SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK

The Company's five principal reporting segments are as follows:


•	the Air Quality and Home Solutions, formerly Residential Ventilation (“RESV”), segment,


•	the Security and Control Solutions, formerly Technology Solutions (“TECH”), segment,


•	the Ergonomic and Productivity Solutions, formerly Display Mount Solutions ("DMS"), segment,


•	the Residential and Commercial HVAC, formerly Residential Heating and Cooling (“RHC”), segment, and


•	the Custom and Commercial Air Solutions, formerly Custom & Engineered Solutions (“CES”), segment.

The Company's performance is significantly impacted by the levels of residential remodeling and replacement activity, as well as the levels of new residential and non-residential construction. The level of new construction activity and, to a lesser extent, the level of residential remodeling and replacement activity are affected by seasonality and cyclical factors such as interest rates, inflation, consumer spending, employment levels, and other macroeconomic factors, over which the Company has no control. Performance in any particular period could be impacted by the timing of sales to certain large customers.

The AQH segment primarily manufactures and distributes room and whole house ventilation products for the professional remodeling and replacement markets, residential new construction market, and do-it-yourself market. The principal products sold by this segment include kitchen range hoods, exhaust fans (such as bath fans and fan, heater and light combination units), and indoor air quality products (such as air exchangers and heat energy recovery ventilators). Sales of the Company’s kitchen range hoods and exhaust fans within the AQH segment accounted for approximately 9.6% and 9.1%, respectively, of consolidated net sales for 2014, approximately 10.7% and 9.8%, respectively, of consolidated net sales in 2013 and approximately 11.6% and 10.0%, respectively, of consolidated net sales in 2012.

The SCS segment manufactures and distributes a broad array of products designed to provide convenience and security primarily for residential applications. The principal product categories in this segment include security, automation and access control equipment and systems. Sales of security systems and components with the SCS segment accounted for approximately 12.8% and 10.1% of consolidated net sales for 2014 and 2013, respectively. During 2012, sales of security systems and components accounted for less than 10% of consolidated net sales.

The ERG segment manufactures and distributes a broad array of innovative products designed with ergonomic features including wall mounts, carts, arms, desk mounts, workstations, and stands that attach to or support a variety of display devices such as notebook computers, computer monitors, and flat panel displays. Sales of the Company's digital display mounting and mobility products within the ERG segment accounted for approximately 11.6%, 12.0% and 12.9% of consolidated net sales in 2014, 2013 and 2012, respectively.

The RCH segment principally manufactures and sells split-system and packaged air conditioners and heat pumps, furnaces, air handlers and parts for the residential replacement and new construction markets. In addition, this segment produces unit heaters, radiant heaters and rooftop heating, ventilation and cooling products primarily for industrial and commercial applications. Sales of products sold in the RCH segment accounted for approximately 22.3%, 18.1% and 17.3% of consolidated net sales in 2014, 2013 and 2012, respectively.

The CAS segment manufactures and sells custom-designed and engineered HVAC products and systems, primarily in North America, for non-residential applications. The principal products sold by the segment are air handlers and large custom rooftop cooling and heating products. Sales of the Company’s commercial air handlers within the CAS segment accounted for approximately 14.5%, 15.4% and 14.6% of consolidated net sales in 2014, 2013 and 2012, respectively.

The AVC segments manufacture and distribute a broad array of products primarily for the residential audio/video and professional video signal management markets. The principal product categories in these segments include residential audio/video equipment (including architectural speakers and power conditioners, among other products), home control equipment, and professional video signal management solutions.

No other single product class accounts for 10% or more of consolidated net sales.

The accounting policies of the segments are the same as those described in Note 1, “Summary of Significant Accounting Policies”. The Company evaluates segment performance based on operating earnings before allocations of corporate overhead costs and impairment charges. With the exception of intersegment net sales between the SCS segment and the AVC segments, intersegment net sales and intersegment eliminations are not material for any of the periods presented. The financial statement impact of all acquisition accounting adjustments, including intangible asset amortization and goodwill, are reflected in the applicable operating segment, which are the Company’s reporting units. Unallocated assets consist primarily of cash and cash equivalents, marketable securities, prepaid and deferred income taxes, deferred debt expense and long-term restricted investments and marketable securities.

Net sales, operating earnings (loss) and (loss) earnings before (benefit) provision for income taxes for the Company’s reporting segments for the three years ended December 31, 2014 were as follows:



	For the year ended December 31,
	2014			2013			2012
	(Dollar amounts in millions)
Net sales:
AQH	$	595.1		$	600.5		$	598.3
SCS	436.5			347.2			224.7
ERG	294.4			274.5			284.6
RCH	568.9			415.2			381.8
CAS	488.6			470.8			513.9
AVC	162.6			179.7			198.0
Consolidated net sales	$	2,546.1		$	2,287.9		$	2,201.3

Operating earnings (loss):
AQH	$	67.6		$	67.4		$	73.3
SCS	44.5			20.5			16.3
ERG	45.5			38.2			33.1
RCH	24.9			13.1			8.5
CAS	25.1			26.2			42.9
AVC	(19.2		)	(12.9		)	(2.1		)
Subtotal	188.4			152.5			172.0
Impairment of long-lived assets and goodwill	(80.4		)	(4.3		)	—
Unallocated, net	(65.1		)	(60.3		)	(44.4		)
Consolidated operating earnings	42.9			87.9			127.6
Net interest expense	(105.6		)	(99.3		)	(96.4		)
Loss from debt retirement	(2.3		)	—			(6.4		)
(Loss) earnings before (benefit) provision for income taxes	$	(65.0	)	$	(11.4	)	$	24.8

Intersegment sales between the SCS segment and the AVC segments totaled approximately $16.0 million, $18.7 million and $20.9 million for 2014, 2013 and 2012, respectively.

See Note 5, “Exit & Disposal Activities” and Note 6, "Commitments & Contingencies", with respect to certain other items affecting segment earnings (loss).

Depreciation expense, amortization expense and capital expenditures for the Company’s segments are presented in the table that follows for the periods presented:



	For the year ended December 31,
	2014		2013		2012
	(Dollar amounts in millions)
Depreciation Expense:
AQH	$	9.2	$	12.0	$	13.7
SCS	4.1		4.6		2.1
ERG	4.6		4.8		5.3
RCH	12.2		9.0		8.9
CAS	7.3		6.9		6.0
AVC	3.3		2.2		2.3
Unallocated	2.5		1.1		0.2
Consolidated depreciation expense	$	43.2	$	40.6	$	38.5
Amortization expense:
AQH ⁽¹⁾	$	15.4	$	15.4	$	15.3
SCS ⁽²⁾	13.2		13.5		3.7
ERG	12.9		12.9		12.1
RCH ⁽³⁾	11.4		0.8		1.7
CAS	6.0		5.5		5.9
AVC	3.3		6.5		6.5
Unallocated	—		—		—
Consolidated amortization expense	$	62.2	$	54.6	$	45.2
Capital Expenditures:
AQH	$	10.0	$	7.6	$	5.7
SCS	2.9		6.6		2.8
ERG	3.6		3.5		4.5
RCH	7.2		6.1		1.4
CAS	6.3		11.0		6.5
AVC	1.8		3.9		1.4
Unallocated	7.6		5.2		2.7
Consolidated capital expenditures ⁽⁴⁾⁽⁵⁾	$	39.4	$	43.9	$	25.0


(1)	Includes an increase to cost of goods sold for inventory acquired in business combinations of approximately $0.2 million for 2013.


(2)	Includes an increase to cost of goods sold for inventory acquired in business combinations of approximately $3.1 million (related to the acquisition of 2GIG) for 2013.


(3)	Includes an increase to cost of goods sold for inventory acquired in business combinations of approximately $2.2 million (related to the acquisitions of Reznor and Phoenix) and $0.9 million for 2014 and 2012, respectively.


(4)	Includes capital expenditures financed under capital leases of approximately $0.5 million, $0.1 million and $0.9 million for 2014, 2013 and 2012, respectively.


(5)	Does not include the addition of approximately $24.5 million and $7.0 million related to the 2013 construction in progress of new facilities in Mexico for the RCH and CAS segments, respectively. See Note 6, “Commitments and Contingencies”.

Segment assets at December 31, 2014 and 2013 for the Company’s reporting segments are presented in the table that follows:



	December 31, 2014		December 31, 2013
	(Dollar amounts in millions)
Segment Assets:
AQH	$	585.7	$	610.7
SCS	339.6		327.7
ERG	365.0		378.4
RCH	538.2		175.0
CAS	190.7		199.0
AVC	63.2		148.9
	2,082.4		1,839.7
Unallocated:
Cash and cash equivalents, including current restricted cash	59.0		83.8
Deferred tax assets	28.1		29.7
Other assets, including long-term restricted investments	39.6		37.7
Consolidated assets	$	2,209.1	$	1,990.9

Foreign net sales were approximately 16.5%, 16.5%, and 18.7% of consolidated net sales for 2014, 2013, and 2012, respectively. Foreign net sales are attributed based on the location of the Company’s subsidiary responsible for the sale. Excluding financial instruments and deferred income taxes, foreign long-lived assets were approximately 11.8% and 9.3% of consolidated long-lived assets at December 31, 2014 and 2013, respectively.

The Company operates internationally and is exposed to market risks from changes in foreign exchange rates. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company’s customer base and their dispersion across many different geographical regions. These risks are not significantly dissimilar among the Company’s five reporting segments. Accounts receivable from customers related to foreign operations at December 31, 2014 and 2013 was approximately 20.0% and 20.0% of consolidated accounts receivable, respectively.

No single customer accounts for 10% or more of consolidated net sales or accounts receivable.