Reportable Business Segments

9 Months Ended

Sep. 30, 2014

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. 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
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 for the periods presented below.

Segment Data

Net sales and segment profit (loss) for each 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 September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Net Sales
Residential Heating & Cooling	$	462.6		$	433.9		$	1,332.5		$	1,224.5
Commercial Heating & Cooling	241.6			239.1			655.6			631.8
Refrigeration	194.2			195.0			566.5			593.2
	$	898.4		$	868.0		$	2,554.6		$	2,449.5
Segment Profit (Loss) (1)
Residential Heating & Cooling	$	69.4		$	57.0		$	178.8		$	143.7
Commercial Heating & Cooling	42.2			39.2			91.3			84.8
Refrigeration	16.5			23.9			42.3			66.5
Corporate and other	(17.5		)	(16.6		)	(47.8		)	(56.2		)
Subtotal that includes segment profit and eliminations	110.6			103.5			264.6			238.8
Reconciliation to income from continuing operations before income taxes:
Special product quality adjustments	0.2			(0.4		)	(0.1		)	(0.5		)
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)	1.8			(0.2		)	2.8			2.0
Restructuring charges	1.0			0.3			1.3			3.2
Interest expense, net	4.0			3.8			11.0			10.8
Special inventory write down	1.0			—			1.0			—
Other expense (income), net	—			—			—			(0.1		)
Income from continuing operations before income taxes	$	102.6		$	100.0		$	248.6		$	223.4

⁽¹⁾ The Company defines 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:

• Special product quality adjustments;

• The following items in Losses (gains) 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, and

◦ Other items, net;

• Restructuring charges;

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

• Interest expense, net;

• Special inventory write down; and

• Other expense, net.

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, 2013.