Reportable Business Segments

3 Months Ended

Mar. 31, 2013

Segment Reporting, Measurement Disclosures [Abstract]

Reportable Business Segments

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.

In March 2013, we sold our Service Experts business to a majority-owned entity of American Capital, Ltd. The Service Experts business had previously been reported within our Service Experts segment along with a commercial service business called Lennox National Account Services (NAS). 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 reportable segment was eliminated. Segment results for all periods have been revised to conform to this new presentation.

The table below details the nature of the operations for each reportable 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
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

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

	For the Three Months Ended March 31,
	2013			2012
Net Sales
Residential Heating & Cooling	$	314.5		$	272.6
Commercial Heating & Cooling	163.0			156.7
Refrigeration	190.9			185.1
	$	668.4		$	614.4
Segment Profit (Loss) (1)
Residential Heating & Cooling	$	20.5		$	11.0
Commercial Heating & Cooling	11.1			8.3
Refrigeration	16.7			14.2
Corporate and other	(18.9		)	(13.9		)
Subtotal that includes segment profit and eliminations	29.4			19.6
Reconciliation to income from continuing operations before income taxes:
Special product quality adjustment	(0.2		)	(0.4		)
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss)(2)	1.3			(1.5		)
Restructuring charges	0.5			2.6
Interest expense, net	3.4			4.7
Other expense, net	—			—
Income from continuing operations before income taxes	$	24.4		$	14.2

⁽¹⁾ We define 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 the following:

• Special product quality adjustments;

• Items in Losses (gains) and other expenses, net (see table note 2 below);

• Restructuring charges;

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

• Interest expense, net;

• Other expense, net.

⁽²⁾ Items in Losses (gains) and other expenses, net that are excluded from segment profit include the following: asset impairment, net change in unrealized gains and/or losses on open futures contracts, special legal contingency charge, and other items.