Reportable Business Segments

9 Months Ended

Sep. 30, 2020

Segment Reporting, Measurement Disclosures [Abstract]

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 and supplies	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, and variable refrigerant flow commercial products	Light Commercial	United States Canada
Refrigeration	Condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, process chillers, controls, and compressorized racks	Light Commercial; Food Preservation; Non-Food/Industrial	United States Canada Europe

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 in the table 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 record 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.

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.

Segment Data

Net sales and segment profit (loss) for each segment, along with a reconciliation of segment profit (loss) to Operating income, are shown below (in millions):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales
Residential Heating & Cooling	$	722.0	$	637.6	$	1,808.8	$	1,792.2
Commercial Heating & Cooling	207.9		253.3		574.6		687.9
Refrigeration	125.1		142.0		336.7		442.1
	$	1,055.0	$	1,032.9	$	2,720.1	$	2,922.2
Segment profit (loss) (1)
Residential Heating & Cooling	$	153.0	$	126.5	$	312.8	$	366.6
Commercial Heating & Cooling	38.8		47.1		93.1		116.0
Refrigeration	13.0		19.8		22.6		47.3
Corporate and other	(28.3)		(18.1)		(61.3)		(54.3)
Total segment profit	176.5		175.3		367.2		475.6
Reconciliation to Operating income:
Special product quality adjustments	—		(0.5)		(1.0)		(1.0)
Loss on sale of business	—		0.2		—		9.1
Prior quarter partial advance of insurance recoveries related to lost profits	—		8.0		—		—
Loss (gain) from natural disasters, net of insurance recoveries	4.9		1.2		7.6		(11.6)
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)	4.4		3.5		10.5		7.3
Restructuring charges	0.1		6.1		10.6		6.5
Operating income	$	167.1	$	156.8	$	339.5	$	465.3

⁽¹⁾ We define segment profit (loss) as a segment's operating income included in the accompanying Consolidated Statements of Operations, excluding:

•The following items in Losses (gains) and other expenses, net:

◦Net change in unrealized (gains) losses on unsettled futures contracts,

◦Special legal contingency charges,

◦Asbestos-related litigation,

◦Environmental liabilities,

◦Charges incurred related to COVID-19 pandemic,

◦Other items, net,

•Loss on sale of business,

•Special product quality adjustments,

•Prior quarter partial advance of insurance recoveries related to lost profits,

•Loss (gain) from natural disasters, net of insurance recoveries; and,

•Restructuring charges.