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 and supplies	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, variable refrigerant flow commercial products	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

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.

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 Operating income, are shown below (in millions):



	For the Years Ended December 31,
	2017			2016			2015
Net Sales ⁽¹⁾
Residential Heating & Cooling	$	2,140.4		$	2,000.8		$	1,866.9
Commercial Heating & Cooling	973.8			917.9			887.2
Refrigeration	725.4			722.9			713.3
	$	3,839.6		$	3,641.6		$	3,467.4
Segment Profit (Loss) ⁽²⁾
Residential Heating & Cooling	$	373.9		$	348.8		$	278.4
Commercial Heating & Cooling	157.3			149.3			130.4
Refrigeration	72.6			68.9			52.9
Corporate and other	(89.2		)	(97.4		)	(84.1		)
Subtotal segment profit	514.6			469.6			377.6
Reconciliation to Operating income:
Special product quality adjustments	5.4			(0.4		)	(2.2		)
Items in (Gains) Losses and other expenses, net that are excluded from segment profit (loss) ⁽²⁾	11.5			7.4			15.6
Restructuring charges	3.2			1.8			3.2
Pension settlement	—			31.4			—
Goodwill impairment	—			—			5.5
Asset impairment	—			—			44.5
One time inventory write down	—			—			5.6
Operating income	$	494.5		$	429.4		$	305.4

⁽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 (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:


•	Special product quality adjustments;


•	The following items in (Gains) 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,


◦	Contractor tax payments,


◦	Acquisition/disposition costs, and


◦	Other items, net;


•	Restructuring charges;


•	Pension settlement;


•	Goodwill and asset impairments; and


•	One time inventory write down.

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



	As of December 31,
	2017		2016		2015
Total Assets:
Residential Heating & Cooling	$	771.3	$	673.4	$	628.3
Commercial Heating & Cooling	443.9		385.8		363.6
Refrigeration	506.9		442.8		444.9
Corporate and other	169.4		258.3		240.6
Total assets	$	1,891.5	$	1,760.3	$	1,677.4

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



	For the Years Ended December 31,
	2017		2016		2015
Capital Expenditures:
Residential Heating & Cooling	$	38.9	$	36.7	$	28.1
Commercial Heating & Cooling	18.5		11.5		8.6
Refrigeration	8.0		12.1		11.4
Corporate and other	32.9		24.0		21.8
Total capital expenditures ⁽¹⁾	$	98.3	$	84.3	$	69.9

⁽¹⁾Includes amounts recorded under capital leases. There were no significant new capital leases in 2017, 2016 or 2015.

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



	For the Years Ended December 31,
	2017		2016		2015
Depreciation and Amortization:
Residential Heating & Cooling	$	24.9	$	21.0	$	20.7
Commercial Heating & Cooling	10.1		9.8		9.7
Refrigeration	9.9		9.7		15.5
Corporate and other	19.7		17.6		16.9
Total depreciation and amortization	$	64.6	$	58.1	$	62.8

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



	For the Years Ended December 31,
	2017		2016		2015
Income from Equity Method Investments:
Refrigeration	$	3.9	$	4.0	$	2.8
Residential	11.7		11.5		8.0
Commercial	2.8		2.9		2.6
Total income from equity method investments	$	18.4	$	18.4	$	13.4

Geographic Information

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



	For the Years Ended December 31,
	2017		2016		2015
Net Sales to External Customers by Point of Shipment:
United States	$	3,128.7	$	2,966.8	$	2,793.4
Canada	237.8		218.8		217.7
International	473.1		456.0		456.3
Total net sales to external customers	$	3,839.6	$	3,641.6	$	3,467.4

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,
	2017		2016		2015
Property, Plant and Equipment, net:
United States	$	257.6	$	237.6	$	224.8
Mexico	79.8		69.4		60.0
Canada	1.7		1.4		1.2
International	58.7		53.0		53.6
Total Property, plant and equipment, net	$	397.8	$	361.4	$	339.6