Condensed Consolidating Financial Statements

9 Months Ended

Sep. 30, 2018

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Financial Statements

Condensed Consolidating Financial Statements:

Our senior unsecured notes are unconditionally guaranteed by certain of our subsidiaries (the “Guarantor Subsidiaries”) and are not guaranteed by our other subsidiaries (the “Non-Guarantor Subsidiaries”).  The Guarantor Subsidiaries are 100% owned, all guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee arrangements, we are required to present the following condensed consolidating financial statements.

The condensed consolidating financial statements reflect our investments in our subsidiaries using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Our condensed consolidating financial statements and our Guarantor Subsidiaries and Non-Guarantor Subsidiaries as of September 30, 2018 and December 31, 2017, and for the three and nine months ended September 30, 2018 and 2017 are shown on the following pages.

Lennox International Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

As of September 30, 2018

(Amounts in millions)	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	1.4		$	24.0	$	20.7		$	—		$	46.1
Accounts and notes receivable, net	—			54.7		526.2			—			580.9
Inventories, net	—			403.4		102.8			(4.7		)	501.5
Other assets	3.3			35.2		54.0			(33.8		)	58.7
Total current assets	4.7			517.3		703.7			(38.5		)	1,187.2
Property, plant and equipment, net	—			262.3		115.9			(3.8		)	374.4
Goodwill	—			166.1		20.8			—			186.9
Investment in subsidiaries	1,785.7			337.5		(0.5		)	(2,122.7		)	—
Deferred income taxes	6.6			75.5		25.5			(12.2		)	95.4
Other assets, net	1.5			49.8		17.0			(1.4		)	66.9
Intercompany (payables) receivables, net	(1,140.1		)	1,113.4		129.5			(102.8		)	—
Total assets	$	658.4		$	2,521.9	$	1,011.9		$	(2,281.4	)	$	1,910.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	—		$	—	$	—		$	—		$	—
Current maturities of long-term debt	21.9			0.1		0.3			—			22.3
Accounts payable	25.8			242.9		102.9			—			371.6
Accrued expenses	10.1			240.8		41.6			—			292.5
Income taxes (receivable) payable	(25.1		)	31.4		48.6			(50.8		)	4.1
Total current liabilities	32.7			515.2		193.4			(50.8		)	690.5
Long-term debt	714.7			11.6		377.3			—			1,103.6
Post-retirement benefits, other than pensions	—			2.5		—			—			2.5
Pensions	—			61.8		8.9			—			70.7
Other liabilities	(2.2		)	124.4		8.1			—			130.3
Total liabilities	745.2			715.5		587.7			(50.8		)	1,997.6
Commitments and contingencies
Total stockholders' (deficit) equity	(86.8		)	1,806.4		424.2			(2,230.6		)	(86.8		)
Total liabilities and stockholders' (deficit) equity	$	658.4		$	2,521.9	$	1,011.9		$	(2,281.4	)	$	1,910.8

Lennox International Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

As of December 31, 2017

(Amounts in millions)	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	1.6		$	28.0	$	38.6		$	—		$	68.2
Accounts and notes receivable, net	—			35.3		471.2			—			506.5
Inventories, net	—			355.7		131.9			(3.4		)	484.2
Other assets	16.2			23.1		67.5			(28.4		)	78.4
Total current assets	17.8			442.1		709.2			(31.8		)	1,137.3
Property, plant and equipment, net	—			257.6		144.4			(4.2		)	397.8
Goodwill	—			134.9		65.6			—			200.5
Investment in subsidiaries	1,257.7			365.8		(0.6		)	(1,622.9		)	—
Deferred income taxes	3.9			69.1		33.6			(12.2		)	94.4
Other assets, net	2.1			41.3		19.6			(1.5		)	61.5
Intercompany (payables) receivables, net	(559.3		)	554.7		107.4			(102.8		)	—
Total assets	$	722.2		$	1,865.5	$	1,079.2		$	(1,775.4	)	$	1,891.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	—		$	—	$	0.9		$	—		$	0.9
Current maturities of long-term debt	29.4			2.9		0.3			—			32.6
Accounts payable	21.3			228.0		99.3			—			348.6
Accrued expenses	3.1			209.4		57.8			—			270.3
Income taxes (receivable) payable	(64.5		)	56.5		60.9			(50.8		)	2.1
Total current liabilities	(10.7		)	496.8		219.2			(50.8		)	654.5
Long-term debt	682.8			11.7		276.0			—			970.5
Post-retirement benefits, other than pensions	—			2.6		—			—			2.6
Pensions	—			74.7		9.8			—			84.5
Other liabilities	—			120.6		8.7			—			129.3
Total liabilities	672.1			706.4		513.7			(50.8		)	1,841.4
Commitments and contingencies
Total stockholders' equity	50.1			1,159.1		565.5			(1,724.6		)	50.1
Total liabilities and stockholders' equity	$	722.2		$	1,865.5	$	1,079.2		$	(1,775.4	)	$	1,891.5

Lennox International Inc. and Subsidiaries

Condensed Consolidating Statements of Operations and Comprehensive Income

For the Three Months Ended September 30, 2018

(Amounts in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	930.5		$	283.6		$	(183.9	)	$	1,030.2
Cost of goods sold	—			660.5			252.1			(184.3		)	728.3
Gross profit	—			270.0			31.5			0.4			301.9
Operating expenses:
Selling, general and administrative expenses	—			138.4			11.3			(0.3		)	149.4
Losses (gains) and other expenses, net	0.2			1.9			0.6			—			2.7
Restructuring charges	—			—			0.5			—			0.5
Loss (gain), net on sale of businesses and related property	—			40.1			(33.9		)	—			6.2
Loss from natural disaster, net of insurance recoveries	—			(1.7		)	2.0			—			0.3
Income from equity method investments	(109.7		)	(45.7		)	(1.6		)	154.6			(2.4		)
Operating income	109.5			137.0			52.6			(153.9		)	145.2
Interest expense, net	2.0			5.0			3.3			—			10.3
Other expense, net	—			0.7			0.4			—			1.1
Income (loss) from continuing operations before income taxes	107.5			131.3			48.9			(153.9		)	133.8
Provision for income tax (benefit) expense	(0.5		)	13.3			12.9			0.1			25.8
Income (loss) from continuing operations	108.0			118.0			36.0			(154.0		)	108.0
Loss from discontinued operations, net of tax	—			—			—			—			—
Net income (loss)	$	108.0		$	118.0		$	36.0		$	(154.0	)	$	108.0
Other comprehensive (loss) income, net of tax	(2.5		)	1.2			6.7			—			5.4
Comprehensive income (loss)	$	105.5		$	119.2		$	42.7		$	(154.0	)	$	113.4

Lennox International Inc. and Subsidiaries

Condensed Consolidating Statements of Operations and Comprehensive Income

For the Three Months Ended September 30, 2017

(Amounts in millions)	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	905.6		$	300.0		$	(153.3	)	$	1,052.3
Cost of goods sold	—			644.8			249.0			(155.2		)	738.6
Gross profit	—			260.8			51.0			1.9			313.7
Operating expenses:
Selling, general and administrative expenses	—			140.7			18.8			(0.8		)	158.7
Losses (gains) and other expenses, net	0.2			1.9			0.9			—			3.0
Restructuring charges	—			1.2			0.7			—			1.9
Income from equity method investments	(108.2		)	(21.7		)	(3.5		)	128.9			(4.5		)
Operating income	108.0			138.7			34.1			(126.2		)	154.6
Interest expense, net	6.2			(0.6		)	2.0			—			7.6
Other expense, net	—			—			0.2			(0.2		)	—
Income from continuing operations before income taxes	101.8			139.3			31.9			(126.0		)	147.0
Provision for income tax (benefit) expense	(1.7		)	30.5			13.5			0.7			43.0
Income from continuing operations	103.5			108.8			18.4			(126.7		)	104.0
Loss from discontinued operations, net of tax	—			—			(0.5		)	—			(0.5		)
Net income	$	103.5		$	108.8		$	17.9		$	(126.7	)	$	103.5
Other comprehensive income (loss), net of tax	0.4			2.1			6.9			—			9.4
Comprehensive income (loss)	$	103.9		$	110.9		$	24.8		$	(126.7	)	$	112.9

Lennox International Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

For the Nine Months Ended September 30, 2018

(Amounts in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows from operating activities	$	57.2		$	362.5		$	(188.4	)	$	—	$	231.3
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment	—			—			0.1			—		0.1
Purchases of property, plant and equipment	—			(46.1		)	(14.8		)	—		(60.9		)
Net proceeds from sale of businesses and related property	—			4.0			111.9			—		115.9
Insurance recoveries received for property damage incurred from natural disaster	—			4.2			—			—		4.2
Net cash (used in) provided by investing activities	—			(37.9		)	97.2			—		59.3
Cash flows from financing activities:
Short-term borrowings, net	—			—			(1.5		)	—		(1.5		)
Asset securitization borrowings	—			—			155.0			—		155.0
Asset securitization payments	—			—			(53.7		)	—		(53.7		)
Long-term debt payments	(30.0		)	(2.8		)	(0.1		)	—		(32.9		)
Long-term borrowings	—			—			—			—		—
Borrowings from credit facility	1,820.0			—			—			—		1,820.0
Payments on credit facility	(1,766.5		)	—			—			—		(1,766.5		)
Proceeds from employee stock purchases	2.5			—			—			—		2.5
Repurchases of common stock	(350.2		)	—			—			—		(350.2		)
Repurchases of common stock to satisfy employee withholding tax obligations	(21.1		)	—			—			—		(21.1		)
Intercompany debt	(29.8		)	83.3			(53.5		)	—		—
Intercompany financing activity	385.9			(406.3		)	20.4			—		—
Cash dividends paid	(68.2		)	—			—			—		(68.2		)
Net cash (used in) provided by financing activities	(57.4		)	(325.8		)	66.6			—		(316.6		)
Decrease in cash and cash equivalents	(0.2		)	(1.2		)	(24.6		)	—		(26.0		)
Effect of exchange rates on cash and cash equivalents	—			(2.8		)	6.7			—		3.9
Cash and cash equivalents, beginning of period	1.6			28.0			38.6			—		68.2
Cash and cash equivalents, end of period	$	1.4		$	24.0		$	20.7		$	—	$	46.1

Lennox International Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

For the Nine Months Ended September 30, 2017

(Amounts in millions)	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities	$	411.6		$	(2.4	)	$	(279.6	)	$	(0.6	)	$	129.0
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment	—			0.1			—			0.1			0.2
Purchases of property, plant and equipment	—			(48.3		)	(12.2		)	—			(60.5		)
Net cash (used in) provided by investing activities	—			(48.2		)	(12.2		)	0.1			(60.3		)
Cash flows from financing activities:
Short-term borrowings, net	—			—			(1.4		)	—			(1.4		)
Asset securitization borrowings	—			—			275.0			—			275.0
Asset securitization payments	—			—			—			—			—
Long-term debt payments	(200.0		)	(0.2		)	(0.1		)	(0.5		)	(200.8		)
Long-term borrowings	—			0.1			(0.1		)	—			—
Borrowings from credit facility	1,883.0			(0.2		)	(0.2		)	0.4			1,883.0
Payments on credit facility	(1,701.0		)	—			—			—			(1,701.0		)
Proceeds from employee stock purchases	2.3			—			—			—			2.3
Repurchases of common stock	(250.0		)	—			—			—			(250.0		)
Repurchases of common stock to satisfy employee withholding tax obligations	(16.0		)	—			—			—			(16.0		)
Intercompany debt	102.8			(34.8		)	(68.0		)	—			—
Intercompany financing activity	(174.3		)	91.0			82.7			0.6			—
Cash dividends paid	(58.4		)	—			—			—			(58.4		)
Net cash (used in) provided by financing activities	(411.6		)	55.9			287.9			0.5			(67.3		)
Increase (decrease) in cash and cash equivalents	—			5.3			(3.9		)	—			1.4
Effect of exchange rates on cash and cash equivalents	—			—			9.1			—			9.1
Cash and cash equivalents, beginning of period	1.2			17.1			31.9			—			50.2
Cash and cash equivalents, end of period	$	1.2		$	22.4		$	37.1		$	—		$	60.7