UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(MARK ONE)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15149

LENNOX INTERNATIONAL INC.

Incorporated pursuant to the Laws of the State of DELAWARE

Internal Revenue Service Employer Identification No. 42-0991521

2140 LAKE PARK BLVD., RICHARDSON, TEXAS, 75080
(972-497-5000)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes o No þ

     As of October 20, 2011, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was 51,564,528.

 

 

LENNOX INTERNATIONAL INC.

FORM 10-Q

For the Three and Nine Months Ended September 30, 2011

INDEX

		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets — September 30, 2011 (Unaudited) and December 31, 2010			3
Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended September 30, 2011 and 2010			4
Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended September 30, 2011 and 2010			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
Part II. Other Information
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 6. Exhibits			44
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)

		As of				As of
		September 30,				December 31,
		2011				2010
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	57.9			$	160.0
Restricted cash			—				12.2
Accounts and notes receivable, net of allowances of $13.5 and $12.8 in 2011 and 2010, respectively			478.2				384.8
Inventories, net			394.3				286.2
Deferred income taxes, net			50.1				36.7
Other assets			48.3				67.0
Total current assets			1,028.8				946.9
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $601.1 and $584.7 in 2011 and 2010, respectively			333.3				324.3
GOODWILL			307.0				271.8
DEFERRED INCOME TAXES			84.2				87.2
OTHER ASSETS, net			81.0				61.8
TOTAL ASSETS		$	1,834.3			$	1,692.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt		$	3.5			$	1.4
Current maturities of long-term debt			0.4				0.6
Accounts payable			343.2				273.8
Accrued expenses			316.1				334.5
Income taxes payable			9.6				5.3
Total current liabilities			672.8				615.6
LONG-TERM DEBT			495.7				317.0
POSTRETIREMENT BENEFITS, OTHER THAN PENSIONS			15.6				15.9
PENSIONS			89.0				88.1
OTHER LIABILITIES			62.5				65.7
Total liabilities			1,335.6				1,102.3
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 25,000,000 shares authorized, no shares issued or outstanding			—				—
Common stock, $.01 par value, 200,000,000 shares authorized, 86,648,631 shares and 86,480,816 shares issued for 2011 and 2010, respectively			0.9				0.9
Additional paid-in capital			879.2				863.5
Retained earnings			685.4				642.2
Accumulated other comprehensive (loss) income			(28.8	)			30.2
Treasury stock, at cost, 35,090,313 shares and 32,784,503 shares for 2011 and 2010, respectively			(1,038.0	)			(947.1	)
Total stockholders’ equity			498.7				589.7
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,834.3			$	1,692.0

The accompanying notes are an integral part of these consolidated financial statements.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions, except per share data)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
NET SALES		$	923.0			$	818.2			$	2,547.7			$	2,334.4
COST OF GOODS SOLD			691.9				585.4				1,903.9				1,662.6
Gross profit			231.1				232.8				643.8				671.8
OPERATING EXPENSES:
Selling, general and administrative expenses			166.3				163.5				515.2				513.0
Losses and other expenses, net			2.5				0.8				3.1				6.3
Restructuring charges			10.8				4.7				14.4				15.0
Income from equity method investments			(3.0	)			(2.8	)			(8.9	)			(8.9	)
Operational income from continuing operations			54.5				66.6				120.0				146.4
INTEREST EXPENSE, net			4.1				3.5				12.5				9.1
OTHER EXPENSE, net			—				—				0.1				0.1
Income from continuing operations before income taxes			50.4				63.1				107.4				137.2
PROVISION FOR INCOME TAXES			16.6				21.2				35.8				47.9
Income from continuing operations			33.8				41.9				71.6				89.3
DISCONTINUED OPERATIONS:
Operational loss from discontinued operations			—				0.1				—				0.9
Income tax benefit			—				—				—				(0.1	)
Loss from discontinued operations			—				0.1				—				0.8
Net income		$	33.8			$	41.8			$	71.6			$	88.5
EARNINGS PER SHARE — BASIC:
Income from continuing operations		$	0.65			$	0.78			$	1.35			$	1.62
Loss from discontinued operations			—				—				—				(0.01	)
Net income		$	0.65			$	0.78			$	1.35			$	1.61
EARNINGS PER SHARE — DILUTED:
Income from continuing operations		$	0.64			$	0.76			$	1.33			$	1.59
Loss from discontinued operations			—				—				—				(0.02	)
Net income		$	0.64			$	0.76			$	1.33			$	1.57
AVERAGE SHARES OUTSTANDING:
Basic			52.2				53.8				53.0				55.0
Diluted			52.8				55.0				53.9				56.2
CASH DIVIDENDS DECLARED PER SHARE		$	0.18			$	0.15			$	0.54			$	0.45

The accompanying notes are an integral part of these consolidated financial statements.

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2011 and 2010
(Unaudited, in millions)

		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	71.6			$	88.5
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Income from equity method investments			(8.9	)			(8.9	)
Dividends from affiliates			8.6				7.4
Restructuring expenses, net of cash paid			3.2				(7.1	)
Provision for bad debts			4.3				3.9
Unrealized loss on derivative contracts			4.7				1.0
Stock-based compensation expense			12.6				11.8
Depreciation and amortization			45.2				39.9
Deferred income taxes			4.0				7.8
Other items, net			(2.7	)			10.0
Changes in assets and liabilities, net of effects of acquisitions and divestitures:
Accounts and notes receivable			(74.5	)			(71.6	)
Inventories			(84.3	)			(102.7	)
Other current assets			(1.9	)			(6.7	)
Accounts payable			60.9				43.8
Accrued expenses			( 43.3	)			19.0
Income taxes payable and receivable			1.3				11.1
Other			(3.0	)			(3.6	)
Net cash (used in) provided by operating activities			(2.2	)			43.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposal of property, plant and equipment			0.3				0.1
Purchases of property, plant and equipment			(27.1	)			(30.0	)
Proceeds from sale of businesses			0.6				3.5
Acquisition of businesses			(147.7	)			(6.0	)
Change in restricted cash			12.2				(13.1	)
Net cash used in investing activities			(161.7	)			(45.5	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net			2.5				5.7
Asset securitization borrowings			220.0				—
Asset securitization payments			(220.0	)			—
Long-term payments			(0.7	)			(35.8	)
Issuance of senior unsecured notes			—				199.8
Borrowings from revolving credit facility			1,090.0				875.0
Payments on revolving credit facility			(911.5	)			(906.5	)
Additional investment in affiliates			—				(1.0	)
Proceeds from stock option exercises			1.5				2.5
Payments of deferred financing costs			—				(1.8	)
Repurchases of common stock			(90.9	)			(150.3	)
Excess tax benefits related to share-based payments			1.5				3.7
Cash dividends paid			(27.2	)			(24.4	)
Net cash provided by (used in) financing activities			65.2				(33.1	)
DECREASE IN CASH AND CASH EQUIVALENTS			(98.7	)			(35.0	)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS			(3.4	)			3.1
CASH AND CASH EQUIVALENTS, beginning of period			160.0				124.3
CASH AND CASH EQUIVALENTS, end of period		$	57.9			$	92.4
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest, net		$	10.7			$	5.8
Income taxes (net of refunds)		$	28.9			$	25.7

The accompanying notes are an integral part of these consolidated financial statements.

LENNOX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. General:

     References in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “LII” or the “Company” refer to Lennox International Inc. and its subsidiaries, unless the context requires otherwise.

Basis of Presentation

     The accompanying unaudited Consolidated Balance Sheet as of September 30, 2011, the accompanying unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010, and the accompanying unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 should be read in conjunction with our audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2010. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations, although we believe that the disclosures herein are adequate to make the information presented not misleading. The operating results for the interim periods are not necessarily indicative of the results that may be expected for a full year.

     Our fiscal year ends on December 31 and our quarters are each comprised of 13 weeks. For convenience, throughout these financial statements, the 13 weeks comprising each quarterly period are denoted by the last day of the respective calendar quarter.

Use of Estimates

     The preparation of financial statements requires us to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived assets, contingencies, guarantee obligations, indemnifications, and assumptions used in the calculation of income taxes, pension and postretirement medical benefits, among others. These estimates and assumptions are based on management’s best estimates and judgment.

     We evaluate these estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates and assumptions to be reasonable under the circumstances and adjust such estimates and assumptions when facts and circumstances dictate.

Reclassifications

     Certain prior year amounts have been reclassified to conform to the current year presentation.

New Accounting Pronouncements

     In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Rather, it gives an entity the choice to present the components of net income and other comprehensive income in either a single continuous statement or two separate but

consecutive statements. The components of comprehensive income and timing of reclassification of an item to net income do not change with this update. ASU 2011-05 requires retrospective application and is effective for annual and interim periods beginning after December 15, 2011. Early adoption is permitted. We are currently evaluating which presentation to apply and will adopt the ASU in the first quarter of 2012.

     In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 2011-02”). This ASU provides additional guidance clarifying when the restructuring of a receivable should be considered a troubled debt restructuring. The additional guidance this update provides is for determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulty. ASU 2011-02 also ends the deferral of activity-based disclosures related to troubled debt restructurings. This ASU should be applied retrospectively and is effective for interim and annual periods beginning on or after June 15, 2011. Early adoption is permitted. We adopted ASU 2011-02 in the third quarter of 2011 with no material impact on our financial statements.

     In September 2011, the FASB issued ASU No. 2011-08 — Intangibles — Goodwill and Other (Topic 350):Testing Goodwill for Impairment (“ASU 2011-08”) related to goodwill impairment guidance. This ASU gives an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing all events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the performance of the two-step impairment test is unnecessary. The effective date is for fiscal years beginning after December 15, 2011. We will adopt the ASU in the first quarter of 2012 when we perform our annual goodwill impairment test.

2. Inventories:

     Components of inventories are as follows (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
Finished goods		$	266.6			$	213.4
Work in process			17.2				6.5
Raw materials and repair parts.			182.1				137.1
			465.9				357.0
Excess of current cost over last-in, first-out cost and other items			(71.6	)			(70.8	)
Total inventories, net		$	394.3			$	286.2

3. Acquisition:

     On January 14, 2011, we acquired substantially all the assets of the Kysor/Warren business from The Manitowoc Company. Kysor/Warren is a leading manufacturer of refrigerated systems and display cases for supermarkets throughout North America and is included in our Refrigeration Segment. The total consideration for the acquisition was $143.3 million, which reflects post-closing purchase price working capital adjustments. In connection with this acquisition, we recorded goodwill of $42.0 million and intangible assets of $33.9 million. The intangible assets consisted of the following: trade names of $5.0 million with indefinite lives, customer relationships of $26.7 million with 11 to 12 year lives, and other intangibles of $2.2 million with lives ranging from one to eight years. We paid more than the fair value of the underlying net assets as a result of expected operational synergies. The entire $42.0 million of goodwill is expected to be deductible for tax purposes. The initial accounting for this acquisition is substantially complete with the exception of additional minor adjustments as allowed under the purchase agreement. The acquisition would not have had a significant impact on our historical results.

4. Goodwill:

     The changes in the carrying amount of goodwill for the first nine months of 2011, in total and by segment, are as follows (in millions):

		Balance at												Balance at
		December 31,				Acquisitions/								September
		2010				(Dispositions)								30, 2011
Segment:		Goodwill				(2)				Other(3)				Goodwill
Residential Heating & Cooling		$	33.7			$	—			$	—			$	33.7
Commercial Heating & Cooling.			30.0				—				—				30.0
Service Experts(1)			116.6				3.0				(6.1	)			113.5
Refrigeration			91.5				42.0				(3.7	)			129.8
		$	271.8			$	45.0			$	(9.8	)		$	307.0

     We performed our annual goodwill impairment test in the first quarter of 2011. Our fair values exceeded the carrying values for each of our reporting units in our annual test; therefore, we recognized no goodwill impairment for any of our reporting units.

5. Derivatives:

Objectives and Strategies for Using Derivative Instruments

Commodity Price Risk

     We utilize a cash flow hedging program to mitigate our exposure to volatility in the prices of metal commodities used in our production processes. The hedging program includes the use of futures contracts. We enter into these contracts based on our hedging strategy, a dollar cost averaging strategy. As part of this strategy, a higher percentage of commodity price exposures are hedged near term with lower percentages hedged at future dates. This strategy provides us with protection against near-term price volatility. Upon entering into futures contracts, we lock in prices and are subject to derivative losses should the metal commodity prices decrease and gains should the prices increase.

Interest Rate Risk

     A portion of our debt bears interest at variable interest rates and therefore, we are subject to variability in cash paid for interest expense. In order to mitigate a portion of the risk, we use a hedging strategy to eliminate the variability of cash flows in the interest payments associated with the first $100 million outstanding under our revolving credit facility that is solely due to changes in the benchmark interest rate. This strategy allows us to fix a portion of our variable interest payments.

Foreign Currency Risk

     Foreign currency exchange rate movements create a degree of risk by affecting the U.S. dollar value of assets and liabilities arising in foreign currencies. Our objective for entering into foreign currency forward contracts is to mitigate the impact of short-term currency exchange rate movements on certain short-term intercompany transactions. In order to meet that objective, we periodically enter into foreign currency forward contracts that act as economic hedges against changes in foreign currency exchange rates. These forward contracts are not

designated as hedges and generally expire within three months. By entering into these forward contracts, we lock in exchange rates that would otherwise cause losses should the U.S. dollar appreciate and gains should the U.S. dollar depreciate.

Cash Flow Hedges

     We include gains or losses from our commodity cash flow hedges in accumulated other comprehensive income (“AOCI”). The gains or losses related to commodity price hedges are expected to be reclassified into earnings based on the prices of the commodities at the settlement dates. Assuming that commodity prices remain constant, $8.8 million of derivative losses are expected to be reclassified into earnings within the next 12 months. Commodity futures contracts that are designated as cash flow hedges and are in place as of September 30, 2011 are scheduled to mature through February 2013.

     We also include gains or losses in AOCI from our $100 million pay-fixed, receive-variable interest rate swap with a financial institution at a fixed interest rate of 2.66%. The variable portion of the interest rate swap is tied to 1-Month LIBOR (the benchmark interest rate). On a monthly basis, the interest rates under both the interest rate swap and the underlying debt are reset, the swap is settled with the counterparty, and interest is paid. Assuming that the interest rate environment remains constant, $1.4 million of derivative losses are expected to be reclassified into earnings within the next 12 months. The interest rate swap expires October 12, 2012.

     We recorded the following amounts related to our cash flow hedges (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
Commodity Price Hedges:
Losses (gains) included in AOCI, net of tax		$	10.0			$	(11.7	)
(Benefit from) provision for income taxes			(5.7	)			6.7
Interest Rate Swap:
Losses included in AOCI, net of tax		$	1.5			$	2.3
Benefit from income taxes			(0.8	)			(1.3	)

     We had the following outstanding commodity futures contracts designated as cash flow hedges (in millions):

		As of
		September 30,				As of December 31,
		2011				2010
		(pounds)				(pounds)
Copper			20.4				18.5

Derivatives not Designated as Cash Flow Hedges

     For commodity derivatives not designated as cash flow hedges, we follow the same hedging strategy as derivatives designated as cash flow hedges. We elect not to designate these derivatives as cash flow hedges at the inception of the arrangement. We had the following outstanding commodity futures contracts not designated as cash flow hedges (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
		(pounds)				(pounds)
Copper			2.8				1.4
Aluminum			2.6				1.4

     We had the following outstanding foreign currency forward contracts not designated as cash flow hedges (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
Notional amounts:
Brazilian Real			3.6				5.6
Mexican Peso			170.0				138.0
Euros			7.8				15.6
British Pounds			7.0				2.0

Information About the Location and Amounts of Derivative Instruments

     The following table provides the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Operations (in millions):

		Fair Values of Derivative Instruments(1)
		Derivatives Designated as								Derivatives Not Designated as
		Hedging Instruments								Hedging Instruments
		As of September 30,				As of December 31,				As of September 30,				As of December 31,
		2011				2010				2011				2010
Current Assets:
Other Assets
Commodity futures contracts		$	—			$	17.4			$	—			$	1.4
Foreign currency forward contracts			—				—				0.5				0.2
Non-Current Assets:
Other Assets, net
Commodity futures contracts			—				1.3				—				0.1
Total Assets		$	—			$	18.7			$	0.5			$	1.7
Current Liabilities:
Accrued Expenses
Commodity futures contracts		$	13.9			$	—			$	2.9			$	—
Interest rate swap			2.1				2.2				—				—
Foreign currency forward contracts			—				—				0.1				—
Non-Current Liabilities:
Other Liabilities
Commodity futures contracts			1.8				—				0.2				—
Interest rate swap			0.2				1.4				—				—
Total Liabilities		$	18.0			$	3.6			$	3.2			$	—

		Derivatives in Cash Flow Hedging Relationships
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Amount of Loss or (Gain) Reclassified from AOCI into Income (Effective Portion):
Commodity futures contracts(1)		$	(2.9	)		$	(1.4	)		$	(12.8	)		$	(9.0	)
Interest rate swap(2)			0.6				0.6				1.9				1.8
		$	(2.3	)		$	(0.8	)		$	(10.9	)		$	(7.2	)
Amount of (Gain) or Loss Recognized in Income on Derivatives (Ineffective Portion):
Commodity futures contracts(3)		$	0.1			$	(0.3	)		$	0.1			$	(0.4	)

		Derivatives Not Designated as Hedging Instruments
		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Amount of (Gain) or Loss Recognized in Income on Derivatives:
Commodity futures contracts(3)		$	3.3			$	(1.3	)		$	3.8			$	(0.7	)
Foreign currency forward contracts(3)			(0.4	)			0.7				0.9				(0.1	)
		$	2.9			$	(0.6	)		$	4.7			$	(0.8	)

6. Income Taxes:

     As of September 30, 2011, we had approximately $1.1 million in total gross unrecognized tax benefits. Of this amount, $0.7 million (net of federal benefit on state issues), if recognized, would be recorded through the Consolidated Statement of Operations. As of September 30, 2011, we recognized $0.1 million (net of federal tax benefits) in interest and penalties in income tax expense in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740.

     The IRS completed its examination of our consolidated tax returns for the years ended 2008 — 2009 and we reached a settlement with the IRS on April 7, 2011, which resulted in an immaterial impact to the Consolidated Statements of Operations.

     We are currently under examination for our U.S. federal income taxes for 2010 and 2011 and are subject to examination by numerous other taxing authorities in the U.S. and in jurisdictions such as Australia, Belgium, France, Canada, and Germany. We are generally no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years before 2005.

     Since January 1, 2011, numerous states including Arizona, Illinois, New Jersey, Indiana and Michigan have enacted legislation effective for tax years beginning on or after January 1, 2011, including changes to rates, to apportionment methods and to overall taxation systems. We believe any adjustments will be immaterial.

7. Commitments and Contingencies:

     We are subject to contingencies that arise in the normal course of business, including product warranties and other product related contingencies, pending litigation, environmental matters and other guarantees or claims.

     We use a combination of third-party insurance and self-insurance plans (large deductible or captive) to provide protection against claims relating to contingencies such as workers’ compensation, general liability, product liability, property damage, aviation liability, directors’ and officers’ liability, auto liability, physical damage and other exposures. Self-insurance expense and liabilities are actuarially determined based on our historical claims information, as well as industry factors and trends. Because we have a captive insurance company, we are required to maintain specified levels of liquid assets from which we must pay claims. The majority of our self-insured risks (excluding auto liability and physical damage) will be paid over an extended period of time. There have been no material changes in our insurance liability since our latest fiscal year-end. We also maintain third-party insurance coverage for risks not retained within our large deductible or captive insurance plans. The self-insurance liabilities recorded in Accrued expenses in the accompanying Consolidated Balance Sheets were $67.6 million and $61.3 million as of September 30, 2011 and December 31, 2010, respectively.

Product Warranties and Product Related Contingencies

     Total liabilities for estimated product warranty are included in the following captions on the accompanying Consolidated Balance Sheets (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
Accrued expenses		$	31.1			$	31.2
Other liabilities			40.2				44.3
		$	71.3			$	75.5

     The changes in total product warranty liabilities for the first nine months of 2011 were as follows (in millions):

Total warranty liability as of December 31, 2010		$	75.5
Payments made in 2011			(22.1	)
Changes resulting from issuance of new warranties			20.1
Changes in estimates associated with pre-existing liabilities			(1.8	)
Changes in foreign currency translation rates and other			(0.4	)
Total warranty liability as of September 30, 2011		$	71.3

          At the end of each accounting period, we evaluate our warranty liabilities and during the second quarter of each year, we perform a complete re-evaluation of our heating, ventilation and air conditioning (“HVAC”) warranty liabilities. As a result of the second quarter re-evaluation, we decreased our warranty liability by $2.5 million.

     We incur the risk of liability claims for 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 are not covered by our product liability insurance and certain product liability claims also may not be covered by our product liability insurance. There have been no material changes in the circumstances that affect our product warranties since our latest fiscal year-end.

     We may also incur costs related to our products that may not be covered under our warranties and are not covered by insurance, and we may, from time to time, repair or replace installed products experiencing quality issues in order to satisfy our customers and to protect our brand. These product quality issues may be caused by vendor-supplied components that fail to meet required specifications.

     In addition to normal product warranty, we identified a product quality issue in a heating and cooling product line produced in 2006 and 2007 that we believe resulted from a vendor-supplied materials quality issue. The expense for this product quality issue, and the related liability, is not included in the above tables related to our estimated warranty liabilities. We did not incur any additional expense in the first nine months of 2011; however, we may incur additional charges in the future as more information becomes available. The changes in the accrued product quality issue for the first nine months of 2011 were as follows (in millions):

Total accrued product quality issue as of December 31, 2010		$	16.0
Product quality claims			(4.5	)
Changes in estimates associated with pre-existing liabilities			(1.4	)
Total accrued product quality issue as of September 30, 2011		$	10.1

     We estimate the costs to settle pending litigation based on experience involving similar claims and specific facts known. We do not believe that any current or pending or threatened litigation will have a material adverse effect on our financial position. Litigation and arbitration, however, involve uncertainties and it is possible that the eventual outcome of litigation could adversely affect our results of operations for a particular period.

     We were the defendant in a class action lawsuit seeking economic damages for alleged diminished value for plaintiffs’ homes relative to certain hearth products we produced and sold. On June 10, 2011, the litigation of this

matter concluded when the court issued its Order Granting Final Approval of Class Settlement; Final Judgment and Order of Dismissal. We do not expect to incur any significant additional expense and substantially all of the expenses incurred to date were paid.

     Our obligations under the Lake Park Lease are secured by a pledge of our interest in the leased property and are also guaranteed by us and certain of our subsidiaries. The Lake Park Lease, as amended, contains restrictive covenants that are consistent with those of our domestic revolving credit facility. We were in compliance with these financial covenants as of September 30, 2011.

8. Lines of Credit and Financing Arrangements:

     The following tables summarize our outstanding debt obligations and the classification in the accompanying Consolidated Balance Sheets (in millions):

		As of September 30,				As of December 31,
		2011				2010
Short-Term Debt:
Foreign obligations		$	3.5			$	1.4
Total short-term debt		$	3.5			$	1.4
Current maturities of long-term debt:		$	0.4			$	0.6
Long-Term Debt:
Capital lease obligations			17.2				17.0
Domestic revolving credit facility			278.5				100.0
Senior unsecured notes			200.0				200.0
Total long-term debt		$	495.7			$	317.0
Total debt		$	499.6			$	319.0

Short-Term Debt

Foreign Obligations

     Through several of our foreign subsidiaries, we have $3.7 million in committed combined foreign facilities to assist in financing seasonal borrowing needs for our foreign locations. We had $3.7 million and $10.1 million of available capacity as of September 30, 2011 and December 31, 2010, respectively. Our foreign obligations of $3.5 million represented borrowings under non-committed facilities.

Asset Securitization

     Under a revolving period asset securitization arrangement (“ASA”), we are eligible to sell beneficial interests in a portion of our trade accounts receivable to participating financial institutions for cash. The arrangement is subject to renewal and contains a provision whereby we retain the right to repurchase all of the outstanding beneficial interests transferred. Our continued involvement with the transferred assets includes servicing, collection and administration of the transferred beneficial interests. The sale of the beneficial interests in our trade accounts receivable are reflected as secured borrowings in the accompanying Consolidated Balance Sheets and proceeds received are included in cash flows from financing activities in the accompanying Consolidated Statements of Cash Flows. The ASA provides for a maximum securitization amount of $100.0 million or 100% of the net pool balance as defined by the ASA. However, eligibility for securitization is limited based on the amount and quality of the qualifying accounts receivable and is calculated monthly. The beneficial interest sold cannot exceed the maximum amount even if our qualifying accounts receivable is greater than the maximum amount at any point in time. The eligible amounts available and beneficial interests sold were as follows (in millions):

		As of				As of
		September 30,				December 31,
		2011				2010
Eligible amount available under the ASA on qualified accounts receivable		$	100.0			$	100.0
Beneficial interest sold			—				—
Remaining amount available		$	100.0			$	100.0

     Under the ASA, we pay certain discount fees to use the program and have the facility available to us. These fees relate to both the used and unused portions of the securitization. The used fee is based on the beneficial interest sold and calculated on the average floating commercial paper rate determined by the purchaser of the beneficial interest, plus a program fee of 0.75%. The rate as of September 30, 2011 was 1.04% and the rate at December 31, 2010 was 1.06%. The unused fee is based on 102% of the maximum available amount less the beneficial interest sold and calculated at a 0.375% fixed rate throughout the term of the agreement. We recorded these fees in Selling, General and Administrative Expenses in the accompanying Consolidated Statements of Operations. The amounts recorded were as follows (in millions):

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Discount fees		$	0.1			$	0.1			$	0.3			$	0.4

     The ASA contains certain restrictive covenants relating to the quality of our accounts receivable and cross-default provisions with our domestic revolving credit facility and senior unsecured notes. The administrative agent under the ASA is also a participant in our domestic revolving credit facility. The participating financial institution has an investment grade credit rating and we continue to monitor its credit rating. We have no reason to believe it will not perform under the ASA. As of September 30, 2011, we were in compliance with all covenant requirements.

Long-Term Debt

Domestic Revolving Credit Facility

     Under the $650 million Third Amended and Restated Credit Agreement (“Domestic Revolving Credit Facility”), we had outstanding borrowings of $278.5 million and $80.0 million committed to standby letters of credit as of September 30, 2011. Subject to covenant limitations, $291.5 million was available for future borrowings. This domestic revolving credit facility provides for issuance of letters of credit for the full amount of the credit facility and matures in October 2012 (see Note 17, Subsequent Event).

     Our weighted average borrowing rate on the facility was as follows:

		As of September 30, 2011				As of December 31, 2010
Weighted average borrowing rate			1.01	%			0.96	%

     Our domestic revolving credit facility contains financial covenants relating to leverage and interest coverage. Other covenants contained in the domestic revolving credit facility restrict, among other things, mergers, asset dispositions, guarantees, debt, liens, acquisitions, investments, affiliate transactions and our ability to make restricted payments. The financial covenants require us to maintain a defined Consolidated Indebtedness to Adjusted EBITDA Ratio and a Cash Flow (defined as EBITDA minus capital expenditures) to Net Interest Expense Ratio. The required ratios under our domestic revolving credit facility as of September 30, 2011 are detailed below:

Consolidated Indebtedness to Adjusted EBITDA Ratio no greater than			3.5 : 1.0
Cash Flow to Net Interest Expense Ratio no less than			3.0 : 1.0

     Our domestic revolving credit facility contains customary events of default. These events of default include nonpayment of principal or interest, breach of covenants or other restrictions or requirements, default on certain other indebtedness or receivables securitizations (cross default), and bankruptcy. A cross default under our revolving credit facility could occur if:

•

We fail to pay any principal or interest when due on any other indebtedness or receivables securitization of at least $40.0 million; or

•

We are in default in the performance of, or compliance with any term of any other indebtedness or receivables securitization in an aggregate principal amount of at least $40.0 million, or any other condition exists which would give the holders the right to declare such indebtedness due and payable prior to its stated maturity.

     Each of our major debt agreements contains provisions by which a default under one agreement causes a default in the others (a cross default). If a cross default under the revolving credit facility, our senior unsecured notes, or our ASA were to occur, it could have a wider impact on our liquidity than might otherwise occur from a default of a single debt instrument or lease commitment.

     If any event of default occurs and is continuing, lenders with a majority of the aggregate commitments may require the administrative agent to terminate our right to borrow under our domestic revolving credit facility and accelerate amounts due under our domestic revolving credit facility (except for a bankruptcy event of default, in which case such amounts will automatically become due and payable and the lenders’ commitments will automatically terminate). As of September 30, 2011, we were in compliance with all covenant requirements.

Senior Unsecured Notes

     We issued $200.0 million of senior unsecured notes in May 2010 through a public offering. Interest is paid semiannually on May 15 and November 15 at a fixed interest rate of 4.90% per annum. These notes mature on May 15, 2017.

     The notes are guaranteed, on a senior unsecured basis, by each of our domestic subsidiaries that guarantee payment by us of any indebtedness under our domestic revolving credit facility. The indenture governing the notes contains covenants that, among other things, limit our ability and the ability of the subsidiary guarantors to: create or incur certain liens; enter into certain sale and leaseback transactions; enter into certain mergers, consolidations and transfers of substantially all of our assets; and transfer certain properties. The indenture also contains a cross default provision which is triggered if we default on other debt of at least $75 million in principal which is then accelerated, and such acceleration is not rescinded within 30 days of the notice date. As of September 30, 2011, we were in compliance with all covenant requirements.

Credit Rating

     At September 30, 2011, our senior credit ratings were Baa3, with a stable outlook, and BBB-, with a stable outlook by Moody’s and Standard & Poor’s Rating Group (“S&P”), respectively.

Other Financing Arrangements

     In the first quarter 2010, our captive insurance subsidiary entered into an agreement in which cash was placed into a trust for the benefit of a third-party insurance provider. The purpose of the trust is to pay workers compensation claims for policy years 2003 — 2009 until the liabilities are fully extinguished. These policies were written by the third-party insurance provider, and then reinsured by our captive insurance subsidiary. In the second quarter of 2011, we changed how these claims were secured. Substantially all claims for the workers compensation claims for policy years 2003-2009 are now secured by standby letters of credit. As of December 31, 2010, we had $12.2 million in Restricted Cash on the accompanying Consolidated Balance Sheets to pay these claims.

9. Pension and Postretirement Benefit Plans:

     The components of net periodic benefit cost were as follows (in millions):

		For the Three Months Ended September 30,
		2011				2010				2011				2010
		Pension Benefits								Other Benefits
Service cost		$	1.3			$	1.3			$	0.2			$	0.2
Interest cost			4.5				4.4				0.2				0.2
Expected return on plan assets			(4.7	)			(4.9	)			—				—
Amortization of prior service cost			0.1				0.1				(0.4	)			(0.5	)
Amortization of net loss			1.7				2.1				0.3				0.3
Settlements or curtailments			0.1				—				—				—
Total net periodic pension cost		$	3.0			$	3.0			$	0.3			$	0.2

		For the Nine Months Ended September 30,
		2011				2010				2011				2010
		Pension Benefits								Other Benefits
Service cost		$	4.0			$	3.7			$	0.6			$	0.4
Interest cost			13.5				13.2				0.7				0.6
Expected return on plan assets			(14.2	)			(14.5	)			—				—
Amortization of prior service cost			0.3				0.4				(1.4	)			(1.4	)
Amortization of net loss			5.2				6.4				0.9				0.9
Settlements or curtailments			1.7				—				—				—
Total net periodic pension cost		$	10.5			$	9.2			$	0.8			$	0.5

10. Comprehensive Income:

     The changes in the components of other comprehensive income, net of taxes, were as follows (in millions):

		For the Nine Months Ended
		September 30,
		2011				2010
Net income		$	71.6			$	88.5
Foreign currency translation adjustments, net			(27.4	)			17.8
Derivatives and other, net of tax benefit of $11.9 in 2011 and tax provision of $1.7 in 2010			(31.6	)			2.6
Comprehensive income		$	12.6			$	108.9

11. Stock-Based Compensation:

     The Lennox International Inc. 2010 Incentive Plan, as amended and restated provides for various long-term incentive awards, which include stock options, performance share units, restricted stock units and stock appreciation rights. Net stock-based compensation expense recognized was as follows (in millions):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Net stock-based compensation expense		$	3.5			$	4.1			$	12.6			$	11.8

     These expenses are included in Selling, General and Administrative Expenses in the accompanying Consolidated Statements of Operations.

12. Stock Repurchases:

     In June 2008 our Board of Directors approved a $300 million share repurchase plan which authorizes us to repurchase shares of our common stock through open market purchases (the “2008 Share Repurchase Plan”). The 2008 Share Repurchase Plan has no stated expiration date. Additionally, in connection with the vesting of restricted stock units and performance share units, employees may surrender shares to satisfy tax-withholding obligations. Through the third quarter of 2011, we repurchased 2,305,810 shares of our common stock including 25,399 in surrendered shares, totaling $90.9 million. These repurchased and surrendered shares are included in Treasury Stock.

13. Restructuring Charges:

     As part of our strategic priorities of manufacturing and sourcing excellence and expense reduction, we initiated various manufacturing rationalization actions designed to lower our cost structure. We expanded these expense reductions across the organization by initiating a number of activities to rationalize and reorganize various support and administrative functions. Restructuring charges are not included in our calculation of segment profit (loss), see Note 15 for further discussion. Detailed below are the restructuring activities that we incurred additional expense in 2011.

2011 Plans

Corporate and Other

     In the third quarter of 2011, we terminated our airplane lease, closed the aviation department, and reorganized certain support functions within our organization. Substantially all of the costs related to these activities were recognized in the third quarter of 2011 and consisted of $4.3 million in lease termination costs, $1.0 million in severance costs and $0.2 million in accelerated depreciation.

2010 Plans

Refrigeration

     We began to exit certain Refrigeration manufacturing operations in Milperra, Australia in 2010, specifically our OEM coil manufacturing and contract coil manufacturing. In the first quarter of 2010, we began to exit OEM coil manufacturing. We reversed approximately $0.5 million in severance in the first nine months of 2011 to adjust estimated charges to actual. This activity was substantially complete in 2010. We initiated restructuring activities related to exiting contract coil manufacturing in the third quarter of 2010. In the first nine months of 2011, we recognized $1.4 million in other plant closure costs related to these restructuring activities. The total expected expenses for the OEM coil restructuring are $5.3 million and the contract coil manufacturing restructuring is $5.2 million.

Service Experts

     We began to reorganize certain administrative functions and the management structure of our Service Experts business in 2010 and initiated two actions. The first action, started in the second quarter of 2010, was to reorganize the administrative operations of an acquired company. This project was completed in 2010. The second action, initiated in the fourth quarter of 2010, was to reorganize the management structure of our Service Experts business. We expect to complete this project in the fourth quarter of 2011. We recognized $4.6 million in severance, lease termination and other costs in the first nine months of 2011. The total expected expenses related to the second action for the administrative and management restructuring is $5.7 million.

2009 and Prior Plans

Commercial Heating & Cooling

     We completed the consolidation of certain manufacturing operations from Mions, France into our Longvic, France operations in the first quarter of 2010. We reversed $0.1 million in severance charges in the first nine months of 2011 to adjust estimated charges to actual. The total expected restructuring charges for this consolidation is $6.3 million.

Residential Heating & Cooling

     We consolidated our manufacturing operations from Blackville, South Carolina into our Orangeburg, South Carolina and Saltillo, Mexico operations. We expect to complete this consolidation in the fourth quarter of 2011. We recognized $0.8 million in restructuring charges in the first nine months of 2011 related to other plant closure costs. The total expected expenses for this consolidation is $13.6 million.

Regional Distribution Network

     In the fourth quarter of 2008, we commenced the transition of activities performed at our North American Parts Center in Des Moines, Iowa to other locations, including our North American Distribution Center in Marshalltown, Iowa. In the first nine months of 2011, we recognized $0.9 million primarily in other restructuring charges. The total expected restructuring charges for the regional distribution network is $4.9 million

Total Restructuring

     Information regarding the restructuring charges for all plans is as follows (in millions):

										Total
		Charges				Charges				Charges
		Incurred in				Incurred to				Expected to
		2011				Date				be Incurred
Severance and related expense		$	2.1			$	46.6			$	47.0
Asset write-offs and accelerated depreciation			0.4				11.5				11.5
Equipment moves			0.6				1.8				2.3
Lease termination			6.0				8.4				8.4
Other			5.3				11.2				12.6
Total		$	14.4			$	79.5			$	81.8

     Information regarding the restructuring charges by segment is as follows (in millions):

										Total
		Charges				Charges				Charges
		Incurred in				Incurred to				Expected to
		2011				Date				be Incurred
Residential Heating & Cooling		$	2.2			$	17.8			$	19.8
Commercial Heating & Cooling			0.1				16.6				16.8
Service Experts			4.9				8.2				8.3
Refrigeration			1.7				19.9				19.9
Corporate & Other			5.5				17.0				17.0
Total		$	14.4			$	79.5			$	81.8

     Restructuring reserves are included in Accrued Expenses in the accompanying Consolidated Balance Sheets. The table below details activity within the restructuring reserves for the first nine months of 2011 (in millions):

		Balance as of				Charged								Non-Cash				Balance as of
		December 31,				to				Cash				Utilization				September 30,
Description of Reserves		2010				Earnings				Utilization				and Other				2011
Severance and related expense		$	6.2			$	2.1			$	(3.8	)		$	—			$	4.5
Asset write-offs and accelerated depreciation			—				0.4				—				(0.4	)			—
Equipment moves			—				0.6				(0.6	)			—				—
Lease termination			0.3				6.0				(1.0	)			—				5.3
Other			0.7				5.3				(6.0	)			—				—
Total restructuring reserves		$	7.2			$	14.4			$	(11.4	)		$	(0.4	)		$	9.8

14. Earnings Per Share:

     Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income by the sum of the weighted-average number of shares and the number of equivalent shares assumed outstanding, if dilutive, under our stock-based compensation plans.

     The computations of basic and diluted earnings per share for Income from Continuing Operations were as follows (in millions, except per share data):

		For the								For the
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income		$	33.8			$	41.8			$	71.6			$	88.5
Add: Loss from discontinued operations			—				0.1				—				0.8
Income from continuing operations		$	33.8			$	41.9			$	71.6			$	89.3
Weighted-average shares outstanding — basic			52.2				53.8				53.0				55.0
Effect of dilutive securities attributable to stock-based payments			0.6				1.2				0.9				1.2
Weighted-average shares outstanding — diluted			52.8				55.0				53.9				56.2
Earnings per share from continuing operations:
Basic		$	0.65			$	0.78			$	1.35			$	1.62
Diluted		$	0.64			$	0.76			$	1.33			$	1.59

     Stock appreciation rights were outstanding, but not included in the diluted earnings per share calculation because the assumed exercise of such rights would have been anti-dilutive. The details are as follows:

		For the Nine Months Ended September 30,
		2011				2010
Number of shares			2,275,894				520,817
Price ranges per share		$	28.24 — $46.78			$	$36.94

15. Reportable Business Segments:

     We operate in four 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 provided. The table below details the nature of the operations for each reportable segment:

Segment		Product or Services		Markets Served		Geographic Areas
Residential Heating & Cooling		Heating Air Conditioning Hearth Products		Residential Replacement Residential New Construction		United States Canada
Commercial Heating & Cooling		Rooftop Products Chillers Air Handlers		Light Commercial		United States Canada Europe
Service Experts		Equipment Sales Installation Maintenance Repair		Residential Light Commercial		United States Canada
Refrigeration		Unit Coolers Condensing Units Other Commercial Refrigeration Products Display Cases and Systems		Light Commercial Food Preservation and Non-Food/Industrial		United States Canada Europe Asia Pacific South America

     Transactions between segments, such as products sold to Service Experts by the Residential Heating & Cooling segment, are recorded on an arm’s-length basis using the market price for these products. The eliminations of these intercompany sales and any associated profit are noted in the reconciliation of segment results to the income from continuing operations before income taxes below.

     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 as they are determined at the discretion of the Board of Directors and based on the historical practice of doing so for internal reporting purposes.

     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								For the Nine Months Ended
		Ended September 30,								September 30,
		2011				2010				2011				2010
Net Sales
Residential Heating & Cooling		$	373.6			$	370.9			$	1,040.7			$	1,068.5
Commercial Heating & Cooling			199.3				176.3				536.4				471.7
Service Experts			144.7				150.9				406.6				445.6
Refrigeration			223.7				140.6				616.3				411.8
Eliminations (1)			(18.3	)			(20.5	)			(52.3	)			(63.2	)
		$	923.0			$	818.2			$	2,547.7			$	2,334.4
Segment Profit (Loss)(2)
Residential Heating & Cooling		$	28.8			$	39.0			$	60.8			$	98.6
Commercial Heating & Cooling			28.7				24.9				61.7				56.2
Service Experts			5.4				6.0				0.4				14.2
Refrigeration			20.5				17.3				55.5				47.5
Corporate and other			(15.4	)			(15.5	)			(41.4	)			(48.2	)
Eliminations (1)			0.3				0.1				—				(0.2	)
Subtotal that includes segment profit and eliminations			68.3				71.8				137.0				168.1
Reconciliation to income from continuing operations before income taxes:
Special product quality adjustment			—				—				(2.4	)			—
Items in losses and other expenses, net that are excluded from segment profit (3)			3.0				0.5				5.0				6.7
Restructuring charges			10.8				4.7				14.4				15.0
Interest expense, net			4.1				3.5				12.5				9.1
Other expense, net			—				—				0.1				0.1
Income from continuing operations before income taxes		$	50.4			$	63.1			$	107.4			$	137.2

(1)		Eliminations consist of intercompany sales between business segments, such as products sold to Service Experts by the Residential Heating & Cooling segment.
(2)		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:

	•		Special product quality adjustments.
	•		Items within Losses and Other Expenses, net that are noted in (3).
	•		Restructuring charges.
	•		Goodwill and equity method investment impairments.
	•		Interest expense, net.
	•		Acquisition costs.
	•		Other expense, net.

(3)

Items in Losses and Other Expenses, net that are excluded from segment profit are net change in unrealized gains and/or losses on open futures contracts, discount fee on accounts sold, realized gains and/or losses on marketable securities, special legal contingency charge, and other items.

     Total assets by business segment are shown below (in millions). The assets in the Corporate segment are primarily comprised of cash and deferred tax assets. Assets recorded in the operating segments represent those assets directly associated with those segments.

		As of				As of
		September 30,				December 31,
		2011				2010
Total Assets
Residential Heating & Cooling		$	568.8			$	519.8
Commercial Heating & Cooling			295.9				252.7
Service Experts			185.6				186.2
Refrigeration			565.5				389.7
Corporate and other			227.2				354.9
Eliminations (1)			(8.7	)			(11.3	)
Total assets		$	1,834.3			$	1,692.0

16. Fair Value Measurements:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in millions):

		Quoted Prices in Active Markets for
		Identical Assets (Level 1)
		As of September 30,				As of December 31,
		2011				2010
Assets:
Investment in marketable equity securities (1)		$	7.7			$	18.0

Other Fair Value Measurements

     The carrying amounts of cash and cash equivalents, accounts and notes receivable, net, accounts payable, other current liabilities, and short-term debt approximate fair value due to the short maturities of these instruments. The fair values of each of our long-term debt instruments are based on the quoted market prices for the same issues or on the amount of future cash flows associated with each instrument using current market rates for debt instruments of similar maturities and credit risk. The fair values presented are estimates and are not necessarily indicative of amounts for which we could settle such instruments currently or indicative of our intent or ability to dispose of or liquidate them. The estimated fair value of our debt was as follows (in millions):

		As of September 30,				As of December 31,
		2011				2010
Long-term debt (1)		$	293.9			$	114.6
Senior unsecured notes			217.9				203.0