Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Leases

We lease certain real and personal property under non-cancelable leases. Approximately 81% of our right-of-use assets and lease liabilities relate to our leases of real estate with the remaining amounts relating to our leases of IT equipment, fleet vehicles and manufacturing and distribution equipment.

The components of lease expense were as follows (in millions):



	For the Years Ended December 31,
	2022		2021		2020
Finance lease cost:
Amortization of right-of-use assets	$	13.2	$	11.9	$	10.3
Interest on lease liabilities	0.7		0.5		0.7
Operating lease cost	67.7		62.2		62.7
Short-term lease cost	5.0		3.8		4.0
Variable lease cost	24.5		21.6		20.3

Total lease cost	$	111.1	$	100.0	$	98.0

Other information
Cash paid for amounts included in the measurement lease liabilities:

Operating cash flows from operating leases	$	66.0	$	61.8	$	61.6
Financing cash flows from finance leases	$	13.6	$	12.3	$	10.8
Right-of-use assets obtained in exchange for new finance lease liabilities	$	14.4	$	14.6	$	15.4
Right-of-use assets obtained in exchange for new operating lease liabilities	$	98.8	$	61.8	$	67.6



	As of December 31,
	2022			2021
Finance lease right-of-use assets(1)	$	33.3		$	34.5
Operating lease right-of-use assets	$	219.9		$	196.1
Finance lease liability, current(2)	$	11.2		$	11.3
Finance lease liability, non-current(3)	$	28.3		$	29.0
Operating lease liability, current	$	63.3		$	54.8
Operating lease liability, non-current	$	161.8		$	145.0
Weighted-average remaining lease term - finance leases	3.6 years			3.9 years
Weighted-average remaining lease term - operating leases	5.1 years			4.5 years
Weighted-average discount rate - finance leases	1.92		%	1.14		%
Weighted-average discount rate – operating leases	3.44		%	2.62		%
(1) Recorded in Property, plant and equipments in Consolidated Balance Sheet
(2) Recorded in Current maturities of long-term debt in Consolidated Balance Sheet
(3) Recorded in Long-term debt in Consolidated Balance Sheet

Future annual minimum lease payments and finance lease commitments as of December 31, 2022 were as follows (in millions):


	Operating Leases		Finance Leases
2023	$	70.0	$	11.6
2024	53.2		8.4
2025	36.9		5.8
2026	29.0		2.5
2027	18.9		0.3
Thereafter	40.1		11.7
Total minimum lease payments	$	248.1	$	40.3
Less imputed interest	(23.0)		(0.8)
Present value of minimum payments	$	225.1	$	39.5

On March 1, 2019, we entered into an agreement with a financial institution to renew the lease of our corporate headquarters in Richardson, Texas for a term of five years through March 1, 2024 (the “Lake Park Renewal”). The leased property consists of an office building of approximately 192,000 square feet, land and related improvements. During the lease term, we are obligated to pay base rent in quarterly installments, payable in arrears. At the end of the lease term, we must do one of the following: (i) purchase the property for $41.2 million; (ii) vacate the property and return it in good condition; (iii) arrange for the sale of the leased property to a third party; or (iv) renew the lease under mutually agreeable terms. If we elect to sell the property to a third party and the sales proceeds are less than the lease balance of $41.2 million, we must pay any such deficit to the financial institution. Any such deficit payment cannot exceed 87% of the lease balance. The headquarters lease is classified as an operating lease and its future annual minimum lease payments are included in the table above.

Our obligations under the Lake Park Renewal are secured by a pledge of our interest in the leased property. The Lake Park Renewal contains customary lease covenants and events of default as well as events of default if (i) indebtedness of $75 million or more is not paid when due, (ii) there is a change of control or (iii) we fail to comply with certain covenants incorporated from our existing Credit Agreement. We believe we were in compliance with these financial covenants as of December 31, 2022.

Environmental

Environmental laws and regulations in the locations we operate can potentially impose obligations to remediate hazardous substances at our properties, properties formerly owned or operated by us, and facilities to which we have sent or send waste for treatment or disposal. We are aware of contamination at some facilities; however, we do not believe that any future remediation related to those facilities will be material to our results of operations. Total environmental accruals are included Accrued expenses and Other liabilities on the accompanying Consolidated Balance Sheets. Future environmental costs are estimates and may be subject to change due to changes in environmental remediation regulations, technology or site-specific requirements.

Product Warranties and Product Related Contingencies

We incur the risk of liability for claims related to the installation and service of heating and air conditioning products, and we maintain liabilities for those claims that we self-insure. We are involved in various claims and lawsuits related to our products. Our product liability insurance policies have limits that, if exceeded, may result in substantial costs that could have an adverse effect on our results of operations. In addition, warranty claims and certain product liability claims are not covered by our product liability insurance.

Total product warranty liabilities are included in the following captions on the accompanying Consolidated Balance Sheets (in millions):


	As of December 31,
	2022		2021
Accrued expenses	$	41.3	$	37.2
Other liabilities	101.4		97.0
Total product warranty liabilities	$	142.7	$	134.2

The changes in product warranty liabilities related to continuing operations for the years ended December 31, 2022 and 2021 were as follows (in millions):


Total warranty liability as of December 31, 2020	$	119.8
Payments made in 2021	(31.6)
Changes resulting from issuance of new warranties	43.6
Changes in estimates associated with pre-existing liabilities	2.7
Changes in foreign currency translation rates and other	(0.3)

Total warranty liability as of December 31, 2021	$	134.2
Payments made in 2022	(36.3)
Changes resulting from issuance of new warranties	50.5
Changes in estimates associated with pre-existing liabilities	(4.7)
Changes in foreign currency translation rates and other	(1.0)

Total warranty liability as of December 31, 2022	$	142.7

We have incurred, and will likely continue to incur, product costs not covered by insurance or our suppliers’ warranties, which are not included in the table above. Also, to satisfy our customers and protect our brands, we have repaired or replaced installed products experiencing quality-related issues, and will likely continue such repairs and replacements.

Self-Insurance

We use a combination of third-party insurance and self-insurance plans to provide protection against claims relating to workers’ compensation/employers’ liability, general liability, product liability, auto liability, auto physical damage and other exposures. We use large deductible insurance plans, written through third-party insurance providers, for workers’ compensation/employers’ liability, general liability, product liability and auto liability. We also carry umbrella or excess liability insurance for all third-party and self-insurance plans, except for directors’ and officers’ liability, property damage and certain other insurance programs. For directors’ and officers’ liability, property damage and certain other exposures, we use third-party insurance plans that may include per occurrence and annual aggregate limits. We believe the deductibles and liability limits for all of our insurance policies are appropriate for our business and are adequate for companies of our size in our industry.

We maintain safety and manufacturing programs that are designed to remove risk, improve the effectiveness of our business processes and reduce the likelihood and significance of our various retained and insured risks. In recent years, our actual claims experience has collectively trended favorably and, as a result, both self-insurance expense and the related liability have decreased.

Total self-insurance liabilities were included in the following captions on the accompanying Consolidated Balance Sheets (in millions):


	As of December 31,
	2022		2021
Accrued expenses	$	3.0	$	3.2
Other liabilities	14.6		15.7
Total self-insurance liabilities	$	17.6	$	18.9

Litigation

We are involved in a number of claims and lawsuits incident to the operation of our businesses. Insurance coverages are maintained and estimated costs are recorded for such claims and lawsuits, including costs to settle claims and lawsuits, based on experience involving similar matters and specific facts known.

It is management’s opinion that none of these claims or lawsuits or any threatened litigation will have a material adverse effect, individually or in the aggregate, on our financial condition, results of operations or cash flows. Claims and lawsuits, however, involve uncertainties and it is possible that their eventual outcome could adversely affect our results of operations in a future period.