Discontinued Operations

12 Months Ended

Dec. 31, 2012

Discontinued Operation, Additional Disclosures [Abstract]

Discontinued Operations

Discontinued Operations:

Service Experts

In September 2012, the Company announced the planned sale of its Service Experts business, and as a result, the Service Experts business qualifies as a discontinued operation. The Service Experts business had previously been reported within the Company’s Service Experts segment along with a commercial service business called Lennox National Account Services (NAS). As of December 31, 2012, the Service Experts business was included in discontinued operations, NAS was included in the Company's Commercial Heating & Cooling segment, and the Service Experts reportable segment was eliminated. Results for all periods have been revised to conform with this new presentation.

A summary of net trade sales, pre-tax operating income (losses) and other supplemental information for our Service Experts business is detailed below (in millions):

	For the Years Ended December 31,
	2012			2011			2010
Net trade sales(1)	$	385.1		$	448.4		$	514.8
Pre-tax operating (loss) income(1)(2)	(50.8		)	(10.5		)	2.6

⁽¹⁾ Excludes eliminations of intercompany sales and any associated profit.

⁽²⁾ Pre-tax operating loss for the year ended December 31, 2012 includes a $20.5 million goodwill impairment loss (see impairment discussion below).

The assets and liabilities of the Service Experts business are classified as held for sale as of December 31, 2012 and are carried at their fair values less costs to sell, based on indications of market value through our pursuit of strategic alternatives for the business. The assets and liabilities of the Service Experts business include the following in the accompanying Consolidated Balance Sheets (in millions):

	As of December 31,
	2012		2011
Assets of discontinued operations:
Accounts receivable, net	$	11.2	$	14.4
Inventories, net	4.8		6.3
Property, plant and equipment, net	3.6		3.8
Goodwill and intangible assets, net	66.2		83.2
Deferred income taxes	5.5		10.1
Other assets	7.3		7.7
Liabilities of discontinued operations:
Accounts payable	$	16.7	$	16.0
Accrued expenses	38.5		40.1
Deferred income taxes	—		3.7
Other liabilities	—		0.2

Goodwill

Goodwill of $66.0 million and $82.4 million is included in Assets of discontinued operations as of December 31, 2012 and 2011, respectively. The Goodwill balance included in Assets of discontinued operations as of December 31, 2012 includes accumulated impairment charges of $228.5 million, of which $208.0 million is from prior periods and $20.5 million is from 2012.

Goodwill and Long-lived Asset Impairment Considerations

In the third quarter of 2012, we announced the planned sale of the Service Experts business and, as a result of the sales process, we received indications of market value of the business that were less than its carrying value. Utilizing these indications of fair value, we determined that the carrying values of our long-lived assets were fully recoverable. We also recorded a goodwill impairment of $20.5 million in the results from Discontinued operations. This goodwill impairment is an estimate that will be finalized once we complete our analysis of strategic alternatives for the business. Adjustments to the estimate will be made in future periods as necessary. We will continue to monitor our reporting units in future periods to determine if a change in facts and circumstances warrants a re-evaluation of our long-lived assets or goodwill.

Hearth

In April 2012, the Company announced the sale of its Hearth business to Comvest Investment Partners IV in an all cash transaction. The Hearth business had historically been included in the Company’s Residential Heating & Cooling Segment. We sold the Hearth business for net proceeds of $10.1 million, which excludes the transaction costs and cash transferred with the business.

A summary of net trade sales and pre-tax operating losses for our Hearth business is detailed below (in millions):

	For the Years Ended December 31,
	2012			2011			2010
Net trade sales	$	23.5		$	81.5		$	78.9
Pre-tax operating loss (1)	(13.7		)	(26.3		)	(25.2		)
Gain (loss) on sale of business	(0.9		)	—			—

⁽¹⁾  Pre-tax operating loss includes a $6.3 million first quarter 2012 pre-tax charge for the write-down of net assets to their estimated fair value and a $6.3 million settlement charge in the second quarter of 2012 related to actuarial losses recognized upon transition of a pension obligation to the acquirer of the Hearth business. Offsetting these charges was a $3.5 million gain in the second quarter of 2012 related to realized foreign currency translation adjustments.

The assets and liabilities of the Hearth business include the following in the accompanying Consolidated Balance Sheets (in millions):

	As of December 31,
	2012		2011
Assets of discontinued operations:
Accounts receivable, net	$	—	$	7.3
Inventories, net	—		12.4
Property, plant and equipment, net	—		5.4
Deferred income taxes	—		9.1
Other assets	—		0.8
Liabilities of discontinued operations:
Accounts payable	$	—	$	6.0
Accrued expenses	—		5.2
Other liabilities	—		0.4

Goodwill and Long-lived Asset Impairment Considerations

Due to the prolonged uncertainty in the recovery of the residential new construction market, our long-term outlook for our Hearth reporting unit declined, and in the fourth quarter of 2011, we began to pursue strategic alternatives for the business. Our Hearth reporting unit was heavily dependent on the residential new construction market; more so than our other reporting units due to its product offerings: fireplaces, stoves and venting products. As a result of this decline in expectations for this reporting unit, we tested our long-lived assets and goodwill for impairment in the fourth quarter of 2011 and again in the first quarter of 2012.

For our long-lived assets, we determined that certain assets' carrying values were not recoverable, and accordingly, wrote them to their net realizable value. This resulted in impairments of $5.1 million and $1.6 million for property, plant and equipment and amortizable customer relationships, respectively, in 2011, and an additional impairment of $6.3 million for property, plant and equipment in 2012. For goodwill, we performed a goodwill impairment test and determined that the carrying value of our Hearth reporting unit exceeded its fair value. The fair value of the reporting unit was based primarily on indications of market value through our pursuit of strategic alternatives. Accordingly, an impairment loss of $7.6 million, representing the entire goodwill for this reporting unit, was recorded in 2011.