Commitments and Contingencies:

Leases

We lease certain real and personal property under non-cancelable operating leases. Some of our lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvement funding or other lease concessions. We recognize our minimum rental expense on a straight-line basis. We amortize this expense over the term of the lease beginning with the date of initial possession, which is the date we enter the leased space and begin to make improvements in preparation for its intended use.

Future annual minimum lease payments and capital lease commitments as of December 31, 2018 were as follows (in millions):



	Operating Leases		Capital Leases
2019	$	47.4	$	6.6
2020	38.4		5.4
2021	27.2		3.8
2022	17.9		2.1
2023	12.7		0.9
Thereafter	16.1		12.8
Total minimum lease payments	$	159.7	$	31.6
Less amount representing interest			2.1
Present value of minimum payments			$	29.5

On March 22, 2013, we entered into an agreement with a financial institution to renew the lease of our corporate headquarters in Richardson, Texas for a term of approximately six years through March 1, 2019 (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, the Lake Park Renewal requires us 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, we must pay any such deficit to the financial institution. Any such deficit payment cannot exceed 86% of the lease balance. The Lake Park Renewal is classified as an operating lease and its future annual minimum lease payments are included in the table above. We are in the process of finalizing the renewal of our lease that expires on March 1, 2019 and expect the terms and conditions to be similar to the existing lease.

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 facility agreement. We believe we were in compliance with these financial covenants as of December 31, 2018.

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 related to continuing operations are included in the following captions on the accompanying Consolidated Balance Sheets (in millions):



	As of December 31,
	2018		2017
Accrued expenses	$	37.9	$	34.8
Other liabilities	73.7		75.1
Total product warranty liabilities	$	111.6	$	109.9

The changes in product warranty liabilities related to continuing operations for the years ended December 31, 2018 and 2017 were as follows (in millions):



Total warranty liability as of December 31, 2016	$	101.1
Payments made in 2017	(28.8		)
Changes resulting from issuance of new warranties	41.1
Changes in estimates associated with pre-existing liabilities	(4.8		)
Changes in foreign currency translation rates and other	1.3
Total warranty liability as of December 31, 2017	$	109.9
Payments made in 2018	(31.6		)
Changes resulting from issuance of new warranties	36.8
Changes in estimates associated with pre-existing liabilities	(1.5		)
Changes in foreign currency translation rates and other	(0.8		)
Warranty liability from divestitures	(1.2		)
Total warranty liability as of December 31, 2018	$	111.6

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,
	2018		2017
Accrued expenses	$	6.0	$	7.3
Other liabilities	19.5		21.6
Total self-insurance liabilities	$	25.5	$	28.9

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.

Some of these claims and lawsuits allege personal injury or health problems resulting from exposure to asbestos that was integrated into certain of our products. We have never manufactured asbestos and have not incorporated asbestos-containing components into our products for several decades. A substantial majority of asbestos-related claims have been covered by insurance or other forms of indemnity or have been dismissed without payment. The remainder of our closed cases have been resolved for amounts that are not material, individually or in the aggregate. Our defense costs for asbestos-related claims are generally covered by insurance; however, our insurance coverage for settlements and judgments for asbestos-related claims vary depending on several factors, and are subject to policy limits, so we may have greater financial exposure for future settlements and judgments. We currently estimate our probable liability for known cases is $9.7 million and it is recorded in Accrued expenses in the Consolidated Balance Sheet. We currently estimate future asbestos-related litigation cases to be between $19.3 million and $34.6 million before consideration of probable insurance recoveries with all amounts in that range equally likely. We have accrued $19.3 million in Other liabilities in the Consolidated Balance Sheet at December 31, 2018. For the years ended December 31, 2018, 2017 and 2016, we recorded expense of $4.0 million, $3.5 million and $6.3 million, respectively, net of probable insurance recoveries, for known and future asbestos-related litigation and is recorded in Losses (gains) and other expenses, net in the Consolidated Statements of Operations.

In October 2016, we self-reported to the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) an alleged payment in the amount of 30,000 rubles (approximately US $475) to a Russian customs broker or official. Under the oversight of our Audit Committee, we initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants.The scope of the investigation was later expanded to include our operations in Poland and Ukraine. The investigation raised questions regarding possible irregularities with respect to non-compliance with customs documents and procedures related to these operations. We concluded our investigation and communicated our findings to the SEC and the DOJ. The DOJ has declined to prosecute this matter and we continue to fully cooperate with the SEC regarding this matter.

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.

Marshalltown Tornado and Recovery

On July 19, 2018 our manufacturing facility in Marshalltown, Iowa was severely damaged by a tornado. Insurance covers the repair or replacement of our assets that suffered damage or loss, and we are working closely with our insurance carriers and claims adjusters to ascertain the full amount of insurance recoveries due to us as a result of the damage and loss we incurred. Our insurance policies also provide business interruption coverage, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. These costs and insurance recoveries are shown in Gain from insurance recoveries, net of losses incurred and Insurance proceeds for lost profits in the Consolidated Statements of Operations.

The following table summarizes the gain from insurance recoveries, net of losses incurred:



(Amounts in millions)	For the Year Ended December 31, 2018
Insurance recoveries received	$	124.3
Less losses and expenses incurred:
Site clean-up and remediation	50.9
Factory inefficiencies due to lower productivity	7.4
Write-off of property, plant and equipment	4.2
Write-off of inventory	5.8
Other	17.7
Total losses and expenses	$	86.0
Gain from insurance recoveries	$	38.3
Presentation in the Consolidated Statements of Operations:
Gain from insurance recoveries, net of losses incurred	$	10.9
Insurance proceeds for lost profits	$	27.4