchase.
Lennox's hearth products business also contributed to the sales decrease as
a result of declining housing starts and delays in realizing synergies from the
individual hearth operations acquired in the past 24 months.
Net sales in the North American retail segment were $288.8 million for the
quarter ended September 30, 2000, an increase of $222.7 million from the $66.1
million of net sales for the quarter ended September 30, 1999. This increase was
almost entirely due to acquisitions.
Commercial air conditioning net sales increased $8.5 million, or 6.6%, to
$136.4 million for the quarter ended September 30, 2000 compared to the quarter
ended September 30, 1999. North American sales were particularly strong,
achieving growth of 14.7% for the quarter. The addition of two new commercial
districts early in the year and the phase-in of Lennox's cost-effective Value
line contributed to the growth. The increase domestically was offset by a
decrease in net sales internationally, primarily due to the impact of the Euro
exchange rate. International sales growth was 5.0%, after adjusting for the
impact of currency exchange rate movements.
Net sales related to the commercial refrigeration segment were $88.8 million
for the quarter ended September 30, 2000, a decrease of $5.4 million, or 5.7%,
from $94.2 million for the quarter ended September 30, 1999. North American
commercial refrigeration net sales increased 3.7% due to strength in all served
segments. Europe and Australia, two of Lennox's key refrigeration markets, had
significant decreases in the value of their currency compared to the U.S.
dollar. Excluding the impact of currency fluctuations, international sales
decreased 2.8% for the third quarter of 2000. Some slowdown in the Australian
business was a result of the Olympic games being held in Sydney for three weeks
in the third quarter of 2000.
Heat transfer revenues increased $0.7 million, or 1.3 %, to $61.6 million
for the quarter ended September 30, 2000 compared to the quarter ended September
30, 1999. Net sales in the North American heat transfer business increased $3.5
million, or 9.0%. Part of this increase can be attributed to the SAP system
installation negatively impacting third quarter 1999 results. Installation of
the SAP system included a one-week plant shutdown at the Grenada, Mississippi
facility. International heat transfer operations net sales decreased $2.7
million primarily due to the large drop in the U.S. exchange rate of the Euro
and the Australian dollar.
GROSS PROFIT. Gross profit was $274.0 million for the quarter ended
September 30, 2000 compared to $212.4 million for the quarter ended September
30, 1999, an increase of $61.6 million. Gross profit margin was 31.9% for the
quarter ended September 30, 2000 and 31.8% for the quarter ended September 30,
1999. Acquisitions account for the majority of the increase of $80.1 million in
gross profit. Acquired businesses contributed 0.6% to the increase in gross
profit margins. The decrease in sales resulting from unfavorable weather
conditions and foreign currency translations resulted in gross profit dollars of
Lennox's traditional businesses decreasing $18.5 million. The gross profit
margins of Lennox's traditional businesses decreased 0.5% for the third quarter
of 2000, compared to the third quarter of 1999, primarily due to a decrease in
purchases of replacement and discretionary air conditioning in the Northern
United States and Canada as a result of the cold summer. Lennox's European and
Australian businesses' gross margins were negatively impacted to the extent
components of U.S. origin were used, due to foreign currency exchange rate
movements.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $238.3 million for the quarter ended September 30,
2000, an increase of $80.5 million, or 51.0%, from $157.8 million for the
quarter ended September 30, 1999. Selling, general and administrative expenses
represented 27.7% and 23.6% of total revenues for the third quarter of 2000 and
1999, respectively. Of the $80.5 million increase, acquired companies
represented $70.8 million, or 88.0%, of the increase in selling, general and
administrative expenses. Acquired companies' selling, general and administrative
expenses were 30.4% of sales. The majority of the remaining $9.7 million
increase was due to a $5.1 million charge taken in the quarter to close two
operations in Latin America. The two operations were a sales and distribution
business in Mexico and a manufacturing plant that was part of our joint venture
in Argentina. Fees of $2.3 million for an accounts receivable asset
securitization program implemented in June of 2000 were all incremental to the
third quarter of 1999. Increased personnel and facilities costs account for the
balance of the growth in selling, general and administrative expense.
INTEREST EXPENSE, NET. Interest expenses, net for the quarter ended
September 30, 2000, increased to $14.0 million from $9.1 million for the quarter
ended September 30, 1999. Increased borrowings to fund acquisitions were
responsible for the increase in interest expense.
PROVISION FOR INCOME TAXES. The provision for income taxes was $8.8 million
for the quarter ended September 30, 2000 and $17.0 million for the quarter ended
September 30, 1999. The effective tax rate of 41.5% and 38.4% for the quarters
ended September 30, 2000 and 1999, respectively, differs from the statutory
federal rate of 35.0% principally due to state and local taxes, non-deductible
goodwill expenses, and foreign operating losses for which no tax benefits have
been recognized.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
NET SALES. Net sales increased $718.1 million, or 41.0%, to $2,468.1 million
for the nine months ended September 30, 2000 from $1,750.0 million for the nine
months ended September 30, 1999.
Net sales related to the North American residential segment were $954.0
million for the nine months ended September 30, 2000, an increase of $36.7
million, or 4.0%, from $917.3 million for the nine months ended September 30,
1999. Of the $36.7 million increase, $47.5 million was due to sales from an
acquired hearth products company and the acquisition of Ducane's HVAC product
lines. The resulting $10.8 million decrease in North American residential net
sales is due primarily to the following three factors:
- A warmer than normal winter in the first quarter of 2000 in the
Northern United States.
- A cooler than normal summer in the third quarter of 2000 in the
Northeast and Midwest regions of the United States and in Canada.
- A decrease in Lennox's hearth products business as a result of
declining housing starts and delays in realizing synergies from
individual hearth operations acquired in the past 24 months.
Net sales in the North American retail segment were $772.3 million for the
nine months ended September 30, 2000, an increase of $662.6 million from the
$109.7 million of net sales for the nine months ended September 30, 1999. This
increase was almost entirely due to acquisitions.
Commercial air conditioning net sales increased $16.4 million, or 4.9%, to
$354.4 million for the nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999. North American commercial air conditioning
sales increased 9.1% for the first nine months of 2000 compared to the first
nine months of 1999. The addition of two new commercial districts early in the
year and the phase-in of Lennox's cost-effective Value line contributed to the
growth. The increase domestically was offset by a decrease in net sales
internationally, due primarily to the impact of exchange rates. International
sales growth was 9.0%, after adjusting for the impact of currency exchange rate
movements. This growth is primarily due to the fact Lennox has rationalized its
European products and they are being marketed throughout Europe rather than just
within the country of manufacture.
Net sales related to the commercial refrigeration segment were $274.0
million for the nine months ended September 30, 2000, an increase of $35.6
million, or 14.9%, from $238.4 million for the nine months ended September 30,
1999.
14
<PAGE>
Of this increase, $27.5 million was due to the acquisition of James N.
Kirby Pty. Ltd. North American commercial refrigeration net sales increased
11.2% as a result of strong sales in the walk-in cooler and telecommunications
segments and the completion of some large cold storage projects. The increase
domestically was offset by a decrease in net sales internationally, due to the
impact of exchange rates. International net sales increased 5.7%, after
adjusting for the impact of currency exchange rate movements. International
sales volume growth was primarily a result of Lennox's increased participation
in two areas of the European refrigeration market - sales of supermarket rack
systems and direct sales to contractors through Lennox's H K Refrigeration
brand.
Heat transfer revenues increased $27.2 million, or 16.6%, to $191.4 million
for the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999. The acquisitions of James N. Kirby Pty. Ltd. and Livernois
Engineering Holding Company contributed $22.0 million to heat transfer revenues
in the first nine months of 2000. Net sales growth in the North American heat
transfer business increased 5.5%. The increase domestically was offset by a
decrease in net sales internationally, primarily due to the impact of exchange
rates. International net sales increased 5.0%, after adjusting for the impact of
currency exchange rate movements.
GROSS PROFIT. Gross profit was $801.1 million for the nine months ended
September 30, 2000 compared to $550.3 million for the nine months ended
September 30, 1999, an increase of $250.8 million. Gross profit margin was 32.5%
for the nine months ended September 30, 2000 and 31.4% for the nine months ended
September 30, 1999. Acquisitions account for an increase of $256.1 million in
gross profit. Acquired businesses contributed 0.5% to the increase in gross
profit margins. The decrease in sales resulting from unfavorable weather
conditions and foreign currency translations resulted in the gross profit
dollars of Lennox's traditional businesses decreasing $5.3 million. However,
gross profit margins of Lennox's traditional businesses increased 0.6% for the
first nine months of 2000 compared to the first nine months of 1999, primarily
due to manufacturing efficiencies, product mix and selected price increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $672.2 million for the nine months ended September
30, 2000, an increase of $243.2 million, or 56.7%, from $429.0 million for the
nine months ended September 30, 1999. Selling, general and administrative
expenses represented 27.3% and 24.5% of total revenues for the first nine months
of 2000 and 1999, respectively. Of the $243.2 million increase, acquired
companies represented $218.7 million, or 89.9%, of the increase in selling,
general and administrative expenses. Acquired companies' selling, general and
administrative expenses were 28.7% of sales. The remaining $24.5 million
increase includes a charge of $5.1 million to close two operations in Latin
America. The two operations were a sales and distribution business in Mexico and
a manufacturing plant that was part of our joint venture in Argentina. Fees of
$3.0 million for an accounts receivable asset securitization program implemented
in June of 2000 were all incremental to 1999. Increased advertising and
promotion, personnel and facilities costs account for the balance of the growth
in selling, general and administrative expense.
INTEREST EXPENSE, NET. Interest expenses, net for the nine months ended
September 30, 2000 increased to $42.0 million from $24.2 million for the nine
months ended September 30, 1999. Increased borrowings to fund acquisitions were
responsible for the increase in interest expense.
PROVISION FOR INCOME TAXES. The provision for income taxes was $35.8 million
for the nine months ended September 30, 2000 and $39.8 million for the nine
months ended September 30, 1999. The effective tax rates of 41.5% and 40.9% for
the nine months ended September 30, 2000 and 1999, respectively, differ from the
statutory federal rate of 35.0% principally due to state and local taxes,
non-deductible goodwill expenses, and foreign operating losses for which no tax
benefits have been recognized.
LIQUIDITY AND CAPITAL RESOURCES
Lennox's recent capital requirements have related principally to
acquisitions, the expansion of production capacity and increased working capital
needs that have accompanied sales growth.
Net cash provided by operating activities was $150.8 million and $17.4
million for the nine months ended September 30, 2000 and 1999, respectively. The
increase in cash provided by operations is primarily due to the proceeds from
the sale of $130 million in accounts receivables. Net cash used in investing
activities totaled $265.6 million and $273.7 million for the nine months ended
September 30, 2000 and 1999, respectively. Capital spending was $13.5 million
less in the nine months ended September 30, 2000 than for the comparable period
in 1999, reflecting opportunities taken by Lennox to lease equipment rather than
buy. Net cash provided by financing activities was $132.5
15
<PAGE>
million and $269.6 million for the nine months ended September 30, 2000 and
1999, respectively. Net borrowing needs decreased $25.6 million in the first
nine months of 2000 versus the same period in 1999 primarily due to the cash
received by Lennox from the sale of receivables. Due to the seasonality of the
air conditioning and refrigeration businesses, Lennox typically uses cash in the
first six months of the year and generates cash during the latter half of the
year.
In the past, Lennox has used a combination of internally generated funds,
external borrowings and common stock to make acquisitions. With a base of over
225 dealers established in the retail sector, future acquisitions of such retail
centers will be on a very selective basis. The aggregate purchase price of the
Dealers acquired through September 30, 2000 was approximately $611 million. As
of September 30, 2000, Lennox had commitments to acquire two additional Dealers
for approximately $8.0 million.
On April 5, 2000 Lennox purchased the remaining 30% of Ets. Brancher not
already owned for 101,800,000 French francs ($16.2 million). In June 1999, James
N. Kirby Pty. Ltd. was acquired for approximately $65 million. In addition,
approximately $20.5 million of Kirby's debt was assumed. The purchase price
consisted of approximately $16 million in cash, $33 million in deferred payments
and 650,430 shares of common stock. If Lennox's common stock does not trade at a
price greater than $29.09 per share for five consecutive days from the period of
June 2000 to June 2001, then Lennox is obligated to pay the former owners of
Kirby the difference between the trading price for the last five days of this
period and $29.09 for 577,500 of the shares of common stock.
Capital expenditures were $39.7 million for the nine months ended September
30, 2000. These expenditures primarily related to production equipment
(including tooling) and information systems.
Lennox has bank lines of credit aggregating $688 million, of which $430
million was outstanding at September 30, 2000 with the remaining $258 million
available for future borrowings, subject to covenant limitations. Included in
the lines of credit are two $300 million domestic facilities governed by
revolving credit facility agreements between Lennox and syndicates of banks. The
facilities contain certain financial covenants and bear interest, at Lennox's
option, at a rate equal to either (a) the greater of the bank's prime rate or
the federal funds rate plus 0.5% or (b) the London Interbank Offered Rate plus a
margin equal to 0.5% to 1.25%, depending upon the ratio of total funded debt to
EBITDA. Lennox pays a commitment fee equal to 0.10% to 0.30% of the unused
commitment, depending upon the ratio of total funded debt to EBITDA. The
agreements provide restrictions on Lennox's ability to incur additional
indebtedness, encumber its assets, sell its assets, or pay dividends.
On August 29, 2000, Lennox borrowed $25.0 million under a shelf agreement
with The Prudential Insurance Company of America. Terms of the borrowing include
an interest rate of 7.75%, interest to be paid semi-annually and an ultimate
maturity date of August 25, 2005. Terms and conditions of the borrowing are
similar to those of the existing revolving credit agreements.
Lennox believes its shares of stock are undervalued and has initiated
programs to repurchase shares. Lennox's Board of Directors has authorized the
purchase of up to 5,000,000 shares. Through December 1999, 1,172,000 shares had
been repurchased at a total cost of $12.4 million. To continue the repurchase
program while maintaining available debt capacity, Lennox, on March 6, 2000,
entered into forward purchase contracts for 1,557,100 shares that were settled
on July 7, 2000 for a cash payment of $15.4 million. On May 5, 2000 Lennox
entered into additional forward purchase contracts for 858,000 shares, which
were settled on October 6, 2000 for a cash payment of $9.8 million. There are no
forward purchase contracts unsettled as of the date of this report.
Lennox believes that cash flow from operations, as well as available
borrowings under its credit facilities will be sufficient to fund operations for
the foreseeable future.
16
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Emerging Issues Task Force issued EITF00-10 which
requires disclosure of shipping and handling costs that are not included in
costs of goods sold. These costs, for Lennox, are included in the Consolidated
Statements of Income under OPERATING EXPENSES as part of selling, general and
administrative expense. Following are the amounts for shipping and handling (in
thousands):
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
$32,240 $29,505 $93,783 $85,614
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. This statement, for Lennox, is effective beginning with the first
quarter of 2001. Management does not believe that the adoption of this
pronouncement will have a significant impact on Lennox's financial statements.
FORWARD LOOKING INFORMATION
This Report contains forward-looking statements and information that are
based on the beliefs of Lennox's management as well as assumptions made by and
information currently available to management. All statements other than
statements of historical fact included in this Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including but not limited to statements identified by the words "may,"
"will," "should," "plan," "predict," "anticipate," "believe," "intend,"
"estimate" and "expect" and similar expressions. Such statements reflect
Lennox's current views with respect to future events, based on what it believes
are reasonable assumptions; however, such statements are subject to certain
risks, uncertainties and assumptions. These include, but are not limited to,
warranty and product liability claims; ability to successfully complete and
integrate acquisitions; ability to manage new lines of business; the
consolidation trend in the HVACR industry; adverse reaction from customers to
Lennox's acquisitions or other activities; the impact of the weather on
business; competition in the HVACR business; increases in the prices of
components and raw materials; general economic conditions in the U.S. and
abroad; labor relations problems; operating risks and environmental risks.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially
from those in the forward-looking statements. Lennox disclaims any intention or
obligation to update or review any forward-looking statements or information,
whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Lennox's results of operations can be affected by changes in exchange rates.
Net sales and expenses in currencies other than the U.S. dollar are translated
into U.S. dollars for financial reporting purposes based on the average exchange
rate for the period. During the nine months ended September 30, 2000 and 1999,
net sales from outside the U.S. represented 20.9% and 25.6%, respectively, of
total net sales. Historically, foreign currency transaction gains (losses) have
not had a material effect on operations.
From time to time Lennox enters into foreign currency contracts to hedge
receivables or payables denominated in foreign currencies. These contracts do
not subject Lennox to risk from exchange rate movements because the gains or
losses on the contracts offset losses or gains, respectively, on the items being
hedged. As of September 30, 2000, Lennox had obligations to deliver the
equivalent of $36.5 million of various foreign currencies at various dates
through December 31, 2001, and contracts to buy $.3 million of various foreign
currencies through December 29, 2000 for which the counterparties to the
contracts will pay or receive fixed contract amounts. The net fair value of the
currency contracts was a liability of $3.2 million at September 30, 2000.
To minimize risks from fluctuations in the price of copper and aluminum,
Lennox enters into combinations of long-term purchase commitments at fixed
prices and forward contracts. Maturity dates on the forward contracts coincide
with
17
<PAGE>
expected actual cash purchases of the commodities. As of September 30, 2000,
long-term purchase commitments for copper and aluminum aggregate $11.9 million,
which approximates the fair value of the commitments. Forward contracts for
copper and aluminum aggregate $63.2 million and have a fair value as an asset of
$2.9 million.
18
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT
NUMBER DESCRIPTION
*3.1 -- Restated Certificate of Incorporation of Lennox (incorporated by
reference to Exhibit 3.1 to Lennox's Registration Statement on Form S-1
(Registration No. 333-75725)).
*3.2 -- Amended and Restated Bylaws of Lennox (incorporated by reference to
Exhibit 3.2 to Lennox's Registration Statement on Form S-1 (Registration
No. 333-75725)).
*4.1 -- Specimen Stock Certificate for the Common Stock, par value $.01 per
share, of Lennox (incorporated by reference to Exhibit 4.1 to Lennox's
Registration Statement on Form S-1 (Registration No. 333-75725)).
10.1 -- Form of revised Employment Agreement entered into between Lennox and
certain executive officers (filed herewith).
10.2 -- Form of revised Change of Control Employment Agreement entered into
between Lennox and certain executive officers (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
----------
[FN]
* Incorporated herein by reference as indicated.
REPORTS ON FORM 8-K
A Current Report on Form 8-K dated July 27, 2000 was filed by Lennox. The
Report includes information under Items 5 and 7 concerning a dividend by Lennox
to its stockholders of certain preferred stock purchase rights.
</FN>
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENNOX INTERNATIONAL INC.
Date: November 10, 2000
/S/ CLYDE W. WYANT
----------------------------------------
Principal Financial Officer
and Duly Authorized Signatory
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
* 3.1 -- Restated Certificate of Incorporation of Lennox (incorporated by
reference to Exhibit 3.1 to Lennox's Registration Statement on Form
S-1 (Registration No. 333-75725)).
* 3.2 -- Amended and Restated Bylaws of Lennox (incorporated by reference to
Exhibit 3.2 to Lennox's Registration Statement on Form S-1
(Registration No. 333-75725)).
* 4.1 -- Specimen Stock Certificate for the Common Stock, par value $.01 per
share, of Lennox (incorporated by reference to Exhibit 4.1 to Lennox's
Registration Statement on Form S-1 (Registration No. 333-75725)).
10.1 -- Form of revised Employment Agreement entered into between Lennox and
certain executive officers (filed herewith).
10.2 -- Form of revised Change of Control Employment Agreement entered
into between Lennox and certain executive officers (filed herewith).
27.1 -- Financial Data Schedule (filed herewith).
----------
[FN]
* Incorporated herein by reference as indicated.
Reports on Form 8-K
A Current Report on Form 8-K dated July 27, 2000 was filed by Lennox. The
Report includes information under Items 5 and 7 concerning a dividend by Lennox
to its stockholders of certain preferred stock purchase rights.
</FN>
