Reportable Business Segments

12 Months Ended

Dec. 31, 2014

Segment Reporting, Measurement Disclosures [Abstract]

Reportable Business Segments

Reportable Business Segments:

Description of Segments

We operate in three reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”) industry. Our segments are organized primarily by the nature of the products and services we provide. The following table describes each segment:

Segment	Products or Services	Markets Served	Geographic Areas
Residential Heating & Cooling	Furnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment, comfort control products, replacement parts	Residential Replacement; Residential New Construction	United States Canada
Commercial Heating & Cooling	Unitary heating and air conditioning equipment, applied systems, controls, installation and service of commercial heating and cooling equipment	Light Commercial	United States Canada Europe
Refrigeration	Condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, process chillers, controls, compressorized racks, supermarket display cases and systems	Light Commercial; Food Preservation; Non-Food/Industrial	United States Canada Europe Asia Pacific South America

In September 2012, we announced the planned sale of our Service Experts business. The Service Experts business had previously been reported within the Service Experts reportable segment along with the Lennox National Account Services ("NAS") business. Beginning in the third quarter of 2012, the Service Experts business was included in discontinued operations, NAS was included in our Commercial Heating & Cooling segment, and the Service Experts segment was eliminated. Results for all periods have been revised to reflect this new presentation.

Segment Data

We use segment profit or loss as the primary measure of profitability to evaluate operating performance and to allocate capital resources. We define segment profit or loss as a segment’s income or loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding certain items. The reconciliation below details the items excluded.

Our corporate costs include those costs related to corporate functions such as legal, internal audit, treasury, human resources, tax compliance and senior executive staff. Corporate costs also include the long-term share-based incentive awards provided to employees throughout LII. We recorded these share-based awards as Corporate costs because they are determined at the discretion of the Board of Directors and based on the historical practice of doing so for internal reporting purposes.

As they arise, transactions between segments are recorded on an arm’s-length basis using the relevant market prices. Any intercompany sales and associated profit (and any other intercompany items) are eliminated from segment results. There were no significant intercompany eliminations included in the results presented in the table below.

Net sales and segment profit (loss) by segment, along with a reconciliation of segment profit (loss) to Income from continuing operations before income taxes, are shown below (in millions):

	For the Years Ended December 31,
	2014			2013			2012
Net Sales (1)
Residential Heating & Cooling	$	1,736.5		$	1,583.2		$	1,375.8
Commercial Heating & Cooling	878.5			844.4			785.4
Refrigeration	752.4			771.5			788.2
	$	3,367.4		$	3,199.1		$	2,949.4
Segment Profit (Loss) (2)
Residential Heating & Cooling	$	235.8		$	180.1		$	102.9
Commercial Heating & Cooling	124.0			118.1			99.5
Refrigeration	55.4			90.2			81.9
Corporate and other	(74.3		)	(87.9		)	(60.1		)
Subtotal that includes segment profit and eliminations	340.9			300.5			224.2
Reconciliation to income from continuing operations before income taxes:
Special product quality adjustments	(1.4		)	(2.3		)	1.1
Items in Losses and other expenses, net that are excluded from segment profit (loss) (2)	4.7			8.8			(0.2		)
Restructuring charges	1.9			5.0			4.2
Interest expense, net	17.2			14.5			17.1
Special inventory write down	1.0			—			—
Other expense, net	(0.1		)	0.2			0.3
Income from continuing operations before income taxes	$	317.6		$	274.3		$	201.7

⁽¹⁾ On a consolidated basis, no revenue from transactions with a single customer were 10% or greater of our consolidated net sales for any of the periods presented.

⁽²⁾ The Company defines segment profit and loss as a segment's income or loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding:

• Special product quality adjustments;

• The following items in Losses and other expenses, net:

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

◦ Special legal contingency charges,

◦ Asbestos-related litigation,

◦ Environmental liabilities, and

◦ Other items, net;

• Restructuring charges;

• Goodwill, long-lived asset, and equity method investment impairments;

• Interest expense, net;

• Special inventory write down; and

• Other expense, net.

The assets in the Corporate and other segment primarily consist of cash, short-term investments and deferred tax assets. Assets recorded in the operating segments represent those assets directly associated with those segments.

Total assets by segment are shown below (in millions):

	As of December 31,
	2014		2013		2012
Total Assets:
Residential Heating & Cooling	$	632.3	$	500.0	$	457.5
Commercial Heating & Cooling	353.4		346.3		321.9
Refrigeration	551.5		572.0		585.3
Corporate and other	227.1		208.4		228.6
Assets for continuing operations	1,764.3		1,626.7		1,593.3
Discontinued operations (See Note 17)	—		—		98.6
Total assets	$	1,764.3	$	1,626.7	$	1,691.9

Total capital expenditures by segment are shown below (in millions):

	For the Years Ended December 31,
	2014		2013		2012
Capital Expenditures:
Residential Heating & Cooling	$	39.4	$	34.2	$	13.7
Commercial Heating & Cooling	14.1		11.2		8.7
Refrigeration	15.8		16.5		15.6
Corporate and other	19.1		16.4		12.2
Total capital expenditures (1)	$	88.4	$	78.3	$	50.2

⁽¹⁾ Includes amounts recorded under capital leases. There were no significant new capital leases in 2014, 2013 or 2012.

Depreciation and amortization expenses by segment are shown below (in millions):

	For the Years Ended December 31,
	2014		2013		2012
Depreciation and Amortization:
Residential Heating & Cooling	$	20.7	$	20.5	$	19.9
Commercial Heating & Cooling	9.3		9.0		8.5
Refrigeration	16.3		15.3		13.0
Corporate and other	14.5		14.1		14.0
Total depreciation and amortization	$	60.8	$	58.9	$	55.4

The equity method investments are shown below (in millions):

	For the Years Ended December 31,
	2014		2013		2012
Income from Equity Method Investments:
Refrigeration	$	2.5	$	2.5	$	2.6
Corporate and other (1)	11.3		9.7		7.9
Total income from equity method investments	$	13.8	$	12.2	$	10.5

⁽¹⁾ We allocated $11.7 million, $9.6 million and $5.0 million of income from equity method investments to our Residential Heating & Cooling and Commercial Heating & Cooling segments in 2014, 2013 and 2012, respectively. These allocations were recorded as reductions to the segments' Cost of goods sold in the Consolidated Statements of Operations.

Geographic Information

Net sales for each major geographic area in which we operate are shown below (in millions):

	For the Years Ended December 31,
	2014		2013		2012
Net Sales to External Customers by Point of Shipment:
United States	$	2,576.4	$	2,382.0	$	2,147.2
Canada	236.3		232.3		226.7
International	554.7		584.8		575.5
Total net sales to external customers	$	3,367.4	$	3,199.1	$	2,949.4

Property, plant and equipment, net for each major geographic area in which we operate, based on the domicile of our operations, are shown below (in millions):

	As of December 31,
	2014		2013		2012
Property, Plant and Equipment, net:
United States	$	243.4	$	230.3	$	227.9
Mexico	52.4		39.7		28.0
Canada	0.6		0.6		0.6
International	62.2		64.9		41.7
Total Property, plant and equipment, net	$	358.6	$	335.5	$	298.2