Reportable Business 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	Product 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 Central America South America
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 Central America

*Our business in the Asia Pacific area was sold in the second quarter of 2018. Refer to Note 14 for details regarding the divestiture of the business.

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 in the table 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 record 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 for the periods presented.

Segment Data

Net sales and segment profit (loss) for each segment, along with a reconciliation of segment profit (loss) to Operating income, are shown below (in millions):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Net sales
Residential Heating & Cooling	$	716.0		$	653.5		$	1,169.7		$	1,073.3
Commercial Heating & Cooling	292.2			258.6			497.7			454.1
Refrigeration	167.2			190.0			342.8			368.2
	$	1,175.4		$	1,102.1		$	2,010.2		$	1,895.6

Segment profit (loss) ⁽¹⁾
Residential Heating & Cooling	$	153.6		$	140.5		$	204.9		$	182.9
Commercial Heating & Cooling	52.6			44.7			72.1			63.8
Refrigeration	21.9			21.6			33.0			35.7
Corporate and other	(22.8		)	(23.9		)	(33.9		)	(34.8		)
Total segment profit	205.3			182.9			276.1			247.6
Reconciliation to Operating income:
One time inventory write down	—			—			0.2			—
Special product quality adjustment	—			5.2			—			5.2
(Gain) loss, net on sale of business and related property	(22.1		)	—			(11.8		)	—
Loss on assets held for sale	31.4			—			31.4			—
Items in losses (gains) and other expenses, net that are excluded from segment profit (loss) ⁽¹⁾	0.4			2.2			6.9			6.0
Restructuring charges	0.5			0.1			1.3			0.2
Operating income	$	195.1		$	175.4		$	248.1		$	236.2

⁽¹⁾ We define segment profit (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:


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


◦	Net change in unrealized losses (gains) on unsettled futures contracts,


◦	Special legal contingency charges,


◦	Asbestos-related litigation,


◦	Contractor tax payments,


◦	Environmental liabilities,


◦	Divestiture costs,


◦	Other items, net,


•	One time inventory write down,


•	(Gain) loss, net on sale of business and related property,


•	Loss on assets held for sale; and,


•	Restructuring charges.

Total Assets by Segment

Except for the seasonal increase in total assets across all reportable segments, there have not been any material changes in the composition of total assets by segment since December 31, 2017; however, during the quarter we have sold our Australia, New Zealand and Asia business and reclassified assets and liabilities related to our Brazil business as Assets held for sale in our Consolidated Balance Sheet. Refer to Note 14 for details regarding divestiture of businesses.