LENNOX INTERNATIONAL INC

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•extraordinary events beyond our controls, such as conflicts, wars, natural disasters, public health crises, or terrorist acts;

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•extraordinary events beyond our control, such as conflicts, wars, natural disasters, public health crises, or terrorist acts;

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•foreign currency fluctuations and changes in local government regulation associated with our international operations;

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•risks associated with our international operations;

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•cyber attacks and other disruptions or misuse of information systems;

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•cyber attacks and other disruptions or misuse of information systems; and

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•our ability to successfully realize, complete and integrate acquisitions; and

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•our ability to successfully realize, complete and integrate acquisitions.

Previous wording

In fourth quarter 2023, we completed the sale of our European businesses. The European businesses are presented with the Corporate and Other business segment.

Current wording

In fourth quarter 2023, we completed the sale of our European businesses. The European businesses were presented with the Corporate and Other business segment until their divestiture.

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•Net sales increased $264 million, or 6%, to $4,982 million in 2023 from $4,718 million in 2022.

Current wording

•Net sales increased $359 million, or 7%, to $5,341 million in 2024 from $4,982 million in 2023.

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•Operating income in 2023 was $790 million compared to $656 million in 2022.

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•Operating income in 2024 was $1,035 million compared to $790 million in 2023.

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•Net income in 2023 increased to $590 million from $497 million in 2022.

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•Net income in 2024 increased to $807 million from $590 million in 2023.

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•Diluted earnings per share was $16.54 per share in 2023 compared to $13.88 per share in 2022.

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•Diluted earnings per share was $22.54 per share in 2024 compared to $16.54 per share in 2023.

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•We generated $736 million of cash flow from operating activities in 2023 compared to $302 million in 2022.

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•We generated $946 million of cash flow from operating activities in 2024 compared to $736 million in 2023.

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•We returned $153 million to shareholders through dividend payments in 2023.

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•We returned $160 million to shareholders through dividend payments in 2024.

Previous wording

The Home Comfort Solutions segment experienced a 1% increase in net sales and a$13 million increase in segment profit in 2023 compared to 2022 as favorable price and mix were partially offset by lower sales volumes. Our Building Climate Solutions segment saw an increase in net sales of 18% and a$178 million increase in segment profit in 2023 compared to 2022, primarily due to favorable price and mix.

Current wording

The Home Comfort Solutions segment experienced an 11% increase in net sales and a$150 million increase in segment profit in 2024 compared to 2023 primarily driven by favorable price and mix and higher sales volumes. Our Building Climate Solutions segment saw an increase in net sales of 17% and a$56 million increase in segment profit in 2024 compared to 2023, primarily due to favorable price and mix. As a result of the transition to low GWP refrigerants, customers pre-purchased R-410A equipment, which is estimated to have positively impacted revenue by $125 million.

Previous wording

SG&A expenses increased by $28 million in 2022 compared to 2021. As a percentage of net sales, SG&A expenses decreased 100 bps from 14.3% to 13.3% in the same periods primarily due to lower discretionary expenditures.

Current wording

SG&A expenses increased by $25 million in 2024 compared to 2023. As a percentage of net sales, SG&A expenses decreased 50 bps from 14.2% to 13.7% in the same periods, primarily due to higher employee-related costs including increased incentive compensation, which was partially offset by a $62 million reduction in SG&A expenses from our 2023 divestiture of our European businesses.

Previous wording

The net change in unrealized (gains) losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note 9 in the Notes to the Consolidated Financial Statements. Foreign currency exchange gains increased in 2023 primarily due to changes in foreign exchange rates in our primary markets. Environmental liabilities and special legal contingency charges in 2023 relate to estimated remediation costs at some of our facilities and outstanding legal settlements including asbestos. Refer to Note 5 in the Notes to the Consolidated Financial Statements for more information on litigation, including the asbestos-related litigation, and the environmental liabilities.

Current wording

The net change in unrealized (gains) losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note 9 in the Notes to the Consolidated Financial Statements. Foreign currency exchange losses increased in 2024 primarily due to changes in foreign exchange rates in our primary markets. Environmental liabilities and special legal contingency charges in 2024 relate to estimated remediation costs at some of our facilities and outstanding legal settlements including asbestos. Refer to Note 5 in the Notes to the Consolidated Financial Statements for more information on litigation, including asbestos-related litigation, and environmental liabilities.

Previous wording

Restructuring charges were $1.5 million in 2022 compared to $1.8 million in 2021. Charges in 2022 were related to ongoing cost reduction actions taken in prior years. For more information on our restructuring activities, see Note 7 in the Notes to the Consolidated Financial Statements.

Current wording

There were no restructuring charges in 2024 compared to $3.1 million in 2023. Charges in 2023 were related to the reorganization or removal of duplicative headcount and infrastructure. For more information on our restructuring activities, see Note 7 in the Notes to the Consolidated Financial Statements.

Previous wording

Investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting. Income from equity method investments was $5 million in 2022 compared to $12 million in 2021. The decrease was due to lower operating results at the investees due to higher material costs.

Current wording

Investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting. Income from equity method investments was $8 million in 2024 consistent with 2023.

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Net interest expense of $39 million in 2022 increased from $25 million in 2021 primarily due to higher borrowing costs.

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Net interest expense of $39 million in 2024 decreased from $52 million in 2023 primarily due to decreased borrowings on our revolving credit facility as a result of increased cash flow.

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The income tax provision was $119 million in 2022 compared to $96 million in 2021, and the effective tax rate was 19.3% in 2022 compared to 17.2% in 2021. The 2022 and 2021 effective tax rates differ from the statutory rate of 21% primarily due to foreign taxes. Refer to Note 12 in the Notes to the Consolidated Financial Statements for more information on income taxes.

Current wording

The income tax provision was $187 million in 2024 compared to $147 million in 2023, and the effective tax rate was 18.8% in 2024 compared to 20.0% in 2023. The 2024 and 2023 effective tax rates differ from the statutory rate of 21% primarily due to lower foreign tax rates. Refer to Note 12 in the Notes to the Consolidated Financial Statements for more information on income taxes.

Previous wording

Gross profit margins for 2023 increased 390 basis points (“bps”) to 31.1% compared to 27.2% in 2022. Gross profit margin increased 340 bps from favorable price, 100 bps from favorable mix, 90 bps from lower commodity costs and 10 bps from miscellaneous other items. Partially offsetting these margin increases were 70 bps from higher distribution costs, 50 bps from higher other product costs including LIFO and 30 bps from higher component costs.

Current wording

Gross profit margins for 2023 increased 390 bps to 31.1% compared to 27.2% in 2022. Gross profit margin increased 340 bps from favorable price, 100 bps from favorable mix, 90 bps from lower commodity costs and 10 bps from miscellaneous other items. Partially offsetting these margin increases were 70 bps from higher distribution costs, 50 bps from higher other product costs including LIFO and 30 bps from higher component costs.

Previous wording

The net change in unrealized losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note 9 in the Notes to the Consolidated Financial Statements. Foreign currency exchange gains decreased in 2022 primarily due to changes in foreign exchange rates in our primary markets. Environmental liabilities and special legal contingency charges in 2022 relate to estimated remediation costs at some of our facilities and outstanding legal settlements including asbestos. Refer to Note 5 in the Notes to the Consolidated Financial Statements for more information on litigation, including the asbestos-related litigation, and the environmental liabilities. The charges incurred related to the COVID-19 pandemic related primarily to facility cleaning costs and sanitization supplies to support the health and safety of our employees.

Current wording

The net change in unrealized (gains) losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note 9 in the Notes to the Consolidated Financial Statements. Foreign currency exchange gains increased in 2023 primarily due to changes in foreign exchange rates in our primary markets. Environmental liabilities and special legal contingency charges in 2023 relate to estimated remediation costs at some of our facilities and outstanding legal settlements including asbestos. Refer to Note 5 in the Notes to the

Previous wording

We performed a qualitative impairment analysis and noted no indicators of goodwill impairment for the year ended December 31, 2022. We did not record any goodwill impairments in 2022 or 2021. Refer to Note 9 in the Notes to the Consolidated Financial Statements for more information on goodwill.

Current wording

We performed a qualitative impairment analysis and noted no indicators of goodwill impairment for the year ended December 31, 2023. Refer to Note 9 in the Notes to the Consolidated Financial Statements for more information on goodwill. In 2023, we recorded a $2.3 million impairment of goodwill related to our agreement to sell our European commercial HVAC and refrigeration businesses.

Previous wording

Segment profit in 2023 increased $13 million compared to 2022 primarily due to $82 million from favorable mix, $72 million from higher price, $35 million from lower commodity costs, $5 million from favorable freight, $5 million from lower other product costs including LIFO and $7 million from miscellaneous other items. Partially offsetting these increases were $71 million from lower sales volume, $51 million from higher SG&A costs due primarily to higher discretionary spend and inflationary pressures, $30 million from higher factory inefficiencies, $31 million from higher distributions costs and $10 million from higher component costs.

Current wording

Segment profit in 2023 increased $13 million compared to 2022 primarily due to $82 million from favorable mix, $72 million from higher price, $35 million from lower commodity costs, $5 million from favorable freight, $5 million from lower other product costs including LIFO and $7 million from miscellaneous other items. Partially offsetting these increases were $71 million from lower sales volume, $51 million from higher SG&A costs due primarily to higher discretionary spend and inflationary pressures, $30 million from higher factory inefficiencies, $31 million from higher distributions costs and $10

Previous wording

Segment loss was unchanged in 2023 compared to 2022 as unfavorable SG&A costs of $7 million and unfavorable foreign currency of $4 million were offset by $11 million of higher segment profit from our European businesses due primarily from favorable price.

Current wording

Segment loss was unchanged in 2023 compared to 2022 as unfavorable SG&A costs of $7 million and unfavorable foreign currency of $4 million were offset by $11 million of higher segment profit from our European businesses primarily due to favorable price.

Previous wording

Net Cash Provided By Operating Activities-Net cash provided by operating activities activities increased $434 million to $736 million in 2023 compared to $302 million in 2022. The increase was primarily attributable to efforts to better manage working capital levels and an increase in net income of $93 million.

Current wording

Net Cash Provided By Operating Activities-Net cash provided by operating activities activities increased $210 million to $946 million in 2024 compared to $736 million in 2023. The increase was primarily attributable to an increase in net income of $217 million.

Previous wording

Net Cash Used In Investing Activities- Net cash used in investing activities increased $217 million from 2022 to 2023 primarily due to higher capital expenditures and $95 million related to our acquisition of AES. Capital expenditures were $250 million, $101 million and $107 million in 2023, 2022 and 2021, respectively. Capital expenditures in 2023 were primarily related to the expansion of our manufacturing capacity including investments in our commercial HVAC factory in Mexico, equipment, and investments in systems and software to support the overall enterprise.

Current wording

Net Cash Used In Investing Activities- Net cash used in investing activities decreased $145 million from 2023 to 2024 primarily due to lower capital expenditures and $95 million related to our acquisition of AES in the fourth quarter of 2023. Capital expenditures were $164 million, $250 million and $101 million in 2024, 2023 and 2022, respectively. Capital expenditures in 2024 and 2023 were primarily related to the expansion of our manufacturing capacity including investments in our commercial HVAC factory in Mexico, equipment, and investments in systems and software to support the overall enterprise.

Previous wording

Net Cash Used In Financing Activities- Net cash used in financing activities was $406 million in 2023 and $174 million in 2022. The increase was primarily due to paydown of our debt balances during 2023. We did not repurchase any shares in 2023 compared to $300 million of share repurchases in 2022. We also returned $153 million to shareholders through dividend payments in 2023.

Current wording

Net Cash Used In Financing Activities- Net cash used in financing activities was $419 million in 2024 and $406 million in 2023. The increase was primarily due to share repurchases in 2024, offset by decreased net debt repayments. We repurchased $54 million as part of our Share Repurchase Plans, as compared to no repurchases in 2023. We also returned $160 million to shareholders through dividend payments in 2024.

Previous wording

(1)The total capacity on the facility is $1,100.0 million. The amount available for future borrowings on our Credit Agreement is $928 million after being reduced by the outstanding borrowings under our Commercial Paper Program and $2 million in outstanding standby letters of credit as of December 31, 2023.

Current wording

(1)The total capacity on the facility is $1.1 billion. The amount available for future borrowings on our Credit Agreement (as defined below) is $1,098 million after being reduced by $2 million in outstanding standby letters of credit as of December 31, 2024.

Previous wording

On October 25, 2023, we established a commercial paper program (the “Program”), as a replacement to our Asset Securitization Program which expired in November 2023, pursuant to which we may issue short-term, unsecured commercial paper notes (the “CP Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes will have maturities of up to 397 days from the date of issue. The CP Notes will rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds of the issuances of the CP Notes are expected to be used for general corporate purposes. We plan to use our revolving credit facility as a liquidity backstop for the repayment of CP Notes outstanding under the Program. CP Notes currently outstanding under the Program totaled $150 million as of December 31, 2023.

Current wording

On October 25, 2023, we established a commercial paper program (the “Program”), as a replacement to our Asset Securitization Program which expired in November 2023, pursuant to which we may issue short-term, unsecured commercial paper notes (the “CP Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes will have maturities of up to 397 days from the date of issue. The CP Notes will rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds of the issuances of the CP Notes are expected to be used for general corporate purposes. We plan to use our revolving credit facility as a liquidity backstop for the repayment of CP Notes outstanding under the Program. There were no CP Notes outstanding under the Program as of December 31, 2024.

Previous wording

Our Credit Agreement consists of a $1,100.0 million unsecured revolving credit facility that matures in July 2026. We had outstanding borrowings of $20.0 million as well as $1.7 million committed to standby letters of credit as of December 31, 2023. Subject to covenant limitations, $928.3 million was available for future borrowings. The revolving credit facility includes a subfacility for swingline loans of up to $65.0 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026, unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement.

Current wording

Our Credit Agreement consists of a $1.1 billion unsecured revolving credit facility that matures in July 2026. We had no outstanding borrowings as well as $1.7 million committed to standby letters of credit as of December 31, 2024. Subject to covenant limitations, $1,098.3 million was available for future borrowings. The revolving credit facility includes a subfacility for swingline loans of up to $65.0 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026, unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement.

Previous wording

We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate targets for capital expenditures and share repurchases under our Share Repurchase Plans. Our book value of debt-to-total-capital ratio decreased to 82% at December 31, 2023 compared to 115% at December 31, 2022.

Current wording

We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate targets for capital expenditures and share repurchases under our Share Repurchase Plans. Our book value of debt-to-total-capital ratio decreased to 57% at December 31, 2024 compared to 82% at December 31, 2023.

Previous wording

As of December 31, 2023, our senior credit ratings were Baa2 with a stable outlook, and BBB with a stable outlook, by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Rating Group (“S&P”), respectively. The security ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Our goal is to maintain investment grade ratings from Moody’s and S&P to help ensure the capital markets remain available to us.

Current wording

As of December 31, 2024, our senior credit ratings were Baa2 with a positive outlook, and BBB with a stable outlook, by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Rating Group (“S&P”), respectively. The security ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Our goal is to maintain investment grade ratings from Moody’s and S&P to help ensure the capital markets remain available to us.

Previous wording

We believe our cash and cash equivalents of $61 million, future cash generated from operations and available future borrowings are sufficient to fund our operations, planned capital expenditures, future contractual obligations, share repurchases, anticipated dividends and other needs in the foreseeable future. Included in our cash and cash equivalents as of December 31, 2023 was $30 million of cash held in foreign locations, although that amount can fluctuate significantly depending on the timing of cash receipts and payments. Our cash and cash equivalents held in foreign locations is generally available for use in our U.S. operations and could be subject to foreign withholding taxes and U.S. state taxes.

Current wording

We believe our cash and cash equivalents of $415 million, future cash generated from operations and available future borrowings are sufficient to fund our operations, planned capital expenditures, future contractual obligations, share repurchases, anticipated dividends and other needs in the foreseeable future. Included in our cash and cash equivalents as of December 31, 2024 was $14 million of cash held in foreign locations, although that amount can fluctuate significantly depending on the timing of cash receipts and payments. Our cash and cash equivalents held in foreign locations is generally available for use in our U.S. operations and could be subject to foreign withholding taxes and U.S. state taxes.

Previous wording

No contributions are required to be made to our U.S. defined benefit plans in 2024. We made $15.0 million in total contributions to our pension plans in 2023.

Current wording

No contributions are required to be made to our U.S. defined benefit plans in 2025. No contributions were made to our pension plans in 2024.

Previous wording

Dividend payments were $153 million in 2023 compared to $142 million in 2022. On May 15, 2023, our Board of Directors approved a 4% increase in our quarterly dividend on common stock from $1.06 to $1.10 per share effective with the July 2023 dividend payment.

Current wording

Dividend payments were $160 million in 2024 compared to $153 million in 2023. On May 20, 2024, our Board of Directors approved a 4.5% increase in our quarterly dividend on common stock from $1.10 to $1.15 per share effective with the July 2024 dividend payment.

Previous wording

As of December 31, 2023, we believe we were in compliance with all covenant requirements.

Current wording

We are currently in compliance with all covenant requirements.

Previous wording

Our results of operations can be affected by changes in interest rates due to variable rates of interest on our debt facilities, cash, cash equivalents and short-term investments. A 10% adverse movement in the levels of interest rates across the entire yield curve would have resulted in an increase to pre-tax interest expense of approximately $2.3 million, $1.7 million and $0.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

Our results of operations can be affected by changes in interest rates due to variable rates of interest on our debt facilities, cash, cash equivalents and short-term investments. A 10% adverse movement in the levels of interest rates across the entire yield curve would have resulted in an increase to pre-tax interest expense of approximately $0.9 million, $2.3 million and $1.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Previous wording

Our results of operations are affected by changes in foreign currency exchange rates. Net sales and expenses in foreign currencies are translated into U.S. dollars for financial reporting purposes based on the average exchange rate for the period. Our primary exposure to foreign currencies are the Canadian dollar, Mexican Peso, and the Euro. During 2023, 2022 and 2021, net sales from outside the U.S. represented 11.3%, 11.4% and 13.1%, respectively, of our total net sales. For the years ended December 31, 2023, 2022, and 2021, foreign currency transaction gains and losses did not have a material impact to our results of operations. A 10% change in foreign exchange rates would have had an estimated $5.6 million, $3.5 million and $2.7 million impact to net income for the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

Our results of operations are affected by changes in foreign currency exchange rates. Net sales and expenses in foreign currencies are translated into U.S. dollars for financial reporting purposes based on the average exchange rate for the period. Our primary exposure to foreign currencies are the Canadian dollar, Mexican Peso, and the Euro. During 2024, 2023 and 2022, net sales from outside the U.S. represented 6.0%, 11.3% and 11.4%, respectively, of our total net sales. For the years ended December 31, 2024, 2023, and 2022, foreign currency transaction gains and losses did not have a material impact to our results of operations. A 10% change in foreign exchange rates would have had an estimated $2.6 million, $5.6 million and $3.5 million impact to net income for the years ended December 31, 2024, 2023 and 2022, respectively.