Lennox International Annual Report 2016

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FY2016 Annual Report · Lennox International

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2016ANNUALREPORT

NYSE: LII

2016 | Revenue

2016 | Segment profit*

20% 25% 55%
Refrigeration Commercial Residential

12% 26% 62%
Refrigeration Commercial Residential

Revenue**
(in millions)

$3,199

$2,949

$3,367 $3,467

$3,642

Segment Profit Margin***

12.9%

Share Price
(end of year)

10.9%

10.1%

9.4%

7.6%

$153.17

$124.90

$95.07

$85.06

$52.52

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

FINANCIAL HIGHLIGHTS
(in millions, except per share data)

2016
Statements of Operations Data
Revenue**................................................................................. $3,641.6
Operating income from continuing operations**........................ $429.4
Income from continuing operations............................................ $278.6
Net income................................................................................. $277.8
Basic earnings per share from continuing operations................... $6.41
Diluted earnings per share from continuing operations................ $6.34
Cash dividends declared per share................................................ $1.65

Other Data**
Capital expenditures..................................................................... $84.3
Research and development expenses............................................ $64.6

Balance Sheet Data at Period End
Total assets............................................................................... $1,760.3
Total debt.................................................................................... $868.2
Stockholders’ equity...................................................................... $38.0

2015
$3,467.4
$305.4
$187.2
$186.6
$4.17
$4.11
$1.38

2014
$3,367.4
$334.7
$208.1
$205.8
$4.35
$4.28
$1.14

2013
$3,199.1
$289.0
$179.9
$171.8
$3.61
$3.55
$0.92

2012
$2,949.4
$219.1
$135.0
$90.0
$2.66
$2.63
$0.76

$69.9
$62.3

$88.4
$60.7

$78.3 $50.2
$53.7 $49.5

$1,677.4
$741.1
$101.6

$1,764.3
$925.6
$9.0

$1,626.7 $1,691.9
$400.4 $386.6
$485.7 $498.3

*Excludes eliminations and unallocated corporate expenses.
**Amounts exclude discontinued operations.
***Segment profit is total segment profit for all of our segments including eliminations. For further detail and a comparison of Segment Profit to Income from
Continuing Operations before Income Taxes, see Note 18 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for
the year ended December 31, 2016, included herein.

TO OUR STOCKHOLDERS

2016 was a year of record margin,
profit and cash flow for Lennox
International. On a GAAP basis,
operating income rose 41 percent to
a record $429 million on 5 percent
revenue growth
to $3.6 billion.
Earnings per share from continuing
operations rose 54 percent to a
record $6.34. On an adjusted basis,
total segment profit increased 24
percent to a record $470 million as
total segment margin expanded 200
basis points to a record 12.9 percent. Adjusted earnings per share
from continuing operations for the full year rose 35 percent to a
record $6.95.

Cash from operations of $355 million for the year set a new
record, and we continued to make significant investments for the
future growth and profitability of the company, including $84
million of capital expenditures. The company raised its dividend
19 percent and paid a total of $69 million in dividends in 2016.
In addition, we repurchased $300 million of company stock.

All three of our businesses were up in 2016, and Residential and
Commercial set new highs for revenue, margin, and profit. In
Refrigeration, profit rose 30 percent as segment margin expanded
210 basis points to 9.5 percent.

Residential revenue was up 7 percent for the year to a record $2.0
billion on strength in both replacement and new construction
business. Residential profit rose 25 percent to a record $349
million, and segment margin expanded 250 basis points to a new
high of 17.4 percent.

Operationally in Residential, we continued to drive manufact-
uring productivity, including approximately $10 million of
incremental savings for the year from our second manufacturing
plant in Saltillo, Mexico opened in 2014. In distribution,
we continued to expand our footprint with 23 new Lennox
PartsPlus® stores to bring the total to 209 locations at the end
of 2016. Over the last seven years, we have expanded physical
distribution more than 240 percent in our Residential business,
which has been a key factor in winning new contractor customers
and providing excellent service to our existing customers. Benefits
from this initiative include significant advances in on-time
improved
delivery and same-day fulfillment, as well as
inventory turns and distribution costs per dollar of revenue.
We view the target market for a PartsPlus store to be within a
30-minute drive radius for a contractor. Currently, our footprint
of stores covers about 35 percent of our total market under this
parameter. With a systematic pace of store expansion each year, we
envision more than 325 stores in total in the next three years as we
continue to focus on outgrowing the market and providing
service excellence.

In our Commercial business in 2016, revenue was up 3 percent,
including a negative 1 percent impact from foreign exchange,
to a record $918 million. Commercial profit rose 14 percent to
a record $149 million, and segment margin expanded 160 basis
points to a record 16.3 percent.

In North America, commercial revenue grew at a mid-single
digit rate in 2016. Revenue from replacement business was
up high-single digits, and revenue from commercial new
construction was up low-single digits.

National account equipment revenue was up low-single digits
- with broad strength in non-retail national accounts partially
offset by a decline in HVAC capital spending at certain retail
accounts. Lennox continued to win in the marketplace with
a record 31 new national account equipment customers. We
continued to advance our leadership position with retailers at
their stores and increasingly at their warehouse and distribution
facilities that support their online sales. In other national
accounts, we expanded further into hotels, restaurants, schools,
entertainment complexes, medical facilities, financial branches
and with real estate firms. On the services side of our national
account business, revenue was up mid-single digits for the year
as steady growth continued. Revenue from our non-national
account business was up mid-single digits for the year. We
continued to see success in the emergency replacement market
as we drive initiatives to gain further share in this segment of
the market. Over the last four years, our emergency replacement
revenue is up approximately 40 percent.

Since entering the VRF market in North America, we are
seeing increasing momentum in winning business in mid-rise
buildings - with stand-alone VRF systems or in a bundled
solution with our unitary rooftop products. We see the VRF
market growing at a mid-teens rate to $750 million over the
next four years in North America. We have been growing at a
triple-digit pace and continue to target $100 million of annual
VRF revenue in the coming years.

In Europe, markets remained soft in 2016. Our commercial
HVAC revenue was down slightly including the negative impact
from foreign exchange and flat excluding that impact.

In our Refrigeration business, revenue was up 1 percent,
including a negative 1 percent impact from foreign exchange.
Refrigeration revenue was up low-single digits in North America
and Europe. South America was flat including a negative 5
percent impact from foreign exchange, and Asia Pacific was flat
including a negative 1 percent impact from foreign exchange.
Refrigeration profit rose 30 percent to $69 million, and segment
margin expanded 210 basis points to 9.5 percent. In addition
to growth across all regions at constant currency, the business
realized significant improvement in profitability from lower

factory and material costs, including sourcing and engineering-
led cost reductions, and higher productivity.

Across all three of our businesses, the company continued to
realize significant material cost reductions through global
sourcing programs and engineering-led cost reductions.
The company has been making significant investments in
computational analytics that enable us to dramatically reduce the
time to implement cost savings. Instead of manual testing and
field trials, we increasingly model lifetime equipment perfor-
mance on the computer and in the lab. Computational analytics
also enables us to more precisely understand the performance
specification to provide our suppliers in order to optimize costs,
quality, and performance.

Another area of significant investment that we are leveraging
across the entire enterprise is our advanced control systems.
In Residential, our iComfort® S30 control system has an
industry-leading user interface and can provide prognostics
and diagnostics in a way that enables a technician to arrive at
a home with the right part to fix a system the right way the
first time.

We are now leveraging the investments in our residential control
systems and our intellectual property in software and hardware
to develop the same leading capabilities for light commercial
applications. In a convenience store or restaurant, for example,
monitoring and controlling the HVAC and refrigeration
systems are critical. Our new systems provide these commercial
customers with a leading user-interface, remote monitoring,
and prognostics and diagnostics to help keep their businesses
running smoothly and maximize profitability.

investments

The company
in
is also making significant
e-commerce, including our industry-leading LennoxPROs.com
site and app for our Lennox dealers. The LennoxPROs™ tool
provides online ordering, warranty support, training, and parts
and equipment availability. We are leveraging our expertise with
e-commerce in our Lennox residential business to introduce new
e-commerce systems for our Allied® residential business and our
North America Heatcraft® refrigeration business in 2017.

Investments like these, combined with the continued expansion
of our distribution footprint, keep the company well-positioned
to win in the market place now and for the future. In addition,
with the company’s record cash generation and strong balance
sheet, we continued to return cash to shareholders through
competitive dividends and significant stock repurchases. The
company established many new financial records in 2016, and we
remain focused on taking company performance to new levels as
we capitalize on end-market growth, capture market share, and
continue to drive operational initiatives for higher profitability.

Todd M. Bluedorn
Chairman of the Board & Chief Executive Officer

*For a reconciliation of 2016 GAAP and adjusted financials, refer to the
company’s February 7, 2017 earnings release and financial statements available
at www.lennoxintl.com.

BOARD OF DIRECTORS
AND MANAGEMENT TEAM

BOARD OF DIRECTORS

MANAGEMENT TEAM

Todd M. Bluedorn
Chairman of the Board and Chief Executive Officer

Joseph W. Reitmeier
Executive Vice President and Chief Financial Officer

Prakash Bedapudi
Executive Vice President and Chief Technology Officer

Terry L. Johnston
Executive Vice President
President and Chief Operating Officer
North America Commercial Heating & Cooling

David W. Moon
Executive Vice President
President and Chief Operating Officer
Worldwide Refrigeration

Daniel M. Sessa
Executive Vice President and Chief Human Resources Officer

John D. Torres
Executive Vice President, Chief Legal Officer and Secretary

Douglas L. Young
Executive Vice President
President and Chief Operating Officer
Residential Heating & Cooling

Roy A. Rumbough, Jr.
Vice President, Controller and Chief Accounting Officer

Janet K. Cooper
Former Senior Vice President and Treasurer
Qwest Communications International Inc.
Committees: 1, 4

John E. Major
President
MTSG
Committees: 2, 3

Max H. Mitchell
President and Chief Executive Officer
Crane Co.
Committees: 1, 2

John W. Norris, III
Co-Founder
Maine Network Partners
Committees: 3, 4

Karen H. Quintos
Executive Vice President and Chief Customer Officer
Dell Technologies Inc.
Committees: 3, 4

Kim K. W. Rucker
Executive Vice President, General Counsel and Secretary
Tesoro Corp.
Committees: 2, 3

Paul W. Schmidt
Former Corporate Controller
General Motors Corporation
Committees: 1, 4

Gregory T. Swienton
Former Chairman and Chief Executive Officer
Ryder System, Inc.
Committees: 1, 2

Todd J. Teske
LII Lead Independent Director
Chairman, President and Chief Executive Officer
Briggs & Stratton Corporation
Committees: 2, 3

Committee Legend (bold indicates chairperson)
1: Audit 2: Board Governance
3: Compensation & Human Resources 4: Public Policy
as of March 20, 2017

2016
FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

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

For the fiscal year ended December 31, 2016

Commission File Number 001-15149
LENNOX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of

42-0991521
(I.R.S. Employer

incorporation or organization)

Identification Number)

2140 Lake Park Blvd.
Richardson, Texas 75080
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code): (972) 497-5000
Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $.01 par value per share

Name of each exchange on which registered
New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X] No [ ]

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act 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 last 90 days. Yes [X] No [ ]

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (see
definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

As of June 30, 2016, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately
$4.8 billion based on the closing price of the registrant's common stock on the New York Stock Exchange. As of February 9,
2017, there were 42,982,367 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2017 Definitive Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the registrant's 2017 Annual Meeting of Stockholders to be held on May 18, 2017 are incorporated by
reference into Part III of this report.

LENNOX INTERNATIONAL INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2016

INDEX

PART I

ITEM 1.

Business

ITEM 1A. Risk Factors

ITEM 1B. Unresolved Staff Comments

ITEM 2.

ITEM 3.

Properties

Legal Proceedings

ITEM 4. Mine Safety Disclosures

PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

ITEM 6.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of

Selected Financial Data

Operations

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8.
ITEM 9.

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure

ITEM 9A. Controls and Procedures

ITEM 9B. Other Information

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

ITEM 11.
ITEM 12.

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14.

Principal Accounting Fees and Services

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

SIGNATURES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES

INDEX TO EXHIBITS

Page

92
92

Item 1. Business

PART I

References in this Annual Report on Form 10-K to “we,” “our,” “us,” “LII” or the “Company” refer to Lennox International

Inc. and its subsidiaries, unless the context requires otherwise.

The Company

We are a leading global provider of climate control solutions. We design, manufacture and market a broad range of products
for the heating, ventilation, air conditioning and refrigeration (“HVACR”) markets. We have leveraged our expertise to become
an industry leader known for innovation, quality and reliability. Our products and services are sold through multiple distribution
channels under various brand names. The Company was founded in 1895, in Marshalltown, Iowa, by Dave Lennox, the owner
of a machine repair business for railroads. He designed and patented a riveted steel coal-fired furnace, which led to numerous
advancements in heating, cooling and climate control solutions.

Shown in the table below are our three business segments, the key products, services and well-known product and brand names
within each segment and net sales in 2016 by segment. Segment financial data for 2016, 2015 and 2014, including financial
information about foreign and domestic operations, is included in Note 18 of the Notes to our Consolidated Financial Statements
in “Item 8. Financial Statements and Supplementary Data” and is incorporated herein by reference.

Segment

Residential
Heating & Cooling

Commercial
Heating & Cooling

Refrigeration

Products & Services
Furnaces, air conditioners, heat
pumps, packaged heating and cooling
systems, indoor air quality equipment,
comfort control products, replacement
parts and supplies

Unitary heating and air conditioning
equipment, applied systems, controls,
installation and service of commercial
heating and cooling equipment,
variable refrigerant flow commercial
products

Condensing units, unit coolers, fluid
coolers, air cooled condensers, air
handlers, process chillers, controls,
compressorized racks, supermarket
display cases and systems

Product and Brand Names
Lennox, Dave Lennox Signature, Armstrong
Air, Ducane, Aire-Flo, Air-Ease, Concord,
Magic-Pak, ADP Advanced Distributor
Products, iComfort and Lennox PartsPlus

Lennox, Allied Commercial, Magic-Pak,
Raider, Landmark, Prodigy, Strategos,
Energence, Lennox VRF and Lennox
National Account Services

Heatcraft Worldwide Refrigeration, Bohn,
Larkin, Climate Control, Chandler
Refrigeration, Kysor/Warren, Friga-Bohn,
HK Refrigeration, Hyfra, Kirby and Interlink

2016
Net Sales
(in millions)
2,000.8
$

917.9

722.9

Total

3,641.6

Products and Services

Residential Heating & Cooling

Heating & Cooling Products. We manufacture and market a broad range of furnaces, air conditioners, heat pumps, packaged
heating and cooling systems, equipment and accessories to improve indoor air quality, comfort control products, replacement parts
and supplies and related products for both the residential replacement and new construction markets in North America. These
products are available in a variety of designs and efficiency levels and at a range of price points, and are intended to provide a
complete line of home comfort systems. We believe that by maintaining a broad product line marketed under multiple brand
names, we can address different market segments and penetrate multiple distribution channels.

The “Lennox” and “Aire-Flo” brands are sold directly to a network of approximately 7,000 independent installing dealers,
making us one of the largest wholesale distributors of residential heating and air conditioning products in North America. The
Allied Air Enterprise brands (“Armstrong Air,” “Air-Ease,” “Concord,” “Ducane,” and “Magic-Pak”) include a full line of heating
and air conditioning products and are sold through independent distributors in North America.

We are continuing to grow our network of 209 Lennox PartsPlus stores across the United States and Canada. These stores
provide an easy access solution for contractors and independent dealers to obtain universal service and replacement parts, supplies,
convenience items, tools, Lennox equipment and OEM parts.

Our Advanced Distributor Products (“ADP”) operation builds evaporator coils and air handlers under the “ADP Advanced
Distributor Products” brand and also builds evaporator coils under the “Lennox” brand and Allied Air Enterprise brands. ADP
sells its own ADP branded evaporator coils to over 400 HVAC wholesale distributors across North America.

Commercial Heating & Cooling

North America. In North America, we manufacture and sell unitary heating and cooling equipment used in light commercial
applications, such as low-rise office buildings, restaurants, retail centers, churches and schools. Our product offerings for these
applications include rooftop units ranging from 2 to 50 tons of cooling capacity and split system/air handler combinations, which
range from 1.5 to 20 tons of cooling capacity. These products are distributed primarily through commercial contractors and directly
to national account customers. In 2014, we launched Lennox-branded variable refrigerant flow ("VRF") commercial products
through Lennox company-owned distribution. We believe the success of our products is attributable to their efficiency, design
flexibility, total cost of ownership, low life-cycle cost, ease of service and advanced control technology.

National Account Services. National Account Service ("NAS") provides installation, service and preventive maintenance for

commercial HVAC national account customers in the United States and Canada.

Europe. In Europe, we manufacture and sell unitary products, which range from 2 to 70 tons of cooling capacity, and applied
systems with up to 200 tons of cooling capacity. Our European products consist of small package units, rooftop units, chillers,
air handlers and fan coils that serve medium-rise commercial buildings, shopping malls, other retail and entertainment buildings,
institutional applications and other field-engineered applications. We manufacture heating and cooling products in several locations
in Europe and market these products through both direct and indirect distribution channels in Europe, Russia, Turkey and the
Middle East.

Refrigeration

We manufacture and market equipment for the global commercial refrigeration markets under the Heatcraft Worldwide
Refrigeration name. We sell these products to distributors, installing contractors, engineering design firms, original equipment
manufacturers and end-users. Our global manufacturing, distribution, sales and marketing footprint serves customers in over 70
countries worldwide.

North America. Our commercial refrigeration products for the North American market include condensing units, unit coolers,
fluid coolers, air-cooled condensers, air handlers, display cases and refrigeration rack systems. These products preserve food and
other perishables in supermarkets, convenience stores, restaurants, warehouses and distribution centers. In addition, our products
are used to cool a wide variety of industrial processes, including data centers, machine tooling, and other critical cooling applications.
We routinely provide application engineering for consulting engineers, contractors, store planners, end customers and others to
support the sale of commercial refrigeration products. In addition to providing complete refrigeration systems and display cases,
we also provide turnkey installations for our supermarket customers in Mexico.

International. In international markets, we manufacture and market refrigeration products including condensing units, unit
coolers, air-cooled condensers, fluid coolers, compressor racks and industrial process chillers. We have manufacturing locations
in Germany, France, Brazil and China. In Australia and New Zealand, we are the leading wholesale distribution business serving
the HVACR industry with more than 60 locations serving our customers, which also includes the sale of refrigerant. In addition,
we own a 50% common stock interest in a joint venture in Mexico that produces unit coolers, air-cooled condensers, condensing
units, compressors and compressorized racks of the same design and quality as those manufactured by our U.S. business. This
joint venture product line is complemented with imports from the U.S., which are sold through the joint venture's distribution
network.

Business Strategy

Our business strategy is to sustain and expand our premium market position as well as offer a full spectrum of products to meet
our customers' needs. We plan to expand our market position through organic growth and acquisitions while maintaining our
focus on cost reductions to drive margin expansion and support growth in target business segments. This strategy is supported
by the following five strategic priorities:

Innovative Product and System Solutions. In all of our markets, we are building on our heritage of innovation by developing
residential, commercial and refrigeration products that give families and business owners more precise control over more aspects
of their indoor environments, while significantly lowering their energy costs.

Manufacturing and Sourcing Excellence. We maintain our commitment to manufacturing and sourcing excellence by driving
low-cost assembly through rationalization of our facilities and product lines, maximizing factory efficiencies, and leveraging our
purchasing power and sourcing initiatives to expand the use of lower-cost components that meet our high-quality requirements.

Distribution Excellence. By investing resources in expanding our distribution network, we are making products available to
our customers in a timely, cost-efficient manner. Additionally, we provide enhanced dealer support through the use of technology,
training, advertising and merchandising.

Geographic Expansion. We are growing our business by extending our successful business model and product knowledge

into additional domestic and international markets.

Expense Reduction. Through our cost management initiatives, we are optimizing operating, manufacturing and administrative

costs.

Marketing and Distribution

We utilize multiple channels of distribution and offer different brands at various price points in order to better penetrate the
HVACR markets. Our products and services are sold through a combination of direct sales, distributors and company-owned parts
and supplies stores. Dedicated sales forces and manufacturers' representatives are deployed across our business segments and
brands in a manner designed to maximize our ability to service each distribution channel. To optimize enterprise-wide effectiveness,
we have active cross-functional and cross-organizational teams coordinating approaches to pricing, product design, distribution
and national account customers.

The North American residential heating and cooling market provides an example of the competitive strength of our marketing
and distribution strategy. We use three distinct distribution approaches in this market: the company-owned distribution system,
the independent distribution system and direct sales to end-users. We distribute our “Lennox” and “Aire-Flo” brands in a company-
owned process directly to independent dealers that install these heating and cooling products. We distribute our “Armstrong Air,”
“Ducane,” “Air-Ease,” “Concord,” “Magic-Pak” and “ADP Advanced Distributor Products” brands through the traditional
independent distribution process pursuant to which we sell our products to distributors who, in turn, sell the products to installing
contractors. We also sell our products directly to customers through our Lennox PartsPlus stores.

Over the years, the “Lennox” brand has become inextricably linked with “Dave Lennox,” a highly recognizable advertising
icon in the heating and cooling industry. We utilize the “Dave Lennox” image in mass media advertising, as well as in numerous
locally produced dealer advertisements, open houses and trade events.

Manufacturing

We operate manufacturing facilities worldwide and utilize the best available manufacturing techniques based on the needs of
our businesses, including the use of lean manufacturing and principles of Six Sigma, a disciplined, data-driven approach and
methodology for improving quality. We use numerous metrics to track and manage annual efficiency improvements. Some
facilities are impacted by seasonal production demand, and we manufacture both heating and cooling products in those facilities
to balance production and maintain a relatively stable labor force. We may also hire temporary employees to meet changes in
demand.

Strategic Sourcing

We rely on various suppliers to furnish the raw materials and components used in the manufacturing of our products. To
maximize our buying effectiveness in the marketplace, we have a central strategic sourcing group that consolidates purchases of
3

certain materials, components and indirect items across business segments. The goal of the strategic sourcing group is to develop
global strategies for a given component group, concentrate purchases with three to five suppliers and develop long-term relationships
with these vendors. By developing these strategies and relationships, we seek to leverage our material needs to reduce costs and
improve financial and operating performance. Our strategic sourcing group also works with selected suppliers to reduce costs
and improve quality and delivery performance by employing lean manufacturing and Six Sigma.

Compressors, motors and controls constitute our most significant component purchases, while steel, copper and aluminum
account for the bulk of our raw material purchases. We own equity interests in joint ventures that manufacture compressors. These
joint ventures provide us with compressors for our residential and commercial heating and cooling and refrigeration businesses.

Research and Development and Technology

Research and development is a key pillar of our growth strategy. We operate a global engineering and technology organization
that focuses on new technology invention, product development, product quality improvements and process enhancements,
including our development of next-generation thermostats and control systems. We leverage intellectual property and innovative
designs across our businesses. We also leverage product development cycle time improvements and product data management
systems to commercialize new products to market more rapidly. We use advanced, commercially available computer-aided design,
computer-aided manufacturing, computational fluid dynamics and other sophisticated design tools to streamline the design and
manufacturing processes. We use complex computer simulations and analyses in the conceptual design phase before functional
prototypes are created. We also operate a full line of prototype machine equipment and advanced laboratories certified by applicable
industry associations.

Seasonality

Our sales and related segment profit tend to be seasonally higher in the second and third quarters of the year because summer
is the peak season for sales of air conditioning equipment and services in the U.S. and Canada. For the same reason, our working
capital needs are generally greater in the first and second quarters, and we generally have higher operating cash inflows in the
third and fourth quarters.

Our markets are driven by seasonal weather patterns. HVAC products and services are sold year round, but the volume and
mix of product sales and service change significantly by season. The industry generally ships roughly twice as many units during
June as it does in December. Overall, cooling equipment represents a substantial portion of the annual HVAC market. Between
the heating season (roughly November through February) and cooling season (roughly May through August) are periods commonly
referred to as "shoulder seasons" when the distribution channel transitions its buying patterns from one season to the next. These
seasonal fluctuations in mix and volume drive our sales and related segment profit, resulting in somewhat higher sales in the
second and third quarters due to the higher volume in the cooling season relative to the heating season.

Patents and Trademarks

We hold numerous patents that relate to the design and use of our products. We consider these patents important, but no single
patent is material to the overall conduct of our business. We proactively obtain patents to further our strategic intellectual property
objectives. We own or license several trademarks and service marks we consider important in the marketing of our products and
services, and we protect our marks through national registrations and common law rights.

Competition

Substantially all markets in which we participate are competitive. The most significant competitive factors we face are product
reliability, product performance, service and price, with the relative importance of these factors varying among our businesses.
The following are some of the companies we view as significant competitors in each of our three business segments, with relevant
brand names, when different from the company name, shown in parentheses. The marks below may be the registered or unregistered
trademarks or trade names of their respective owners.

• Residential Heating & Cooling - United Technologies Corp. (Carrier, Bryant, Tempstar, Comfortmaker, Heil, Arcoaire,
KeepRite, Day & Night); Ingersoll-Rand plc (Trane, American Standard); Paloma Industries, Inc. (Rheem, Ruud); Johnson
Controls, Inc. (York); Daikin Industries, Ltd. (Goodman, Amana); and Melrose Industries PLC (Maytag, Westinghouse,
Frigidaire, Tappan, Philco, Kelvinator, Gibson, Broan, NuTone).

• Commercial Heating & Cooling - United Technologies Corp. (Carrier, ICP Commercial); Ingersoll-Rand plc (Trane); Paloma
Industries, Inc. (Rheem, Ruud); Johnson Controls, Inc. (York); Daikin Industries, Ltd. (Goodman, McQuay); Melrose

Industries PLC (Mammoth); and AAON, Inc.

• Refrigeration - Hussmann Corporation; Paloma Industries, Inc. (Rheem Manufacturing Company (Heat Transfer Products
Group)); Emerson Electric Co. (Copeland); United Technologies Corp. (Carrier); GEA Group (Kuba, Searle, Goedhart);
Alfa Laval; Guntner GmbH; and Panasonic Corp. (Sanyo).

Employees

As of December 31, 2016, we employed approximately 10,600 employees. Approximately 5,100 of these employees were
salaried and 5,500 were hourly. The number of hourly workers we employ may vary in order to match our labor needs during
periods of fluctuating demand. Approximately 2,400 employees, including international locations, are represented by unions. We
believe we have good relationships with our employees and with the unions representing our employees. We currently do not
anticipate any material adverse consequences resulting from negotiations to renew any collective bargaining agreements.

Environmental Regulation

Our operations are subject to evolving and often increasingly stringent international, federal, state and local laws and regulations
concerning the environment. Environmental laws that affect or could affect our domestic operations include, among others, the
National Appliance Energy Conservation Act of 1987, as amended (“NAECA”), the Energy Policy Act, the Energy Policy and
Conservation Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the National Environmental Policy Act, the Toxic Substances Control
Act, any regulations promulgated under these acts and various other international, federal, state and local laws and regulations
governing environmental matters. We believe we are in substantial compliance with such existing environmental laws and
regulations.

Energy Efficiency. The U.S. Department of Energy has numerous active energy conservation rulemakings that impact residential
and commercial heating, air conditioning and refrigeration equipment. We are actively involved in U.S. Department of Energy
and Congressional activities related to energy efficiency. We are prepared to have compliant products in place in advance of the
effectiveness of all such regulations being considered by the U.S. Department of Energy.

Refrigerants. The use of hydrochlorofluorocarbons ("HCFCs”) and hydroflurocarbons ("HFCs") as refrigerants for air
conditioning and refrigeration equipment is common practice in the HVACR industry and is regulated. We believe we have complied
with applicable rules and regulations in various countries governing the use of HCFCs and HFCs. The U.S. Congress and the
Environmental Protection Agency are considering steps to phase down the future use of HFCs in HVACR products and an
international accord was adopted in October 2016 which would significantly phase-down the use of HFCs when ratified. We are
an active participant in the ongoing international and domestic dialogue on this subject and are well positioned to react in a timely
manner to changes in the regulatory landscape. In addition, we are taking proactive steps to implement responsible use principles
and guidelines with respect to limiting refrigerants from escaping into the atmosphere throughout the life span of our HVACR
equipment.

Remediation Activity. In addition to affecting our ongoing operations, applicable environmental laws can impose obligations
to remediate hazardous substances at our properties, at properties formerly owned or operated by us and at facilities to which we
have sent or send waste for treatment or disposal. We are aware of contamination at some of our facilities; however, based on
facts presently known, we do not believe that any future remediation costs at such facilities will be material to our results of
operations. For more information, see Note 10 in the Notes to our Consolidated Financial Statements.

In the past, we have received notices that we are a potentially responsible party along with other potentially responsible parties
in Superfund proceedings under the Comprehensive Environmental Response, Compensation and Liability Act for cleanup of
hazardous substances at certain sites to which the potentially responsible parties are alleged to have sent waste. Based on the facts
presently known, we do not believe environmental cleanup costs associated with any Superfund sites about which we have received
notice that we are a potentially responsible party will be material.

European WEEE and RoHS Compliance. In the European marketplace, electrical and electronic equipment is required to
comply with the Directive on Waste Electrical and Electronic Equipment (“WEEE”) and the Directive on Restriction of Use of
Certain Hazardous Substances (“RoHS”). WEEE aims to prevent waste by encouraging reuse and recycling and RoHS restricts
the use of six hazardous substances in electrical and electronic products. All HVACR products and certain components of such
products “put on the market” in the EU (whether or not manufactured in the EU) are potentially subject to WEEE and RoHS.
Because all HVACR manufacturers selling within or from the EU are subject to the standards promulgated under WEEE and
RoHS, we believe that neither WEEE nor RoHS uniquely impacts us as compared to such other manufacturers. Similar directives

are being introduced in other parts of the world, including the U.S. For example, California, China and Japan have all adopted
standards possessing similar intent as RoHS. We are actively monitoring the development of such directives and believe we are
well positioned to comply with such directives in the required time frames.

Available Information

Our web site address is www.lennoxinternational.com. We make available, free of charge through our web site, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably possible after
such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our web
site is not a part of, or incorporated by reference into, this annual report on Form 10-K.

You can also read and copy any document that we file, including this Annual Report on Form 10-K, at the Securities and
Exchange Commission's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the Securities and Exchange
Commission at 1-800-SEC-0330 for information on the operation of the Public Reference Room. In addition, the Securities and
Exchange Commission maintains a website at www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers, including Lennox International, that file electronically with the Securities and Exchange
Commission.

Executive Officers of the Company

Our executive officers, their present positions and their ages are as follows as of February 4, 2016:

Name

Age Position

Todd M. Bluedorn

Chairman of the Board and Chief Executive Officer

Joseph W. Reitmeier

Executive Vice President and Chief Financial Officer

Douglas L. Young

Terry L. Johnston

David W. Moon

Executive Vice President and President and Chief Operating
Officer, LII Residential Heating & Cooling

Executive Vice President and President and Chief Operating
Officer, LII North America Commercial Heating & Cooling

Executive Vice President and President and Chief Operating
Officer, LII Worldwide Refrigeration

Prakash Bedapudi

Executive Vice President and Chief Technology Officer

Daniel M. Sessa

Executive Vice President and Chief Human Resources Officer

John D. Torres

Executive Vice President, Chief Legal Officer and Secretary

Roy A. Rumbough, Jr.

61 Vice President, Controller and Chief Accounting Officer

Todd M. Bluedorn was appointed Chief Executive Officer and was elected to our Board of Directors in April 2007. Mr. Bluedorn
was elected Chairman of the Board of Directors in May 2012. Prior to joining Lennox International, Mr. Bluedorn served in
numerous senior management positions for United Technologies since 1995, including President, Americas - Otis Elevator
Company; President, North America - Commercial Heating, Ventilation and Air Conditioning for Carrier Corporation; and
President, Hamilton Sundstrand Industrial. He began his professional career with McKinsey & Company in 1992. A graduate of
the United States Military Academy at West Point with a bachelor of science in electrical engineering, Mr. Bluedorn served in the
United States Army as a combat engineer officer and United States Army Ranger from 1985 to 1990. He received his MBA from
Harvard University School of Business in 1992. Mr. Bluedorn also serves on the Board of Directors of Eaton Corporation, a
diversified industrial manufacturer, on the Board of Directors of Texas Instruments Incorporated, a global designer and manufacturer
of semiconductors (effective March 1, 2017), and on the Board of Trustees of Washington University in St. Louis. Mr. Bluedorn
possesses considerable industry knowledge and executive leadership experience. Mr. Bluedorn’s extensive knowledge of our
Company and its business, combined with his drive for excellence and innovation, position him well to serve as CEO and a director
of our Company.

Joseph W. Reitmeier was appointed Executive Vice President and Chief Financial Officer in July 2012. He had served as Vice
President of Finance for the LII’s Commercial Heating & Cooling segment since 2007 and as Director of Internal Audit from 2005
to 2007. Before joining the company, he held financial leadership roles at Cummins Inc. and PolyOne Corporation. He is a
director of Watts Water Technologies, Inc., a global provider of plumbing, heating and water quality solutions for residential,
industrial, municipal and commercial settings. Mr. Reitmeier holds a bachelor’s degree in accounting from the University of
Akron and an MBA from Case Western Reserve University. He is also a Certified Public Accountant.

Douglas L. Young was appointed Executive Vice President and President and Chief Operating Officer of LII's Residential
Heating & Cooling segment in October 2006. Mr. Young had previously served as Vice President and General Manager of North
American Residential Products since 2003 and as Vice President and General Manager of Lennox North American Residential
Sales, Marketing, and Distribution from 1999 to 2003. Prior to his career with LII, Mr. Young was employed in the Appliances
division of GE, where he held various management positions before serving as General Manager of Marketing for GE Appliance
division's retail group from 1997 to 1999 and as General Manager of Strategic Initiatives in 1999. He holds a BSBA from Creighton
University and a master’s of science in management from Purdue University. Mr. Young serves on the Board of Directors of
Beacon Roofing Supply, a general building material distributor and is on the Board of Directors of AHRI (the Air-Conditioning,
Heating, and Refrigeration Institute), the trade association for the HVACR and water heating equipment industries.

Terry L. Johnston was appointed Executive Vice President and President and Chief Operating Officer of LII's North America
Commercial Heating & Cooling business in January 2013. Since May 2007, he had served as Vice President and General Manager,
North America Commercial. He had previously served as Vice President, Marketing and Product Management, LII Worldwide
Heating & Cooling and as Vice President, Marketing and Product Management for Lennox Industries. Before joining LII in 2001,
Mr. Johnston worked for 20 years at GE in a variety of product management and sales and marketing roles. He is on the Board of
Directors of CSW Industrials, Inc., a diversified industrial growth company with businesses in industrial products, coatings, sealants
and adhesives and specialty chemicals segments. He holds a bachelor of science in marketing from the University of Arkansas.

David W. Moon was appointed Executive Vice President and President and Chief Operating Officer of LII's Worldwide
Refrigeration business in August 2006. He had previously served as Vice President and General Manager of Worldwide
Refrigeration, Americas Operations since 2002. Prior to serving in that position, he served as Managing Director in Australia
beginning in 1999, where his responsibilities included heat transfer manufacturing and distribution, refrigeration wholesaling and
manufacturing and HVAC manufacturing and distribution in Australia and New Zealand. Mr. Moon originally joined LII in 1998
as Operations Director, Asia Pacific. Prior to that time, Mr. Moon held various management positions at Allied Signal, Inc., Case
Corporation, and Tenneco Inc. in the United States, Hong Kong, Taiwan and Germany. He holds a bachelor of science in civil
engineering and an MBA from Texas A&M University. Mr. Moon serves on the Board of Directors of American Woodmark
Corporation, a kitchen and bath cabinet manufacturer.

Prakash Bedapudi was appointed Executive Vice President and Chief Technology Officer in July 2008. He had previously
served as Vice President, Global Engineering and Program Management for Trane Inc. Commercial Systems from 2006 through
2008, and as Vice President, Engineering and Technology for Trane's Residential Systems division from 2003 through 2006. Prior
to his career at Trane, Mr. Bedapudi served in senior engineering leadership positions for GE Transportation Systems, a division
of General Electric Company, and for Cummins Engine Company. He holds a bachelor of science in mechanical/automotive
engineering from Karnataka University, India and a master's of science in mechanical/aeronautical engineering from the University
of Cincinnati.

Daniel M. Sessa was appointed Executive Vice President and Chief Human Resources Officer in June 2007. He had previously
served in numerous senior human resources and legal leadership positions for United Technologies Corporation since 1996,
including Vice President, Human Resources for Otis Elevator Company - Americas from 2005 to 2007, Director, Employee
Benefits and Human Resources Systems for United Technologies Corporation from 2004 to 2005, and Director, Human Resources
for Pratt & Whitney from 2002 to 2004. He holds a bachelor of arts in law and society from the State University of New York at
Binghamton and a juris doctor from the Hofstra University School of Law.

John D. Torres was appointed Executive Vice President and Chief Legal Officer and Secretary in December 2008. He had
previously served as Senior Vice President, General Counsel and Secretary for Freescale Semiconductor, a semiconductor
manufacturer that was originally part of Motorola. He joined Motorola's legal department as Senior Counsel in 1996 and was
appointed Vice President, General Counsel of the company's semiconductor business in 2001. Prior to joining Motorola, Mr. Torres
served 13 years in private practice in Phoenix, specializing in commercial law. He holds a bachelor of arts from Notre Dame and
a juris doctor from the University of Chicago.

Roy A. Rumbough, Jr. was appointed Vice President, Controller and Chief Accounting Officer in July 2006. He had previously
served as Vice President, Corporate Controller of Maytag Corporation, a position he held since 2002. From 1998 to 2002, he
served as Vice President, Controller of Blodgett Corporation, a portfolio of food service equipment companies and former affiliate
of Maytag. Mr. Rumbough's career at Maytag spanned 17 years and included internal audit, financial planning and analysis, and
business unit controller roles. Prior to his career at Maytag, he worked for Deloitte and Touche, LLP. He holds a bachelor of arts
in accounting from North Carolina State University and an MBA from the Kellogg School of Management, Northwestern
University.

Item 1A. Risk Factors

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act that are based on information currently available to management
as well as management's assumptions and beliefs as of the date hereof. All statements, other than statements of historical fact,
included in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by the words “may,” “will,” “should,” “plan,”
“predict,” “anticipate,” “believe,” “intend,” “estimate” and “expect” and similar expressions. Statements that are not historical
should also be considered forward-looking statements. Such statements reflect our current views with respect to future events.
Readers are cautioned not to place undue reliance on these forward-looking statements. We believe these statements are based
on reasonable assumptions; however, such statements are inherently subject to risks and uncertainties, including but not limited
to the specific uncertainties discussed elsewhere in this Annual Report on Form 10-K and the risk factors set forth in Item 1A.
Risk Factors in this Annual Report on Form 10-K. These risks and uncertainties may affect our performance and results of
operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may differ materially from those in the forward-looking statements. We disclaim any intention or obligation to
update or review any forward-looking statements or information, whether as a result of new information, future events or otherwise
unless required by law.

Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered.
We believe these are the principal material risks currently facing our business; however, additional risks and uncertainties not
presently known to us or that we presently deem less significant may also impair our business operations. If any of the following
risks or those disclosed in our other SEC filings actually occur, our business, financial condition or results of operations could be
materially adversely affected.

We May Not be Able to Compete Favorably in the Competitive HVACR Business.

Substantially all of the markets in which we operate are competitive. The most significant competitive factors we face are
product reliability, product performance, reputation of our company and brands, service and price, with the relative importance
of these factors varying among our product lines. Other factors that affect competition in the HVACR market include the
development and application of new technologies, an increasing emphasis on the development of more efficient HVACR products
and new product introductions. We may not be able to adapt to market changes as quickly or effectively as our current and future
competitors. Also, the establishment of manufacturing operations in low-cost countries could provide cost advantages to existing
and emerging competitors. Some of our competitors may have greater financial resources than we have, allowing them to invest
in more extensive research and development and/or marketing activity and making them better able to withstand adverse HVACR
market conditions. Current and future competitive pressures may cause us to reduce our prices or lose market share, or could
negatively affect our cash flow, all of which could have an adverse effect on our results of operations.

Our Financial Performance Is Affected by the Conditions of the U.S. Construction Industry.

Our business is affected by the performance of the U.S. construction industry. Our sales in the residential and commercial
new construction markets correlate to the number of new homes and buildings that are built, which in turn is influenced by cyclical
factors such as interest rates, inflation, availability of financing, consumer spending habits and confidence, employment rates and
other macroeconomic factors over which we have no control. Although the industry has improved for the last several years, our
sales may not continue to improve or such improvement may be limited or lower than expected.

Cooler than Normal Summers and Warmer than Normal Winters May Depress Our Sales.

Demand for our products and for our services is seasonal and strongly affected by the weather. Cooler than normal summers
depress our sales of replacement air conditioning and refrigeration products and services. Similarly, warmer than normal winters
have the same effect on our heating products and services.

Changes in Legislation or Government Regulations or Policies Can Have a Significant Impact on Our Results of Operations.

The sales, gross margins and profitability for each of our segments could be directly impacted by changes in legislation, trade
agreements or government regulations, such as the changes to taxes, tariffs and trade agreements being discussed by the new U.S.
administration. Changes in environmental and energy efficiency standards and regulations, such as the recent amendments to the
Montreal Protocol to phase down the use of hydrofluorocarbons, may particularly have a significant impact on the types of products
that we are allowed to develop and sell, and the types of products that are developed and sold by our competitors. Our inability
or delay in developing or marketing products that match customer demand and that meet applicable efficiency and environmental
standards may negatively impact our results. The demand for our products and services could also be affected by the size and
availability of tax incentives for purchasers of our products and services. Future legislation or regulations, including environmental
matters, product certification, product liability, tariffs, duties, taxes, tax incentives and other matters, may impact the results of
each of our operating segments and our consolidated results.

Global General Business, Economic and Market Conditions Could Adversely Affect Our Financial Performance and Limit
our Access to the Capital Markets.

Future disruptions in U.S. or global financial and credit markets or increases in the costs of capital might have an adverse
impact on our business. The tightening, unavailability or increased costs of credit adversely affects the ability of our customers
to obtain financing for significant purchases and operations, which could result in a decrease in sales of our products and services
and may impact the ability of our customers to make payments to us. Similarly, tightening of credit may adversely affect our
supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy. Our business
may also be adversely affected by future decreases in the general level of economic activity and increases in borrowing costs,
which may cause our customers to cancel, decrease or delay their purchases of our products and services.

If financial markets were to deteriorate, or costs of capital were to increase significantly due to a lowering of our credit ratings,
prevailing industry conditions, the volatility of the capital markets or other factors, we may be unable to obtain new financing on
acceptable terms, or at all. A deterioration in our financial performance could also limit our future ability to access amounts
currently available under our domestic credit facility. In addition, availability under our asset securitization agreement may be
adversely impacted by credit quality and performance of our customer accounts receivable. The availability under our asset
securitization agreement is based on the amount of accounts receivable that meet the eligibility criteria of the asset securitization
agreement. If receivable losses increase or credit quality deteriorates, the amount of eligible receivables could decline and, in
turn, lower the availability under the asset securitization.

We cannot predict the likelihood, duration or severity of any future disruption in financial markets or any adverse economic

conditions in the U.S. and other countries.

Our International Operations Subject Us to Risks Including Foreign Currency Fluctuations, Regulations and Other Risks.

We earn revenue, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Our
consolidated financial statements are presented in U.S. dollars and we translate revenue, income, expenses, assets and liabilities
into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the
value of the U.S. dollar relative to other currencies may affect our net operating revenues, operating income and the value of
balance sheet items denominated in foreign currencies. Because of the geographic diversity of our operations, weaknesses in some
currencies might be offset by strengths in others over time. However, we cannot assure that fluctuations in foreign currency
exchange rates, particularly the strengthening of the U.S. dollar against major currencies, would not materially affect our financial
results.

In addition to the currency exchange risks inherent in operating in foreign countries, our international sales and operations,
including purchases of raw materials from international suppliers, are subject to risks associated with local government laws,
regulations and policies (including those related to tariffs and trade barriers, investments, taxation, exchange controls, employment
regulations and changes in laws and regulations). Our international sales and operations are also sensitive to changes in foreign
national priorities, including government budgets, as well as to geopolitical and economic instability. International transactions
may involve increased financial and legal risks due to differing legal systems and customs in foreign countries, as well as compliance
9

with anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. The ability to manage these
risks could be difficult and may limit our operations and make the manufacture and sale of our products internationally more
difficult, which could negatively affect our business and results of operations.

Conflicts, wars, natural disasters or terrorist acts could also cause significant damage or disruption to our operations, employees,
facilities, systems, suppliers, distributors, resellers or customers in the United States and internationally for extended periods of
time and could also affect demand for our products.

Net sales outside of the United States comprised 18.5% of our net sales in 2016.

Our Ability to Meet Customer Demand may be Limited by Our Single-Location Production Facilities, Reliance on Certain Key
Suppliers and Unanticipated Significant Shifts in Customer Demand.

We manufacture many of our products at single-location production facilities, and we rely on certain suppliers who also may
concentrate production in single locations. Any significant interruptions in production at one or more of our facilities, or at a
facility of one of our suppliers, could negatively impact our ability to deliver our products to our customers. Further, even with
all of our facilities running at full production, we could potentially be unable to fully meet demand during an unanticipated period
of exceptionally high demand. Our inability to meet our customers' demand for our products could have a material adverse impact
on our business, financial condition and results of operations.

Price Volatility for Commodities and Components We Purchase or Significant Supply Interruptions Could Have an
Adverse Effect on Our Cash Flow or Results of Operations.

We depend on raw materials, such as steel, copper and aluminum, and components purchased from third parties to manufacture
our products. We generally concentrate purchases for a given raw material or component with a small number of suppliers. If a
supplier is unable or unwilling to meet our supply requirements, including suffering any disruptions at its facilities or in its supply
chain, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our results of
operations. Similarly, suppliers of components that we purchase for use in our products may be affected by rising material costs
and pass these increased costs on to us. Although we regularly pre-purchase a portion of our raw materials at fixed prices each
year to hedge against price increases, an increase in raw materials prices not covered by our fixed price arrangements could
significantly increase our cost of goods sold and negatively impact our margins if we are unable to effectively pass such price
increases on to our customers. Alternatively, if we increase our prices in response to increases in the prices or quantities of raw
materials or components or if we encounter significant supply interruptions, our competitive position could be adversely affected,
which may result in depressed sales and profitability.

In addition, we use derivatives to hedge price risk associated with forecasted purchases of certain raw materials. Our hedged
prices could result in paying higher or lower prices for commodities as compared to the market prices for those commodities when
purchased.

We May Incur Substantial Costs as a Result of Claims Which Could Have an Adverse Effect on Our Results of Operations.

The development, manufacture, sale and use of our products involve warranty, intellectual property infringement, product
liability claim and other risks. In some cases, we may incur liability claims for the installation and service of our products. Our
product liability insurance policies have limits that, if exceeded, may result in substantial costs that would 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 may also not be covered by our product liability insurance.

For some of our HVAC products, we provide warranty terms ranging from one to 20 years to customers for certain components
such as compressors or heat exchangers. For certain limited products, we provided lifetime warranties for heat exchangers.
Warranties of such extended lengths pose a risk to us as actual future costs may exceed our current estimates of those costs.
Warranty expense is recorded on the date that revenue is recognized and requires significant assumptions about what costs will
be incurred in the future. We may be required to record material adjustments to accruals and expense in the future if actual costs
for these warranties are different from our assumptions.

If We Cannot Successfully Execute our Business Strategy, Our Results of Operations Could be Adversely Impacted

Our future success depends on our continued investment in research and new product development as well as our ability to
commercialize new HVACR technological advances in domestic and global markets. If we are unable to continue to timely and
successfully develop and market new products, achieve technological advances or extend our business model and technological
advances into international markets, our business and results of operations could be adversely impacted.

We are engaged in various manufacturing rationalization actions designed to achieve our strategic priorities of manufacturing
sourcing and distribution excellence and of lowering our cost structure. For example, we are continuing to reorganize our North
American distribution network in order to better serve our customers' needs by deploying parts and equipment inventory closer
to them and are expanding our sourcing activities outside of the U.S. We also continue to rationalize and reorganize various
support and administrative functions in order to reduce ongoing selling and administrative expenses. If we cannot successfully
implement such distribution and restructuring strategies or other cost savings plans, we may not achieve our expected cost savings
in the time anticipated, or at all. In such case, our results of operations and profitability may be negatively impacted, making us
less competitive and potentially causing us to lose market share.

We May Not be Able to Successfully Integrate and Operate Businesses that We May Acquire nor Realize the Anticipated Benefits
of Strategic Relationships We May Form.

From time to time, we may seek to complement or expand our businesses through strategic acquisitions, joint ventures and
strategic relationships. The success of these transactions will depend, in part, on our ability to timely identify those relationships,
negotiate and close the transactions and then integrate, manage and operate those businesses profitably. If we are unable to
successfully do those things, we may not realize the anticipated benefits associated with such transactions, which could adversely
affect our business and results of operations.

Because a Significant Percentage of Our Workforce is Unionized in Certain Manufacturing Facilities, We Face Risks of Work
Stoppages and Other Labor Relations Problems.

As of February 6, 2017, approximately 23% of our workforce, including international locations, was unionized. The results
of future negotiations with these unions and the effects of any production interruptions or labor stoppages could have an adverse
effect on our results of operations.

We are Subject to Litigation and Tax, Environmental and Other Regulations that Could Have an Adverse Effect on Our Results
of Operations.

We are involved in various claims and lawsuits incidental to our business, including those involving product liability, labor
relations, alleged exposure to asbestos-containing materials and environmental matters, some of which claim significant damages.
Estimates related to our claims and lawsuits, including estimates for asbestos-related claims and related insurance recoveries,
involve numerous uncertainties. Given the inherent uncertainty of litigation and estimates, we cannot be certain that existing
claims or litigation or any future adverse legal developments will not have a material adverse impact on our financial condition.
In addition, we are subject to extensive and changing federal, state and local laws and regulations designed to protect the
environment. These laws and regulations could impose liability for remediation costs and civil or criminal penalties in cases of
non-compliance. Compliance with environmental laws increases our costs of doing business. Because these laws are subject to
frequent change, we are unable to predict the future costs resulting from environmental compliance.

Any Future Determination that a Significant Impairment of the Value of Our Goodwill Intangible Asset Occurred Could Have
a Material Adverse Effect on Our Results of Operations.

As of December 31, 2016, we had goodwill of $195.1 million on our Consolidated Balance Sheet. Any future determination
that an impairment of the value of goodwill occurred would require a write-down of the impaired portion of goodwill to fair value
and would reduce our assets and stockholders' equity and could have a material adverse effect on our results of operations.

Volatility in Capital Markets Could Necessitate Increased Cash Contributions by Us to Our Pension Plans to Maintain
Required Levels of Funding.

Volatility in the capital markets may have a significant impact on the funding status of our defined benefit pension plans. If
the performance of the capital markets depresses the value of our defined benefit pension plan assets or increases the liabilities,
we would be required to make additional contributions to the pension plans. The amount of contributions we may be required to
make to our pension plans in the future is uncertain and could be significant, which may have a material impact on our results of
operations.

Security Breaches and Other Disruptions or Misuse of Information Systems We Rely Upon Could Affect Our Ability to Conduct
Our Business Effectively.

Our information systems and those of our business partners are important to our business activities. We also outsource various
information systems, including data management, to third party service providers. Despite our security measures as well as those
of our business partners and third-party service providers, the information systems we rely upon may be vulnerable to interruption
or damage from computer hackings, computer viruses, worms or other destructive or disruptive software, process breakdowns,
denial of service attacks, malicious social engineering or other malicious activities, or any combination thereof. These information
systems have been, and will likely continue to be, subject to attack. While we have implemented controls and taken other preventative
actions to strengthen these systems against future attacks, we can give no assurance that these controls and preventative actions
will be effective. Any breach of data security could result in a disruption of our services or improper disclosure of personal data
or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or
defend against further attacks or subject us to liability under laws that protect personal data, resulting in increased operating costs
or loss of revenue.

Our Results of Operations May Suffer if We Cannot Continue to License or Enforce the Intellectual Property Rights on Which
Our Businesses Depend or if Third Parties Assert That We Violate Their Intellectual Property Rights.

We rely upon patent, copyright, trademark and trade secret laws and agreements to establish and maintain intellectual property
rights in the products we sell. Our intellectual property rights could be challenged, invalidated, infringed, circumvented, or be
insufficient to permit us to take advantage of current market trends or to otherwise provide competitive advantages. Further, the
laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States.

Third parties may also claim that we are infringing upon their intellectual property rights. If we do not license infringed
intellectual property or if we are required to substitute similar technology from another source, our operations could be adversely
affected. Even if we believe that intellectual property claims are without merit, they can be time consuming, require significant
resources and be costly to defend. Claims of intellectual property infringement also might require us to redesign affected products,
pay costly damage awards, or face injunction prohibiting us from manufacturing, importing, marketing or selling certain of our
products. Even if we have agreements to indemnify us, indemnifying parties may be unable or unwilling to do so.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following chart lists our principal domestic and international manufacturing, distribution and office facilities as of
December 31, 2016 and indicates the business segment that uses such facilities, the approximate size of such facilities and whether
such facilities are owned or leased. Also included in the chart are large warehouses that hold significant inventory balances.

Location
Marshalltown, IA

Segment

Residential Heating & Cooling

Orangeburg, SC

Residential Heating & Cooling

Saltillo, Mexico

Residential Heating & Cooling

Grenada, MS

Residential Heating & Cooling

Romeoville, IL

Residential Heating & Cooling

Columbus, OH

Residential Heating & Cooling

McDonough, GA

Residential Heating & Cooling

Concord, NC

Harahan, LA

Denver, CO

Eastvale, CA

Residential Heating & Cooling

Type or Use of Facility
Manufacturing & Distribution

Manufacturing & Distribution

Distribution

Residential & Commercial Heating & Cooling Distribution

Carrollton, TX

Residential & Commercial Heating & Cooling Distribution

Brampton, Canada

Residential & Commercial Heating & Cooling Distribution

Houston, TX

Residential & Commercial Heating & Cooling Distribution

Middletown, PA

Residential & Commercial Heating & Cooling Distribution

Lenexa, KS

Residential & Commercial Heating & Cooling Distribution

Calgary, Canada

Residential & Commercial Heating & Cooling Distribution

Orlando, FL

Stuttgart, AR

Commercial Heating & Cooling

Longvic, France

Commercial Heating & Cooling

Longvic, France

Commercial Heating & Cooling

Burgos, Spain

Mions, France

Genas, France

Commercial Heating & Cooling &
Refrigeration

Tifton, GA

Columbus, GA

Refrigeration

Milperra, Australia

Refrigeration

Stone Mountain, GA Refrigeration

Midland, GA

Mt. Wellington, New
Zealand

Refrigeration

San Jose dos
Campos, Brazil

Refrigeration

Wuxi, China

Refrigeration

Krunkel, Germany

Refrigeration

Richardson, TX

Corporate and other

Carrollton, TX

Corporate and other

Manufacturing

Distribution

Manufacturing

Research & Development

Manufacturing, Distribution &
Offices

Manufacturing & Distribution

Manufacturing, Warehousing
& Offices

Distribution & Business Unit
Headquarters

Manufacturing & Business
Unit Headquarters

Warehousing & Offices

Distribution & Offices

Manufacturing, Warehousing
& Offices

Manufacturing

Manufacturing, Distribution &
Offices

Corporate Headquarters

Research & Development

Approx. Sq. Ft.
(In thousands) Owned/Leased
Owned & Leased

1,300

750

638

395

312

279

254

123

377

252

251

241

166

115

110

750

142

133

140

129

111

570

523

416

139

138

110

356

294

Owned & Leased

Owned

Leased

Owned

Owned & Leased

Owned

Leased

Owned

Owned & Leased

Owned

Owned & Leased

Owned

In addition to the properties described above, we lease numerous facilities in the U.S. and worldwide for use as sales offices,
service offices and district and regional warehouses. We routinely evaluate our facilities to ensure adequate capacity, effective
cost structure, and consistency with our business strategy. We believe that our properties are in good condition, suitable and
adequate for their present requirements and that our principal manufacturing plants are generally adequate to meet our production
needs.

Item 3. Legal Proceedings

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. It is management's opinion that none of these claims
or lawsuits will have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or
cash flows. For more information, see Note 10 in the Notes to the Consolidated Financial Statements.

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 alleged payment was purportedly made to release a shipment of goods being held by Russian
customs officials due to inaccurate paperwork. The value of the shipment was approximately €62,000 (approximately US
$68,500). The allegations are related to our subsidiary in Russia, which had 2016 annual sales of approximately US $4 million.
The scope of the investigation was later expanded to include our operations in Poland because our operations in Russia and
Poland used the same third-party logistics provider. To date, the investigation has not resulted in any evidence of other
potentially improper payments. However, the investigation has raised questions regarding possible irregularities with respect to
possible non-compliance with customs documents and procedures related to these operations. The investigation is ongoing. We
continue to fully cooperate with the SEC and the DOJ regarding this matter. We do not anticipate any material adverse effect on
our business or financial condition as a result of this matter.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Market Price for Common Stock

Our common stock is listed for trading on the New York Stock Exchange under the symbol “LII.” The high and low sales

prices for our common stock for each quarterly period during 2016 and 2015 were as follows:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Price Range per Common Share
2015
2016

High
$ 136.32

Low
$ 105.65

High
$ 111.15

Low
$ 92.94

143.19

164.02

164.57

131.90

141.90

140.97

118.43

126.85

138.57

104.94

106.81

109.87

Dividends

During 2016 and 2015, we declared quarterly cash dividends as set forth below:

First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year

Dividends per
Common Share
2015
2016

0.36
0.43
0.43
0.43
1.65

0.30
0.36
0.36
0.36
1.38

The amount and timing of dividend payments are determined by our Board of Directors and subject to certain restrictions under

our domestic revolving credit facility.

Holders of Common Stock

As of the close of business on February 9, 2017, approximately 702 holders of record held our common stock.

Comparison of Total Stockholder Return

The following graph compares the cumulative total returns of LII's common stock with the cumulative total returns of the
Standards & Poor's Midcap 400 Index, a broad index of mid-size U.S. companies of which the Company is a part, and with a peer
group of U.S. industrial manufacturing and service companies in the HVACR businesses. The graph assumes that $100 was
invested on December 31, 2011, with dividends reinvested. Our peer group includes AAON, Inc., Ingersoll-Rand plc, Comfort
Systems USA, Inc., United Technologies Corporation, Johnson Controls Inc., and Watsco, Inc. Peer group returns are weighted
by market capitalization.

This performance graph and other information furnished under this Comparison of Total Stockholder Return section shall not
be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A
or 14C, or to the liabilities of Section 18 of the Exchange Act.

Our Purchases of LII Equity Securities

Our Board of Directors has authorized a total of $2 billion towards the repurchase of shares of our common stock (collectively
referred to as the "Share Repurchase Plans"), including an additional $550 million share repurchase that was authorized in 2016.
The Share Repurchase Plans authorize open market repurchase transactions and do not have an expiration date. As of December
31, 2016, $646 million of shares may yet be repurchased under the Share Repurchase Plans.

In the fourth quarter of 2016, we purchased shares of our common stock as follows:

October 1 through October 31 (2)
November 1 through November 30
December 1 through December 31

Total Shares
Purchased (1)

163,558
3,804
40,671
208,033

Average Price
Paid per Share
(including fees)
155.81
$
146.46
157.02

Shares
Purchased As
Part of Publicly
Announced
Plans

Approximate
Dollar Value of
Shares that may
yet be Purchased
Under the Plans
(in millions) (3)

163,501
—
—
163,501

396.0
396.0
646.0

(1) Includes the surrender to LII of 44,532 shares of common stock to satisfy employee tax-withholding obligations in connection

with the exercise of vested stock appreciation rights and the vesting of restricted stock units.

(2) Includes final settlement of shares repurchased in Accelerated Share Repurchase Plan (ASR) executed in the third quarter

of 2016.

(3) After $200 million payment for Accelerated Share Repurchase Plan (ASR) executed in February 2016 and $100 million
payment for ASR executed in August 2016. Final settlement of the February ASR occurred in the third quarter and the final
settlement of the August ASR occurred in fourth quarter. The February and August ASRs were offered pursuant to a previously
announced repurchase plan.

Item 6. Selected Financial Data

The following table presents selected financial data for each of the five years ended December 31, 2016 to 2012 (in millions,

except per share data):

Statements of Operations Data:

Net Sales

Operating Income

Income From Continuing Operations

Net Income

Basic Earnings Per Share From Continuing Operations

Diluted Earnings Per Share From Continuing Operations

Cash Dividends Declared Per Share

For the Years Ended December 31,

2016

2015

2014

2013

2012

$ 3,641.6

$ 3,467.4

$ 3,367.4

$ 3,199.1

$ 2,949.4

429.4

278.6

277.8

6.41

6.34

1.65

305.4

187.2

186.6

4.17

4.11

1.38

334.7

208.1

205.8

4.35

4.28

1.14

289.0

179.9

171.8

3.61

3.55

0.92

219.1

135.0

90.0

2.66

2.63

0.76

Other Data:
Capital Expenditures (1)
Research and Development Expenses (1)

Balance Sheet Data at Period End:

Total Assets

Total Debt

Stockholders' Equity

84.3

64.6

69.9

62.3

88.4

60.7

78.3

53.7

50.2

49.5

$ 1,760.3

$ 1,677.4

$ 1,764.3

$ 1,626.7

$ 1,691.9

868.2

38.0

741.1

101.6

925.6

9.0

400.4

485.7

386.6

498.3

(1) Amounts exclude capital expenditures and research and development expenses related to discontinued operations.

Information in the table above is not necessarily indicative of results of future operations. To understand the factors that may
affect comparability, the financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial Statements and the related Notes to the Consolidated
Financial Statements in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the other sections of this report, including the consolidated financial

statements and related notes contained in Item 8 of this Annual Report on Form 10-K.

Business Overview

We operate in three reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”)
industry. Our reportable segments are Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration. For
more detailed information regarding our reportable segments, see Note 18 in the Notes to the Consolidated Financial Statements.

We sell our products and services through a combination of direct sales, distributors and company-owned parts and supplies
stores. The demand for our products and services is seasonal and significantly impacted by the weather. Warmer than normal
summer temperatures generate demand for replacement air conditioning and refrigeration products and services, and colder than
normal winter temperatures have a similar effect on heating products and services. Conversely, cooler than normal summers and
warmer than normal winters depress the demand for HVACR products and services. In addition to weather, demand for our
products and services is influenced by national and regional economic and demographic factors, such as interest rates, the availability
of financing, regional population and employment trends, new construction, general economic conditions and consumer spending
habits and confidence. A substantial portion of the sales in each of our business segments is attributable to replacement business,
with the balance comprised of new construction business.

The principal elements of cost of goods sold are components, raw materials, factory overhead, labor, estimated costs of warranty
expense and freight and distribution costs. The principal raw materials used in our manufacturing processes are steel, copper and
aluminum. In recent years, pricing volatility for these commodities and related components has impacted us and the HVACR
industry in general. We seek to mitigate the impact of commodity price volatility through a combination of pricing actions,
commodity contracts, improved production efficiency and cost reduction initiatives. We also partially mitigate volatility in the
prices of these commodities by entering into futures contracts and fixed forward contracts.

Financial Highlights

• Net sales increased $174.2 million, or 5%, to $3,642 million in 2016 from $3,467 million in 2015.
• Operational income from continuing operations in 2016 was $429 million compared to $305 million in 2015. The increase
was primarily due to increased sales and reductions in our commodities and material costs in 2016 as well as the goodwill
and asset impairment charges in 2015.

• Net income in 2016 increased to $278 million from $187 million in 2015.
• Diluted earnings per share from continuing operations were $6.34 per share in 2016 compared to $4.11 per share in 2015,

including non-cash impairment charges in our refrigerated display case business in 2015.

• We generated $355 million of cash flow from operating activities in 2016 compared to $331 million in 2015.
•

In 2016, we returned $69 million through dividend payments.

Overview of Results

The Residential Heating & Cooling segment led our overall financial performance in 2016, with a 7.2% increase in net sales
and a $70 million increase in segment profit compared to 2015. This segment's results benefited from industry growth in the
replacement and new construction markets as well as market share gains. Our Commercial Heating & Cooling segment also
performed well in 2016 with a 3.5% increase in net sales and a $19 million increase in segment profit compared to 2015. This
segment's results benefited from market growth in North America and material cost savings. Sales in our Refrigeration segment
were up 1.3% and segment profit increased $16 million compared to 2015. This segment's results benefited from industry growth
and market share gains.

On a consolidated basis, our gross profit margins increased to 29.6% in 2016 due primarily to favorable price and material cost
savings across our business. These improvements were partially offset by unfavorable foreign exchange rates, unfavorable mix,
and continued investment in distribution expansion in our Residential Heating & Cooling segment.

Results of Operations

The following table provides a summary of our financial results, including information presented as a percentage of net sales

(dollars in millions):

Net sales
Cost of goods sold
Gross profit

Selling, general and administrative expenses
Losses and other expenses, net
Restructuring charges
Goodwill impairment
Impairment of assets
Pension settlement
Income from equity method investments

Operating income

Loss from discontinued operations
Net income

For the Years Ended December 31,
2015

2014

2016

Dollars
$3,641.6
2,565.1
1,076.5
621.0
11.3
1.8
—
—
31.4
(18.4)
$ 429.4
(0.8)
$ 277.8

Percent
Dollars
100.0 % $3,467.4
70.4 % 2,520.0
947.4
29.6 %
580.5
17.1 %
21.7
0.3 %
3.2
— %
— %
5.5
44.5
— %
0.9 %
—
(13.4)
(0.5)%
11.8 % $ 305.4
(0.6)
— %
7.6 % $ 186.6

Percent
Dollars
100.0 % $3,367.4
72.7 % 2,464.1
903.3
27.3 %
573.7
16.7 %
6.8
0.6 %
1.9
0.1 %
—
0.2 %
—
1.3 %
— %
—
(13.8)
(0.4)%
8.8 % $ 334.7
(2.3)
— %
5.4 % $ 205.8

Percent
100.0 %
73.2 %
26.8 %
17.0 %
0.2 %
0.1 %
— %
— %
— %
(0.4)%
9.9 %
(0.1)%
6.1 %

The following table provides net sales by geographic market (dollars in millions):

Net Sales by Geographic Market:
U.S.

Canada

International

Total net sales

For the Years Ended December 31,
2015

2014

2016

Dollars

Percent

Dollars

Percent

Dollars

Percent

$2,966.8

81.5% $2,793.4

80.6% $2,576.4

76.5%

218.8

456.0

6.0

12.5

217.7

456.3

6.3

13.1

236.3

554.7

7.0

16.5

$3,641.6

100.0% $3,467.4

100.0% $3,367.4

100.0%

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 - Consolidated Results

Net Sales

Net sales increased 5% in 2016 compared to 2015, with sales volume up approximately 5%. The increase in volume was driven
by all our business segments. The effects of both changes in foreign currency exchange rates and the effects of price and mix
were neutral to net sales.

Gross Profit

Gross profit margins for 2016 increased 230 basis points ("bps") to 29.6% compared to 27.3% in 2015. Lower material costs
increased our profit margin by 260 bps, increased factory productivity increased our profit margin by 30 bps, and other items
contributed 10 bps. Offsetting these increases were decreases of 20 bps from unfavorable mix, 20 bps from unfavorable foreign
currency adjustments, 20 bps for investments in distribution and other growth initiatives, and increased product warranty costs
decreased our profit margin by 10 bps.

Selling, General and Administrative Expenses

SG&A expenses increased by $41 million in 2016 compared to 2015. As a percentage of net sales, SG&A expenses increased
40 bps from 16.7% to 17.1% in the same periods. The dollar increase in SG&A expenses was principally due to increased incentive
compensation and general wage inflation.

Losses and Other Expenses, Net

Losses and other expenses, net for 2016 and 2015 included the following (in millions):

Realized losses on settled futures contracts
Foreign currency exchange losses
Losses on disposal of fixed assets
Net change in unrealized (gains) losses on unsettled futures contracts
Asbestos-related litigation
Acquisition expenses
Special legal contingency charge
Environmental liabilities
Contractor tax payments
Other items, net

Losses and other expenses, net

For the Years Ended
December 31,

2016

2015

1.1
2.2
0.5
(3.6)
6.3
0.4
1.9
1.9
0.6
—
11.3

1.9
3.6
0.6
0.6
3.0
1.0
7.4
1.0
2.6
—
21.7

The decrease in realized losses on settled futures contracts in 2016 was attributable to changes in commodity prices relative
to our settled futures contract prices, as commodity prices have increased in 2016 relative to 2015. Additionally, the change in
unrealized gains and losses on unsettled futures contracts was primarily due to higher commodity prices relative to the unsettled
futures contract prices creating unrealized gains on unsettled future contracts. For more information on our derivatives, see Note
8 in the Notes to the Consolidated Financial Statements.

Foreign currency exchange losses decreased in 2016 primarily due to stabilization in foreign exchange rates in our primary
markets. The special legal contingency charges primarily decreased as we settled an attempted class action lawsuit in 2015. The
asbestos-related litigation relates to known and estimated future asbestos matters and the increase is a result of higher estimated
future claims and decreasing insurance reserves related to these claims. The environmental liabilities relate to estimated remediation
costs for contamination at some of our facilities. The contractor tax payments relate to a charge for underpaid contractor taxes at
one of our non-U.S. subsidiaries. Refer to Note 10 in the Notes to the Consolidated Financial Statements for more information
on litigation, including the asbestos-related litigation, and the environmental liabilities.

Restructuring Charges

Restructuring charges were $2 million in 2016 compared to $3 million in 2015. The charges in 2016 and 2015 were primarily
for projects to realign resources and enhance distribution capabilities in our Refrigeration segment. For more information on our
restructuring activities, see Note 16 in the Notes to the Consolidated Financial Statements.

Goodwill

We performed a qualitative impairment analysis and noted no indicators of goodwill impairment through December 31, 2016.
However in 2015 based on the results of the quantitative impairment test, we recorded goodwill impairment of $5.5 million related
to our refrigerated display case business. Refer to Note 4 in the Notes to the Consolidated Financial Statements for more information
on goodwill.

Asset Impairment

We did not have any impairments of assets related to continuing operations in 2016. During the fourth quarter of 2015 we
completed a strategic review of our refrigerated display case business. As a result, we performed an impairment analysis using a
market approach and determined that intangible and certain long-lived assets relating to that business were impaired and we
recorded a charge of $45 million in "Asset Impairment" in the Consolidated Statement of Operations.

Pension Settlement

In 2016 our unfunded pension liability declined by $33 million to $89 million as the favorable impact of our $50 million

discretionary contribution was partially offset by lower discount rates across all plans. In addition, as part of our ongoing
strategy to de-risk our pension plan obligations, we completed a one-time, lump sum pension buyout in the fourth quarter of
2016 for certain vested participants. As a result of the pension buy-out, we recorded a pension settlement charge of $31 million
in the fourth quarter.

Income from Equity Method Investments

Investments over which we do not exercise control but have significant influence are accounted for using the equity method
of accounting. Income from equity method investments increased to $18 million in 2016 compared to $13 million in 2015 due
to increases in earnings from our joint ventures.

Interest Expense, net

Net interest expense of $27 million in 2016 increased from $24 million in 2015 primarily due to an increase in our average

borrowings.

Income Taxes

The income tax provision was $124 million in 2016 compared to $95 million in 2015, and the effective tax rate was 30.8% in
2016 compared to 33.8% in 2015. Our effective tax rate declined in 2016 due to the benefit from a repatriation of earnings
recognized in the second quarter. We expect our effective tax rate to be approximately 32% in future years due to sustainable
benefits from reorganization of our international subsidiaries that will enable us to utilize foreign tax credits and other benefits.

Loss from Discontinued Operations

The $1 million of pre-tax losses incurred in 2016 primarily relates to changes in retained product liabilities and general liabilities
for the Service Experts business sold in 2013 and the Hearth business sold in 2012. In 2015, there were $1 million of pre-tax losses
incurred primarily related to changes in retained product liabilities and general liabilities for Service Experts and Hearth.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 - Results by Segment

Residential Heating & Cooling

The following table presents our Residential Heating & Cooling segment's net sales and profit for 2016 and 2015 (dollars in

millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2016
$ 2,000.8

2015
$ 1,866.9

Difference
133.9
$

348.8

278.4

70.4

% Change

7.2%

25.3%

17.4%

14.9%

Residential Heating & Cooling net sales increased 7% in 2016 compared to 2015. Sales volume increased net sales by 6% due

to industry growth and market share gains and the benefits of favorable price and mix contributed 1%.

Segment profit in 2016 increased $70 million due to $51 million in lower commodities and material costs, $33 million from
higher sales volume and $12 million from favorable factory productivity which includes the addition of a second factory in Mexico,

and $5 million in other product costs. Partially offsetting these increases was $6 million from unfavorable price and mix combined,
$4 million of unfavorable foreign currency exchange rates, $11 million in distribution investments, and $10 million of SG&A
expenses to support wage inflation and investments in information technology and research and development.

Commercial Heating & Cooling

The following table presents our Commercial Heating & Cooling segment's net sales and profit for 2016 and 2015 (dollars in

millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2016

917.9

149.3

2015

Difference

% Change

887.2

130.4

30.7

18.9

3.5%

14.5%

16.3%

14.7%

Commercial Heating & Cooling net sales increased 3% in 2016 compared to 2015. Sales volume increased net sales by 3%,
price and mix increased net sales by 1% and changes in foreign currency exchange rates unfavorably impacted net sales by 1%.

Segment profit in 2016 increased $19 million compared to 2015. The benefits of $9 million from incremental volume, $18
million from lower commodities and material costs, $4 million from combined price and mix and $1 million from lower freight
expenses were partially offset by $6 million in other product costs and unfavorable factory productivity, $6 million of higher
SG&A expenses, and $1 million for investments in infrastructure for our North American Service business.

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for 2016 and 2015 (dollars in millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2016

722.9

68.9

2015

Difference

% Change

713.3

52.9

9.6

16.0

1.3%

30.2%

9.5%

7.4%

Refrigeration net sales increased 1% in 2016 compared to 2015 primarily due to 3% volume growth which was partially offset
by a 1% impact from unfavorable foreign exchange rates and a 1% impact from mix and price reductions.

Segment profit in 2016 compared to 2015 increased $16 million compared to 2015 primarily due to $7 million from increased
sales volume, $21 million in lower commodities and material costs, $6 million from lower depreciation and amortization due to
the impairment of our refrigerated display case business recorded in 2015. Partially offsetting these increases were $8 million
from unfavorable price and mix combined, $8 million from higher SG&A expenses, $1 million from other product costs, and $1
million from changes in foreign currency exchange rates.

Corporate and Other

Corporate and other expenses increased $13 million in 2016 as compared to 2015 due primarily to higher incentive compensation,

general wage inflation, and consulting fees. Partially offsetting these increases were decreases in health care costs.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 - Consolidated Results

Net Sales

Net sales increased 3% in 2015 compared to 2014, with sales volume up approximately 6% and price and mix up approximately
1%. The increase in volume was driven by our Residential Heating & Cooling, Commercial Heating & Cooling and Refrigeration
segments. The benefit of price and mix was a combination of price increases across all segments and favorable product mix

predominantly in our Residential Heating & Cooling segment. Partially offsetting these increases was a 4% decrease from foreign
currency exchange rates.

Gross Profit

Gross profit margins for 2015 increased 50 basis points ("bps") to 27.3% compared to 26.8% in 2014. Lower material costs
increased our profit margin by 200 bps, increased factory productivity increased our profit margin by 20 bps and reduced product
warranty costs increased our profit margin by 10 bps. Offsetting these increases were decreases of 70 bps from unfavorable mix,
50 bps from unfavorable foreign currency adjustments, 20 bps from lower refrigerant pricing on our Australia wholesale business
when compared to the prior year, 30 bps for investments in distribution and other growth initiatives, and 10 bps from one-time
inventory write down costs.

Selling, General and Administrative Expenses

SG&A expenses increased by $7 million in 2015 compared to 2014. As a percentage of net sales, SG&A expenses decreased
30 bps from 17.0% to 16.7% in the same periods. The dollar increase in SG&A expenses was principally due to increased incentive
compensation, general wage inflation, and health care costs.

Losses and Other Expenses, Net

Losses and other expenses, net for 2015 and 2014 included the following (in millions):

Realized losses on settled futures contracts
Foreign currency exchange losses
(Gain) loss on disposal of fixed assets
Net change in unrealized losses (gains) on unsettled futures contracts
Asbestos charge
Acquisition expenses
Special legal contingency charge
Environmental liabilities
Contractor tax payments
Other items, net

Losses and other expenses, net

For the Years Ended
December 31,

2015

2014

1.9
3.6
0.6
0.6
3.0
1.0
7.4
1.0
2.6
—
21.7

0.8
1.6
(0.3)
0.6
0.9
—
0.9
2.0
—
0.3
6.8

The increase in realized losses on settled futures contracts in 2015 was attributable to decreases in commodity prices relative
to our settled futures contract prices. Additionally, the change in unrealized losses on unsettled futures contracts was primarily
due to lower commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note
8 in the Notes to the Consolidated Financial Statements.

Foreign currency exchange losses increased in 2015 primarily due to the Canadian dollar exchange rates. The special legal
contingency charges primarily increased for our estimate of costs expected to be incurred for an attempted class action lawsuit.
The asbestos-related litigation relates to known and estimated future asbestos matters. The environmental liabilities relate to
estimated remediation costs for contamination at some of our facilities. The contractor tax payments relate to a charge for underpaid
contractor taxes at one of our non-U.S. subsidiaries. Refer to Note 10 in the Notes to the Consolidated Financial Statements for
more information on litigation, including the asbestos charges, and the environmental liabilities.

Restructuring Charges

Restructuring charges were $3 million in 2015 compared to $2 million in 2014. The charges in 2015 and 2014 charges were
primarily for projects to realign resources and enhance distribution capabilities in our Refrigeration segment. For more information
on our restructuring activities, see Note 16 in the Notes to the Consolidated Financial Statements.

Goodwill

During the fourth quarter we completed a strategic review of our North American supermarket display cases and systems
business. As a result, we performed a quantitative impairment analysis for this business unit using the market approach. Based
on the results of the quantitative impairment test, we recorded goodwill impairment of $5.5 million. No other indicators of goodwill
impairment were identified through December 31, 2015. Also, we did not record any goodwill impairments related to continuing
operations in 2014. Refer to Note 4 in the Notes to the Consolidated Financial Statements for more information on goodwill.

Income from Equity Method Investments

Investments over which we do not exercise control but have significant influence are accounted for using the equity method
of accounting. Income from equity method investments decreased to $13 million in 2015 compared to $14 million in 2014 due
to decreases in earnings from our joint ventures.

Asset Impairment

During the fourth quarter we completed a strategic review of our North American supermarket display cases and systems
business. As a result, we performed an impairment analysis using a market approach and determined that intangible and certain
long-lived assets relating to our North American supermarket business were impaired and we recorded a charge of $45 million in
"Asset Impairment" in the Consolidated Statement of Operations. We did not have any impairments of intangible assets related
to continuing operations in 2014.

Interest Expense, net

Net interest expense of $24 million in 2015 increased from $17 million in 2014 primarily due to an increase in our average

borrowings.

Income Taxes

The income tax provision was $95 million in 2015 compared to $110 million in 2014, and the effective tax rate was 33.8% in
2015 compared to 34.5% in 2014. Our effective tax rates differ from the statutory federal rate of 35% for certain items, including
tax credits, state and local taxes, non-deductible expenses, foreign taxes at rates other than 35% and other permanent tax differences.

Loss from Discontinued Operations

The Loss from discontinued operations related to the Service Experts business sold in March 2013 and the Hearth business
sold in April 2012. The $1 million of pre-tax losses incurred in 2015 primarily relate to changes in retained product liabilities and
general liabilities for Service Experts and Hearth. In 2014, there were $4 million of pre-tax losses incurred primarily related to
changes in retained product liabilities and general liabilities for Service Experts and Hearth.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014 - Results by Segment

Residential Heating & Cooling

The following table presents our Residential Heating & Cooling segment's net sales and profit for 2015 and 2014 (dollars in

millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2015
$ 1,866.9

2014
$ 1,736.5

Difference
130.4
$

278.4

235.8

42.6

% Change

7.5%

18.1%

14.9%

13.6%

Residential Heating & Cooling net sales increased 8% in 2015 compared to 2014 driven by strong volume increases and
favorable price and mix. Sales volume increases contributed 7% and were attributable to industry growth in new construction
and replacement markets and market share gains. Benefits of price increases and favorable product mix contributed 2%. Changes
in foreign currency exchange rates unfavorably impacted net sales by 1%.

Segment profit in 2015 increased $43 million due to $39 million from material cost savings, $29 million from higher sales
volume, and $10 million from favorable price and mix. Partially offsetting these increases were $12 million of unfavorable foreign
exchange rates, $10 million in higher distribution expenses related to continued investment in distribution expansion, $10 million
of SG&A inflation, and $3 million due to lower factory absorption and higher warranty expenses.

Commercial Heating & Cooling

The following table presents our Commercial Heating & Cooling segment's net sales and profit for 2015 and 2014 (dollars in

millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2015

887.2

130.4

2014

Difference

% Change

878.5

124.0

8.7

6.4

1.0%

5.2%

14.7%

14.1%

Commercial Heating & Cooling net sales increased 1% in 2015 compared to 2014 driven by higher volume. Net sales increased

by 6% due to higher volume while changes in foreign currency exchange rates unfavorably impacted net sales by 5%.

Segment profit in 2015 increased $6 million compared to 2014. The benefits of $15 million from incremental volume, $14
million from lower material costs and $2 million from higher prices were partially offset by $9 million in unfavorable mix, $4
million for information technology and distribution investments and start-up costs to enter the VRF market, $6 million for
unfavorable foreign exchange rates, $5 million of higher SG&A expenses and $1 million from increases in other product costs.

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for 2015 and 2014 (dollars in millions):

Net sales

Profit

% of net sales

For the Years Ended
December 31,

2015

713.3

52.9

2014

Difference

% Change

752.4

55.4

(39.1)
(2.5)

(5.2)%

(4.5)%

7.4%

Refrigeration net sales declined 5% in 2015 compared to 2014 primarily due to an 8% impact from unfavorable foreign exchange
rates and a 2% impact from the Australian carbon levy repeal that was effective July 1, 2014. These decreases were partially offset
by 4% volume growth, led by our North American supermarket businesses, and price and mix combined contributed 1%.

Segment profit in 2015 compared to 2014 decreased $3 million compared to 2014 primarily due to $14 million from unfavorable
mix, predominantly in the North American supermarket business, $9 million lower profitability in our Australia refrigerant business,
$1 million of costs related to investments for future growth, $5 million from unfavorable foreign currency exchange rates, and $3
million for higher SG&A expenses. Partially offsetting these decreases were $14 million from material cost savings, $2 million
from higher sales volume, and $13 million from improved factory productivity and lower warranty and other product costs.

Corporate and Other

Corporate and other expenses increased $10 million in 2015 to $84 million from $74 million in 2014 due primarily to higher

incentive compensation, general wage inflation, health care costs and currency losses.

Accounting for Futures Contracts

Realized gains and losses on settled futures contracts are a component of segment profit (loss). Unrealized gains and losses on
unsettled futures contracts are excluded from segment profit (loss) as they are subject to changes in fair value until their settlement
date. Both realized and unrealized gains and losses on futures contracts are a component of Losses and other expenses, net in the
accompanying Consolidated Statements of Operations. See Note 8 of the Notes to Consolidated Financial Statements for more
information on our derivatives and Note 18 of the Notes to the Consolidated Financial Statements for more information on our
segments and for a reconciliation of segment profit to income from continuing operations before income taxes.

Liquidity and Capital Resources

Our working capital and capital expenditure requirements are generally met through internally generated funds, bank lines of
credit and an asset securitization arrangement. Working capital needs are generally greater in the first and second quarters due to
the seasonal nature of our business cycle.

Statement of Cash Flows

The following table summarizes our cash flow activity for the years ended December 31, 2016, 2015 and 2014 (in millions):

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

2016

2015

2014

354.5
(84.1)
(255.2)

331.2
(69.8)
(248.7)

184.8
(87.3)
(89.5)

Net Cash Provided by Operating Activities - Net cash provided by operating activities increased $23 million to $355 million
in 2016 compared to $331 million in 2015. This increase was primarily attributable to the increase in net income, partially offset
by pension contributions.

Net Cash Used in Investing Activities - Capital expenditures were $84 million, $70 million and $88 million in 2016, 2015 and
2014, respectively. Capital expenditures in 2016 were primarily related to an expansion of manufacturing capacity in our Residential
Heating & Cooling and Commercial Heating & Cooling segments, investments in our research and test facilities and other
investments in systems and software to support the overall enterprise.

Net Cash Used in Financing Activities - Net cash used in financing activities increased to $255 million in 2016 from $249
million in 2015 primarily due to debt repayments and increased dividend payments and increased share repurchases, partially
offset by an increase in net borrowings. Net borrowings increased in 2016 as we issued $350.0 million of senior unsecured notes
in November 2016 through a public offering that was partially used to pay down existing debt. We also used $300.0 million in
2016 to purchase 2.2 million shares of stock under our share repurchase plans.

Debt Position

The following table details our lines of credit and financing arrangements as of December 31, 2016 (in millions):

Short-term debt:

Foreign Obligations
Asset Securitization Program (1)

Total short-term debt

Current maturities of long-term debt:

Capital lease obligations
Domestic credit facility (2)
Senior unsecured notes
Debt issuance costs

Total current maturities of long-term debt

Long-term debt:

Capital lease obligations
Domestic credit facility (2)
Senior unsecured notes

Debt issuance costs

Total long-term debt

Total debt

Outstanding
Borrowings

2.4

50.0
52.4

0.8

—
200.0
(0.7)
200.1

15.0
256.0

350.0
(5.3)
615.7

868.2

(1) The maximum securitization amount ranges from $200.0 million to $325.0 million, depending on the period, after consideration
of the July 5, 2016 amendment. The maximum capacity of the ASP is the lesser of the maximum securitization amount or
100% of the net pool balance less reserves, as defined under the ASP.

(2) The available future borrowings on our domestic credit facility are $609.6 million after being reduced by the outstanding
borrowings and $4.4 million in outstanding standby letters of credit. We also had $38.3 million in outstanding standby letters
of credit outside of the domestic credit facility as of December 31, 2016.

Financial Leverage

We periodically review our capital structure, including our primary bank facility, to ensure the appropriate levels of liquidity
and leverage and to take advantage of favorable interest rate environments or other market conditions. We consider various other
financing alternatives and may, from time to time, access the capital markets.

As of December 31, 2016, our senior credit ratings were Baa3 with a stable outlook, and BBB with a stable outlook, by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Group ("S&P"), respectively. The security ratings are not a
recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating
agency. Each rating should be evaluated independently of any other rating. Our goal is to maintain investment grade ratings from
Moody's and S&P to help ensure the capital markets remain available to us.

Our debt-to-total-capital ratio increased to 95.8% at December 31, 2016 compared to 88.9% at December 31, 2015. The
increase in the ratio in 2016 is primarily due to the increase in our net borrowings. We evaluate our debt-to-EBITDA ratio in order
to determine the appropriate targets for share repurchases under our share repurchase programs.

Liquidity

We believe our cash and cash equivalents of $50 million, future cash generated from operations and available future borrowings
are sufficient to fund our operations, planned capital expenditures, future contractual obligations, share repurchases, anticipated
dividends and other needs in the foreseeable future. Included in our cash and cash equivalents of $50 million as of December 31,
2016 was $32 million of cash held in foreign locations. Our cash held in foreign locations is used for investing and operating
activities in those locations, and we generally do not have the need or intent to repatriate those funds to the United States. If we

were to repatriate foreign earnings, we would be required to accrue and to pay taxes in the United States, less foreign tax credits,
for the amounts that were repatriated. However, an additional benefit of the tax reorganization discussed previously is our ability
to repatriate cash generated in prior periods in a tax efficient manner. We repatriated $42 million in cash from foreign subsidiaries
and made a discretionary contribution of $50 million to our qualified pension plans in the third quarter of 2016.

No contributions are required to be made to our U.S. defined benefit plans in 2017. We made $53.9 million in total contributions

to pension plans in 2016.

On May 11, 2016, our Board of Directors approved a 20% increase in our quarterly dividend on common stock from $0.36 to
$0.43 per share effective with the May 2016 dividend payment. Dividend payments were $69 million in 2016 compared to $59
million in 2015, with the increase due primarily to the increase in dividends approved by the Board of Directors.

We also continued to increase shareholder value through our share repurchase programs. In 2016, we returned $300.0 million

to our investors through share repurchases. An additional $646 million of repurchases are still available under the programs.

Financial Covenants related to our Debt

Our domestic credit facility is guaranteed by certain of our subsidiaries and contains financial covenants relating to leverage
and interest coverage. Other covenants contained in the domestic credit facility restrict, among other things, certain mergers, asset
dispositions, guarantees, debt, liens, and affiliate transactions. 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 credit facility are detailed below:

Consolidated Indebtedness to Adjusted EBITDA Ratio no greater than
Cash Flow to Net Interest Expense Ratio no less than

3.5 : 1.0
3.0 : 1.0

Our domestic credit facility contains customary events of default. These events of default include nonpayment of principal or
other amounts, material inaccuracy of representations and warranties, breach of covenants, default on certain other indebtedness
or receivables securitizations (cross default), certain voluntary and involuntary bankruptcy events and the occurrence of a change
in control. A cross default under our 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 $75.0

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 $75.0 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 Domestic Credit Facility, our senior unsecured notes, the Lake Park Renewal (as
described below), or our ASP 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 credit facility and accelerate amounts due under our
domestic 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).

In the event of a credit rating downgrade below investment grade resulting from a change of control, holders of our senior
unsecured notes will have the right to require us to repurchase all or a portion of the senior unsecured notes at a repurchase price
equal to 101% of the principal amount of the notes, plus accrued and unpaid interest, if any. 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 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 December 31, 2016, we believe we were in compliance with all covenant requirements. Delaware law limits the ability
to pay dividends to surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. In addition, stock repurchases can only be made out of surplus and only if our capital would not be
impaired.

Leasing Commitments

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 agreement
contains customary lease covenants and events of default as well as financial covenants consistent with our credit agreement and
we were in compliance with those covenants as of December 31, 2016.

In 2008, we expanded our Tifton, Georgia manufacturing facility using the proceeds from Industrial Development Bonds
(“IDBs”). We entered into a lease agreement with the owner of the property and the issuer of the IDBs, and through our lease
payments fund the interest payments to investors in the IDBs. We also guaranteed the repayment of the IDBs and have oustanding
letters of credit totaling $14.3 million to fund a potential repurchase of the IDBs in the event investors exercised their right to
tender the IDBs to the Trustee. As of December 31, 2016 and 2015, we had a long-term capital lease obligation of $14.3 million
related to these transactions.

Refer to Note 10 in the Notes to the Consolidated Financial Statements for more details on our leasing commitments.

Off Balance Sheet Arrangements

In addition to the credit facilities, promissory notes and leasing commitments described above, we also lease real estate and
machinery and equipment pursuant to operating leases that are not capitalized on the balance sheet, including high-turnover
equipment such as autos and service vehicles and short-lived equipment such as personal computers. Rent expense for these leases
was $58 million, $54 million, and $51 million in 2016, 2015, and 2014, respectively. Refer to Notes 10 and 22 of the Notes to
the Consolidated Financial Statements for more information on our lease commitments and rent expense, respectively.

Contractual Obligations

Summarized below are our contractual obligations as of December 31, 2016 and their expected impact on our liquidity and

cash flows in future periods (in millions):

Total long-term debt obligations (1)
Estimated interest payments on debt obligations

Operating leases
Uncertain tax positions (2)
Purchase obligations (3)

Payments Due by Period

Total

1 Year or
Less

1 - 3 Years

3 - 5 Years

More than
5 Years

874.2

253.2

96.4

158.8
2.3

35.4

20.9

48.3
2.3

35.4

63.3

28.5

65.6
—

—

196.0

361.7

25.6

26.7
—

—

21.4

18.2
—

—

Total contractual obligations

$ 1,167.1

360.1

157.4

248.3

401.3

(1) Contractual obligations related to capital leases are included as part of long-term debt.
(2) The liability for uncertain tax positions includes interest and penalties.
(3) Purchase obligations consist of inventory that is part of our third party logistics programs.

The table above does not include pension, post-retirement benefit and warranty liabilities because it is not certain when these
liabilities will be funded. For additional information regarding our contractual obligations, see Notes 10 and 11 of the Notes to
the Consolidated Financial Statements. See Note 12 of the Notes to the Consolidated Financial Statements for more information
on our pension and post-retirement benefits obligations.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date and requires consideration of our creditworthiness when valuing certain liabilities. Our
framework for measuring fair value is based on a three-level hierarchy for fair value measurements.

The three-level fair value hierarchy for disclosure of fair value measurements is defined as follows:

Level 1 -

Quoted prices for identical instruments in active markets at the measurement date.

Level 2 -

Level 3 -

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets at the measurement date and for the anticipated term of the instrument.

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers
are unobservable inputs that reflect the reporting entity's own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best information available in the
circumstances.

Where available, the fair values were based upon quoted prices in active markets. However, if quoted prices were not available,
then the fair values were based upon quoted prices for similar assets or liabilities or independently sourced market parameters,
such as credit default swap spreads, yield curves, reported trades, broker/dealer quotes, interest rates and benchmark securities.
For assets and liabilities without observable market activity, if any, the fair values were based upon discounted cash flow
methodologies incorporating assumptions that, in our judgment, reflect the assumptions a marketplace participant would use.
Valuation adjustments to reflect either party's creditworthiness and ability to pay were incorporated into our valuations, where
appropriate, as of December 31, 2016 and 2015, the measurement dates.

See Note 19 of the Notes to the Consolidated Financial Statements for more information on the assets and liabilities measured

at fair value.

Market Risk

Commodity Price Risk

We enter into commodity futures contracts to stabilize prices expected to be paid for raw materials and parts containing high
copper and aluminum content. These contracts are for quantities equal to or less than quantities expected to be consumed in future
production. Fluctuations in metal commodity prices impact the value of the futures contracts that we hold. When metal commodity
prices rise, the fair value of our futures contracts increases. Conversely, when commodity prices fall, the fair value of our futures
contracts decreases. Information about our exposure to metal commodity price market risks and a sensitivity analysis related to
our metal commodity hedges is presented below (in millions):

Notional amount (pounds of aluminum and copper)
Carrying amount and fair value of net liability
Change in fair value from 10% change in forward prices

35.4
11.5
8.5

$
$

Refer to Note 8 of the Notes to the Consolidated Financial Statements for additional information regarding our commodity

futures contracts.

Interest Rate Risk

Our results of operations can be affected by changes in interest rates due to variable rates of interest on our debt facilities, cash,
cash equivalents and short-term investments. A 10% adverse movement in the levels of interest rates across the entire yield curve
would have resulted in an increase to pre-tax interest expense of approximately $2.0 million and $2.1 million for the years ended
December 31, 2016 and 2015, respectively.

From time to time, we may use an interest rate swap hedging strategy to eliminate the variability of cash flows in a portion of
our interest payments. This strategy, when employed, allows us to fix a portion of our interest payments while also taking advantage
of historically low interest rates. As of December 31, 2016 and 2015, no interest rate swaps were in effect.

Foreign Currency Exchange Rate Risk

Our results of operations are affected by changes in foreign currency exchange rates. Net sales and expenses in foreign
currencies are translated into U.S. dollars for financial reporting purposes based on the average exchange rate for the period.
During 2016, 2015 and 2014, net sales from outside the U.S. represented 18.5%, 19.4% and 23.5% , respectively, of our total net
sales. For the years ended December 31, 2016 and 2015, foreign currency transaction gains and losses did not have a material
impact to our results of operations. A 10% change in foreign exchange rates would have had an estimated $4.0 million and $2.5
million impact to net income for the years ended December 31, 2016 and 2015, respectively.

We seek to mitigate the impact of currency exchange rate movements on certain short-term transactions by periodically entering
into foreign currency forward contracts. By entering into 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. Refer to Note 8 of the Notes to the Consolidated
Financial Statements for additional information regarding our foreign currency forward contracts.

Critical Accounting Estimates

A critical accounting estimate is one that requires difficult, subjective or complex estimates and assessments and is fundamental
to our results of operations and financial condition. The following are our critical accounting estimates and describe how we
develop our judgments, assumptions and estimates about future events and how such policies can impact our financial statements:

•
•
•
•
•

Product warranties and product-related contingencies;
Self-insurance expense;
Pension benefits;
Derivative accounting; and
Goodwill and intangible assets.

This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes in

“Item 8. Financial Statements and Supplementary Data.”

Product Warranties and Product-Related Contingencies

The estimate of our liability for future warranty costs requires us to make assumptions about the amount, timing and nature of
future product-related costs. Some of the warranties we issue extend 10 years or more in duration and a relatively small adjustment
to an assumption may have a significant impact on our overall liability. We may also incur costs related to our products that may
not be covered under our warranties and are not covered by insurance, and, from time to time, we may repair or replace installed
products experiencing quality issues in order to satisfy our customers and protect our brand.

We periodically review the assumptions used to determine the liabilities for product warranties and product-related
contingencies and we adjust our assumptions based upon factors such as actual failure rates and cost experience. Numerous factors
could affect actual failure rates and cost experience, including the amount and timing of new product introductions, changes in
manufacturing techniques or locations, components or suppliers used. Should actual costs differ from our estimates, we may be
required to adjust the liabilities and to record expense in future periods. See Note 10 in the Notes to the Consolidated Financial
Statements for more information on our product warranties and product-related contingencies.

Self-Insurance Expense

The estimates for self-insurance expense and liabilities involve assumptions about the amount, timing and nature of future
claim costs. We estimate these amounts actuarially based primarily on our historical claims information and industry factors and
trends. The amounts and timing of payments for future claims may vary depending on numerous factors, including the development
and ultimate settlement of reported and unreported claims. To the extent actuarial assumptions change and claims experience
31

differ from historical rates, our liabilities may change. The self-insurance liabilities as of December 31, 2016 represent the best
estimate of the future payments to be made on reported and unreported losses. See Note 10 in the Notes to the Consolidated
Financial Statements for additional information on our self-insurance expense and liabilities.

Pension Benefits

Over the past several years, we have frozen many of our defined benefit pension and profit sharing plans and replaced them
with defined contribution plans. We have a liability for the benefits earned under these inactive plans prior to the date the benefits
were frozen. Our defined contribution plans generally include both company and employee contributions based on predetermined
percentages of compensation earned by the employee. We also have several active defined benefit plans that provide benefits
based on years of service. In the years ended December 31, 2016 and December 31, 2015, we contributed $53.9 million and $3.9
million to our pension plans, respectively.

We make several assumptions to calculate our liability and the expense for these benefit plans, including the discount rate and
expected return on assets. We used an assumed discount rate of 4.17% for pension benefits of our U.S.-based plans as of December
31, 2016. Our discount rates were selected using the yield curve for high-quality corporate bonds, which is dependent upon risk-
free interest rates and current credit market conditions. In 2016 and 2015, we utilized an assumed long-term rate of return on
assets of 7.50% in both years. These are long-term estimates of equity values and are not dependent on short-term variations of
the equity markets. Differences between actual experience and our assumptions are quantified as actuarial gains and losses. These
actuarial gains and losses do not immediately impact our earnings as they are deferred in accumulated other comprehensive income
(“AOCI”) and are amortized into net periodic benefit cost over the estimated service period. During 2015, we adopted the new
mortality tables, MP-2015, from the Society of Actuaries, which reflects increasing life expectancies in the United States. In 2016,
we adopted the additional revisions to the mortality tables included in MP-2016.

The assumed long-term rate of return on assets and the discount rate have significant effects on the amounts reported for our
defined benefit plans. A 25 bps decrease in the long-term rate of return on assets or discount rate would have the following effects
(in millions):

25 Basis Point
Decrease in
Long-Term Rate
of Return

25 Basis Point
Decrease in
Discount Rate

Increase to net periodic benefit cost for U.S. pension plans

Increase to the pension benefit obligations for U.S. pension plans

0.6

n/a

1.1

11.1

Should actual results differ from our estimates and assumptions, revisions to the benefit plan liabilities and the related expenses
would be required. Refer to Note 12 in the Notes to the Consolidated Financial Statements for more information on our pension
benefits.

Derivative Accounting

We use futures contracts and fixed forward contracts to mitigate our exposure to volatility in metal commodity prices in the
ordinary course of business. Fluctuations in metal commodity prices impact the value of the derivative instruments that we hold.
When metal commodity prices rise, the fair value of our futures contracts increases and conversely, when commodity prices fall,
the fair value of our futures contracts decreases. We are required to prepare and maintain contemporaneous documentation for
futures contracts that are formally designated as cash flow hedges. Our failure to comply with the strict documentation requirements
could result in the de-designation of cash flow hedges, which may significantly impact our consolidated financial statements.
Refer to "Market Risk" above and to Note 8 in the Notes to the Consolidated Financial Statements for more information on our
derivatives.

Goodwill and Intangible Assets

Goodwill is calculated as the excess of cost over fair value of assets from acquired businesses. Goodwill is not amortized, but
is reviewed for impairment annually in the fourth quarter and whenever events or changes in circumstances indicate the asset may
be impaired. We assign goodwill to the reporting units that benefit from the synergies of our acquisitions. If we reorganize our
management structure, the related goodwill is allocated to the affected reporting units based upon the relative fair values of those
reporting units. Assets and liabilities, including deferred income taxes, are generally directly assigned to the reporting units.
However, certain assets and liabilities, including intellectual property assets, information technology assets and pension, self-
insurance and environmental liabilities, are centrally managed and are not allocated to the segments in the normal course of our

financial reporting process, and therefore must be assigned to the reporting units based upon appropriate methods. Reporting units
that we test are generally equivalent to our business segments, or in some cases one level below. Components that are determined
to be reporting units are aggregated when those reporting units share similar economic characteristics. We review our reporting
unit structure each year as part of our annual goodwill impairment testing.

The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is
necessary to perform a two-step quantitative goodwill impairment test. As part of our qualitative assessment, we monitor economic,
legal, regulatory and other factors, industry trends, our market capitalization, recent and forecasted financial performance of our
reporting units and the timing and nature of our restructuring activities for LII as a whole and for each reporting unit.

For those reporting units which require the two-step quantitative goodwill impairment test, we estimate reporting unit fair
values using the discounted cash flow approach or the market approach. The discounted cash flows used to estimate fair value are
based on assumptions regarding each reporting unit’s estimated projected future cash flows and the estimated weighted-average
cost of capital that a market participant would use in evaluating the reporting unit in a purchase transaction. The estimated weighted-
average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums and the ratio of total
debt to equity capital. In performing these impairment tests, we take steps to ensure that appropriate and reasonable cash flow
projections and assumptions are used. We reconcile our estimated enterprise value to our market capitalization and determine the
reasonableness of the cost of capital used by comparing to market data. We also perform sensitivity analyses on the key assumptions
used, such as the weighted-average cost of capital and terminal growth rates. If the market approach is used, it is based on objective
evidence of market values. Refer to Note 4 of the Notes to the Consolidated Financial Statements for further details.

We also periodically review intangible assets with estimable useful lives for impairment as events or changes in circumstances
indicate that the carrying amount of such assets might not be recoverable. We assess recoverability by comparing the estimated
expected undiscounted future cash flows identified with each intangible asset or related asset group to the carrying amount of such
assets. If the expected future cash flows do not exceed the carrying value of the asset or assets being reviewed, an impairment
loss is recognized based on the excess of the carrying amount of the impaired assets over their fair value. In assessing the fair
value of these intangible assets, we must make assumptions that a market participant would make regarding estimated future cash
flows and other factors to determine the fair value of the respective assets.

Refer to Note 4 of the Notes to the Consolidated Financial Statements for more information on our goodwill and intangible

assets.

Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standard Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with
Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when
it becomes effective. The new standard is effective for us on January 1, 2018. Early application is not permitted. We substantially
completed our evaluation of the effect that ASU 2014-09 will have on our Consolidated Financial Statements and related disclosures.
We do not expect the ASU to have a material impact on the amount and timing of revenue recognition. We will adopt the new
standard using the modified retrospective approach.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) that
simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the
balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016,
and interim periods within those fiscal years. We adopted this standard retrospectively as of December 31, 2015.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (ASC 842). Lessees will need to recognize almost all leases
on their balance sheet as a right-of-use asset and a lease liability. It will be critical to identify leases embedded in a contract to
avoid misstating the lessee’s balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to
be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current
lease accounting, but without explicit bright lines. ASU 2016-02 is effective for public companies for annual reporting periods
beginning after December 15, 2018, and interim periods within those fiscal years. We have not yet selected a transition method

nor have we determined the effect of the standard on our ongoing financial reporting. As a result of the new standard, all of our
leases greater than one year in duration will be recognized on our Consolidated Balance Sheets as both operating lease liabilities
and right-of-use assets upon adoption of the standard.

On March 30, 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the
accounting for share-based payments. Excess tax benefits for share-based payments will be recorded as a reduction of income
taxes and reflected in operating cash flows upon the adoption of this ASU. Excess tax benefits are currently recorded in equity
and as financing activity under the current rules. This guidance is effective for annual and interim reporting periods of public
entities beginning after December 15, 2016 and is expected to have a favorable impact on earnings in 2016.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The
amendments in this ASU clarify the classification for eight different types of activities, including debt prepayment and
extinguishment costs, proceeds from insurance claims and distributions from equity method investees. For public business
entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2017. This
standard is not expected to have a material impact on our consolidated financial statements.

On October 24, 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets

Other than Inventory. The new ASU eliminates the existing exception from recognition of the tax consequences of
intercompany sales of assets other than inventory. Under the new standard, when an asset (other than inventory) is sold from
one consolidated entity to another, the tax consequences to the seller will be recognized currently as a component of the current
tax provision. The new guidance will be effective for public business entities in fiscal years beginning after December 15,
2017, including interim periods within those years. Early adoption is permitted in fiscal years beginning after December 15,
2016. We plan to early adopt this standard in 2017. In accordance with the ASU, our previously deferred tax costs and
unrecognized deferred tax assets related to intra-entity asset transfers will need be recognized at the date of transition through a
cumulative effect adjustment to opening retained earnings upon adoption of the standard.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included under the caption “Market Risk” in Item 7 above.

Item 8. Financial Statements and Supplementary Data

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined
by the Securities and Exchange Commission, internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance
with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our Chief Executive Officer and Chief Financial Officer, has undertaken an assessment of the
effectiveness of the Company's internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission.
Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and
testing of the operational effectiveness of those controls.

Based on this assessment, management concluded that as of December 31, 2016, the Company's internal control over financial

reporting was effective.

KPMG LLP, the independent registered public accounting firm that audited the Company's consolidated financial statements,
has issued an audit report including an opinion on the effectiveness of our internal control over financial reporting as of December
31, 2016, a copy of which is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Lennox International Inc.:

We have audited the accompanying consolidated balance sheets of Lennox International Inc. and subsidiaries (the Company) as
of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In connection with our audits of
the consolidated financial statements, we have audited Schedule II - Valuation and Qualifying Accounts and Reserves (the
Schedule). We also have audited the Company’s internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and the Schedule and an opinion on the Company’s
internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Additionally,
Schedule II - Valuation and Qualifying Accounts and Reserves, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

/s/ KPMG LLP

Dallas, Texas
February 21, 2017

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par values)

Current assets:

Cash and cash equivalents
Accounts and notes receivable, net of allowances of $6.7 and $6.3 in 2016 and 2015, respectively

ASSETS

Inventories, net
Other assets

Total current assets

As of December 31,

2016

2015

50.2
469.8
418.5
67.4
1,005.9

38.9
422.8
418.8
57.7
938.2

Property, plant and equipment, net of accumulated depreciation of $717.2 and $682.9 in 2016 and
2015, respectively
Goodwill
Deferred income taxes
Other assets, net
Total assets

361.4
195.1
136.7
61.2
$ 1,760.3

339.6
195.1
145.7
58.8
$ 1,677.4

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Short-term debt
Current maturities of long-term debt
Accounts payable
Accrued expenses
Income taxes payable

Total current liabilities

Long-term debt
Post-retirement benefits, other than pensions
Pensions
Other liabilities

Total liabilities

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, 87,170,197 shares issued

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 44,195,250 shares and 42,491,910 shares for 2016 and 2015, respectively

Noncontrolling interests

Total stockholders’ equity

Total liabilities and stockholders' equity

52.4
200.1
361.2
265.9
9.0
888.6
615.7
2.8
87.5
127.7
1,722.3

204.1
31.0
320.1
242.6
26.0
823.8
506.0
4.1
120.8
121.1
1,575.8

—

0.9
1,046.2
1,353.0
(195.1)
(2,167.4)
0.4
38.0
$ 1,760.3

0.9
1,002.4
1,146.7
(204.7)
(1,844.1)
0.4
101.6
$ 1,677.4

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

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

Net sales

Cost of goods sold

Gross profit

Operating expenses:

Selling, general and administrative expenses

Losses and other expenses, net

Restructuring charges

Goodwill impairment

Asset impairment

Pension settlement

Income from equity method investments

Operating income

Interest expense, net

Other income, net

Income from continuing operations before income taxes

Provision for income taxes

Income from continuing operations

Discontinued operations:

Loss from discontinued operations before income taxes

Benefit from income taxes

Loss from discontinued operations

Net income

Earnings per share – Basic:

Income from continuing operations

Loss from discontinued operations

Net income

Earnings per share – Diluted:

Income from continuing operations

Loss from discontinued operations

Net income

Average shares outstanding:

Basic

Diluted

For the Years Ended December 31,

2016

2015

2014

3,641.6

3,467.4

2,565.1

1,076.5

2,520.0

947.4

3,367.4

2,464.1

903.3

621.0

11.3

1.8

—

31.4
(18.4)
429.4

27.0
(0.3)
402.7

124.1

278.6

(1.3)
(0.5)
(0.8)
277.8

6.41
(0.02)
6.39

6.34
(0.02)
6.32

43.4

44.0

580.5

21.7

3.2

5.5

44.5

—
(13.4)
305.4

23.6
(0.8)
282.6

95.4

187.2

(1.0)
(0.4)
(0.6)
186.6

4.17
(0.01)
4.16

4.11
(0.02)
4.09

44.9

45.6

573.7

6.8

1.9

—

—
(13.8)
334.7

17.2
(0.1)
317.6

109.5

208.1

(3.7)
(1.4)
(2.3)
205.8

4.35
(0.05)
4.30

4.28
(0.05)
4.23

47.9

48.6

Cash dividends declared per share

1.65

1.38

1.14

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Net income

Other comprehensive income (loss):

Foreign currency translation adjustments

Net change in pension and post-retirement benefit liabilities

Change in fair value of available-for-sale marketable equity securities

Net change in fair value of cash flow hedges

Reclassification of pension and post-retirement benefit losses into earnings

Reclassification of cash flow hedge losses into earnings

Other comprehensive income (loss) before taxes

Tax (expense) benefit

Other comprehensive income (loss), net of tax

Comprehensive income

For the Years Ended December 31,

2016

2015

2014

277.8

186.6

205.8

(11.6)
10.4
(2.1)
9.8

6.3

12.3

25.1
(15.5)
9.6

287.4

(58.7)
5.7

1.2
(18.4)
9.7

12.5
(48.0) $
(3.2)
(51.2)
135.4

(45.7)
(75.9)
0.7
(12.1)
6.9

5.7
(120.4)
28.0
(92.4)
113.4

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

Treasury Stock at
Cost

Non-
controlling
Interests

Total
Stockholders'
Equity

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2016, 2015 and 2014
(In millions, except per share data)

Common Stock
Issued

Amount

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Balance as of December 31, 2013

Net income
Dividends, $1.14 per share
Foreign currency translation adjustments
Pension and post-retirement liability changes, net of tax expense of
$25.6

Change in fair value of available-for-sale marketable equity securities

Stock-based compensation expense
Change in cash flow hedges, net of tax benefit of $2.3
Treasury shares reissued for common stock
Additional investment in subsidiary
Treasury stock purchases
Tax benefits of stock-based compensation

Balance as of December 31, 2014

Net income
Dividends, $1.38 per share
Foreign currency translation adjustments
Pension and post-retirement liability changes, net of tax benefit of $5.3

Change in fair value of available-for-sale marketable equity securities

Stock-based compensation expense
Change in cash flow hedges, net of tax benefit of $2.1
Treasury shares reissued for common stock
Additional investment in subsidiary
Treasury stock purchases
Tax benefits of stock-based compensation

Balance as of December 31, 2015

Net income
Dividends, $1.65 per share
Foreign currency translation adjustments
Pension and post-retirement liability changes, net of tax benefit of $7.4
Change in fair value of available-for-sale marketable equity securities
Stock-based compensation expense
Change in cash flow hedges, net of tax benefit of $8.0
Treasury shares reissued for common stock
Additional investment in subsidiary
Treasury stock purchases
Tax benefits of stock-based compensation

Balance as of December 31, 2016

87.2
—
—
—

—

—
—
—
—
—
—
87.2
—
—
—
—

—

—
—
—
—
—
—
87.2
—
—
—
—
—
—
—
—
—
—
—
87.2

0.9
—
—
—

—

—
—
—
—
—
—
0.9
—
—
—
—

—

—
—
—
—
—
—
0.9
—
—
—
—
—
—
—
—
—
—
—
0.9

912.7
—
—
—

—

23.3
—
(5.6)
—
(117.3)
11.8
824.9
—
—
—
—

—

26.6
—
(6.5)
—
135.0
22.4
1,002.4
—
—
—
—
—
31.7
—
(7.3)
—
—
19.4
1,046.2

870.5
205.8
(54.2)
—

—

—
—
—
—
—
—
1,022.1
186.6
(62.0)
—
—

—

—
—
—
—
—
—
1,146.7
277.8
(71.5)
—
—
—
—
—
—
—
—
—
1,353.0

(61.1)
—
—
(45.7)

(43.4)

0.7

—
(4.0)
—
—
—
—
(153.5)
—
—
(58.7)
10.1

1.2

—
(3.8)
—
—
—
—
(204.7)
—
—
(11.6)
9.3
(2.1)
—
14.0
—
—
—
—
(195.1)

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

38.1
—
—
—

—

—
—
(0.8)
—
5.2
—
42.5
—
—
—
—

—

—
—
(0.8)
—
0.8
—
42.5
—
—
—
—
—
—
—
(0.7)
—
2.4
—
44.2

Amount
(1,238.1)
—
—
—

—

—
—
7.5
—
(455.4)
—
(1,686.0)
—
—
—
—

—

—
—
8.9
—
(167.0)
—
(1,844.1)
—
—
—
—
—
—
—
10.0
—
(333.3)
—

$ (2,167.4) $

0.8
—
—
—

—

—
—
—
(0.2)
—
—
0.6
—
—
—
—

—

—
—
—
(0.2)
—
—
0.4
—
—
—
—
—
—
—
—
—
—
—
0.4

485.7
205.8
(54.2)
(45.7)

(43.4)

0.7

23.3
(4.0)
1.9
(0.2)
(572.7)
11.8
9.0
186.6
(62.0)
(58.7)
10.1

1.2

26.6
(3.8)
2.4
(0.2)
(32.0)
22.4
101.6
277.8
(71.5)
(11.6)
9.3
(2.1)
31.7
14.0
2.7
—
(333.3)
19.4
38.0

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2015 and 2014
(In millions)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:

2016

2015

2014

277.8

186.6

205.8

Income from equity method investments
Dividends from affiliates
Restructuring expenses, net of cash paid
Goodwill impairment
Impairment of assets
Provision for bad debts
Unrealized (gains) losses on derivative contracts
Stock-based compensation expense
Depreciation and amortization
Deferred income taxes
Pension expense
Pension contributions
Other items, net

Changes in assets and liabilities, net of effects of acquisitions and divestitures:

Accounts and notes receivable
Inventories
Other current assets
Accounts payable
Accrued expenses
Income taxes payable and receivable
Other, net

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from the disposal of property, plant and equipment
Purchases of property, plant and equipment
Net cash used in investing activities

Cash flows from financing activities:

Short-term borrowings, net
Asset securitization borrowings
Asset securitization payments
Long-term debt borrowings
Long-term debt payments
Borrowings from credit facility
Payments on credit facility
Payments of deferred financing costs
Proceeds from employee stock purchases
Repurchases of common stock
Repurchases of common stock to satisfy employee withholding tax obligations
Excess tax benefits related to share-based payments
Cash dividends paid

Net cash used in financing activities

Increase in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Supplementary disclosures of cash flow information:

Cash paid during the year for:

Interest, net
Income taxes (net of refunds)

(18.4)
14.9
(0.8)
—
—
2.4
(0.7)
31.7
58.1
(4.0)
37.7
(53.9)
0.9

(50.6)
0.3
0.1
40.1
36.2
(19.5)
2.2
354.5

0.2
(84.3)
(84.1)

(13.4)
11.0
—
5.5
44.5
2.8
0.8
26.6
62.8
(21.3)
10.6
(3.9)
1.0

(23.5)
28.8
(1.6)
(2.9)
4.2
10.9
1.7
331.2

0.1
(69.9)
(69.8)

(13.8)
9.1
0.2
—
—
2.6
0.3
23.3
60.8
6.1
6.5
(14.5)
0.1

(32.6)
(96.7)
(8.3)
46.1
6.7
(15.9)
(1.0)
184.8

1.1
(88.4)
(87.3)

(2.4)
145.0
(295.0)
350.0
(58.8)
2,336.5
(2,346.0)
(4.2)
2.6
(300.0)
(33.3)
19.4
(69.0)
(255.2)
15.2
(3.9)
38.9
50.2

26.3
127.4

$
$

(1.7)
40.0
(60.0)
—
(24.0)
1,671.0
(1,807.5)
—
2.4
—
(32.0)
22.4
(59.3)
(248.7)
12.7
(11.3)
37.5
38.9

23.7
83.2

$
$

1.5
100.0
(40.0)
300.0
(2.3)
2,073.5
(1,908.5)
(2.2)
2.0
(550.3)
(22.4)
11.8
(52.6)
(89.5)
8.0
(8.5)
38.0
37.5

17.6
105.3

$
$

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

LENNOX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations:

Lennox International Inc., a Delaware corporation, through its subsidiaries (referred to herein as "we," "our," "us," "LII," or
the "Company"), is a leading global provider of climate control solutions. We design, manufacture, market and service a broad
range of products for the heating, ventilation, air conditioning and refrigeration ("HVACR") markets and sell our products and
services through a combination of direct sales, distributors and company-owned parts and supplies stores. We operate in three
reportable business segments: Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration. See Note 18
for financial information regarding our reportable segments.

2. Summary of Significant Accounting Policies:

Principles of Consolidation

The consolidated financial statements include the accounts of Lennox International Inc. and our majority-owned subsidiaries.

All intercompany transactions, profits and balances have been eliminated.

Cash and Cash Equivalents

We consider all highly liquid temporary investments with original maturity dates of three months or less to be cash equivalents.

Cash and cash equivalents consisted primarily of bank deposits.

Accounts and Notes Receivable

Accounts and notes receivable are shown in the accompanying Consolidated Balance Sheets, net of allowance for doubtful
accounts. The allowance for doubtful accounts is generally established during the period in which receivables are recognized and
is based on the age of the receivables and management's judgment on our ability to collect. Management considers the historical
trends of write-offs and recoveries of previously written-off accounts, the financial strength of customers and projected economic
and market conditions. We determine the delinquency status of receivables predominantly based on contractual terms and we
write-off uncollectible receivables after management's review of our ability to collect, as noted above. We have no significant
concentrations of credit risk within our accounts and notes receivable.

Inventories

Inventory costs include material, labor, depreciation and plant overhead. Inventories of $221.4 million and $212.4 million as
of December 31, 2016 and 2015, respectively, were valued at the lower of cost or market using the last-in, first-out (“LIFO”) cost
method. The remainder of inventory is valued at the lower of cost or market with cost determined primarily using either the first-
in, first-out (“FIFO”) or average cost methods.

We elected to use the LIFO cost method for our domestic manufacturing companies in 1974 and continued to elect the LIFO
cost method for new operations through the late 1980s. The types of inventory costs that use LIFO include raw materials, purchased
components, work-in-process, repair parts and finished goods. Since the late 1990s, we have adopted the FIFO cost method for
all new domestic manufacturing operations (primarily acquisitions). Our operating entities with a previous LIFO election continue
to use the LIFO cost method. We use the FIFO cost method for our foreign-based manufacturing facilities. See Note 3 for more
information on our inventories.

Property, Plant and Equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation. Expenditures that increase the utility or extend
the useful lives of fixed assets are capitalized while expenditures for maintenance and repairs are charged to expense as incurred.

Depreciation is computed using the straight-line method over the following estimated useful lives:

Buildings and improvements:

Buildings and improvements
Leasehold improvements

Machinery and equipment:
Computer hardware
Computer software
Factory machinery and equipment
Research and development equipment
Vehicles

2 to 30 years
1 to 20 years

3 to 15 years
3 to 10 years
1 to 15 years
3 to 10 years
2 to 6 years

We periodically review long-lived assets for impairment as events or changes in circumstances indicate that the carrying amount
of such assets might not be recoverable. To assess recoverability, we compare the estimated expected future undiscounted cash
flows identified with each long-lived asset or related asset group to the carrying amount of such assets. If the expected future cash
flows do not exceed the carrying value of the asset or assets being reviewed, an impairment loss is recognized based on the excess
of the carrying amount of the impaired assets over their fair value. See Note 5 for additional information on our property, plant
and equipment.

Goodwill

Goodwill represents the excess of cost over fair value of assets from acquired businesses. Goodwill is not amortized, but is
reviewed for impairment annually and whenever events or changes in circumstances indicate the asset may be impaired (See Note
4 for additional information on our goodwill). The annual goodwill impairment test was performed during the fourth quarter of
2016.

For those reporting units which are evaluated using the two-step quantitative goodwill impairment test, we estimate reporting
unit fair values using either the discounted cash flow approach or a market approach. The discounted cash flows used to estimate
fair value are based on assumptions regarding each reporting unit’s estimated projected future cash flows and the estimated
weighted-average cost of capital that a market participant would use in evaluating the reporting unit in a purchase transaction.
The estimated weighted-average cost of capital is based on the risk-free interest rate and other factors such as equity risk premiums
and the ratio of total debt to equity capital. In performing these impairment tests, we take steps to ensure that appropriate and
reasonable cash flow projections and assumptions are used. We reconcile our estimated enterprise value to our market capitalization
and determine the reasonableness of the cost of capital used by comparing to market data. We also perform sensitivity analyses
on the key assumptions used, such as the weighted-average cost of capital and terminal growth rates. If market approach is used,
it is based on objective evidence of market values.

Intangible Assets

We amortize intangible assets and other assets with finite lives over their respective estimated useful lives to their estimated

residual values, as follows:

Asset

Useful Life

Deferred financing costs

Effective interest method

Customer relationships

Straight-line method up to 12 years

Patents and others

Straight-line method up to 20 years

We periodically review intangible assets with estimable useful lives for impairment as events or changes in circumstances
indicate that the carrying amount of such assets might not be recoverable. We assess recoverability by comparing the estimated
expected undiscounted future cash flows identified with each intangible asset or related asset group to the carrying amount of such
assets. If the expected future cash flows do not exceed the carrying value of the asset or assets being reviewed, an impairment
43

loss is recognized based on the excess of the carrying amount of the impaired assets over their fair value. In assessing the fair
value of these intangible assets, we must make assumptions that a market participant would make regarding estimated future cash
flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change,
we may be required to record impairment charges for these assets in the future.

We review our indefinite-lived intangible assets for impairment annually in the fourth quarter and whenever events or changes
in circumstances indicate the asset may be impaired. The provisions of the accounting standard for indefinite-lived intangible
assets allow us to first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative impairment
test. As part of our qualitative assessment, we monitor economic, legal, regulatory and other factors, industry trends, recent and
forecasted financial performance of our reporting units and the timing and nature of our restructuring activities for LII as a whole
and as they relate to the fair value of the assets. For those intangible assets which are evaluated using the two-step quantitative
impairment test, we compare the estimated expected undiscounted future cash flows identified with each intangible asset or related
asset group to the carrying amount of such assets. If the expected future cash flows do not exceed the carrying value of the asset
or assets being reviewed, an impairment loss is recognized based on the excess of the carrying amount of the impaired assets over
their fair value. See Note 4 for additional information on our intangible assets.

Product Warranties

For some of our heating, ventilation and air conditioning (“HVAC”) products, we provide warranty terms ranging from one
to 20 years to customers for certain components such as compressors or heat exchangers. For select products, we also provide
limited lifetime warranties. A liability for estimated warranty expense is recorded on the date that revenue is recognized. Our
estimates of future warranty costs are determined by product line. The number of units we expect to repair or replace is determined
by applying an estimated failure rate, which is generally based on historical experience, to the number of units that were sold and
are still under warranty. The estimated units to be repaired under warranty are multiplied by the average cost to repair or replace
such products to determine the estimated future warranty cost. We do not discount product warranty liabilities as the amounts are
not fixed and the timing of future cash payments is neither fixed nor reliably determinable. We also provide for specifically-
identified warranty obligations. Estimated future warranty costs are subject to adjustment depending on changes in actual failure
rate and cost experience. Subsequent costs incurred for warranty claims serve to reduce the accrued product warranty liability.
See Note 10 for more information on our estimated future warranty costs.

Pensions and Post-retirement Benefits

We provide pension and post-retirement medical benefits to eligible domestic and foreign employees and we recognize pension
and post-retirement benefit costs over the estimated service life or average life expectancy of those employees. We also recognize
the funded status of our benefit plans, as measured at year-end by the difference between plan assets at fair value and the benefit
obligation, in the Consolidated Balance Sheets. Changes in the funded status are recognized in the year in which the changes
occur through accumulated other comprehensive income (“AOCI”). Actuarial gains or losses are amortized into net period benefit
cost over the estimated service life of covered employees or average life expectancy of participants depending on the plan.

The benefit plan assets and liabilities reflect assumptions about the long-range performance of our benefit plans. Should actual
results differ from management's estimates, revisions to the benefit plan assets and liabilities would be required. See Note 12 for
information regarding those estimates and additional disclosures on pension and post-retirement medical benefits.

Self-Insurance

Self-insurance expense and liabilities were actuarially determined based primarily on our historical claims information and
industry factors and trends. The self-insurance liabilities as of December 31, 2016 represent the best estimate of the future payments
to be made on reported and unreported losses for 2016 and prior years. The amounts and timing of payments for claims reserved
may vary depending on various factors, including the development and ultimate settlement of reported and unreported claims. To
the extent actuarial assumptions change and claims experience rates differ from historical rates, our liabilities may change. See
Note 10 for additional information on our self-insured risks and liabilities.

Derivatives

We use futures contracts, forward contracts and fixed forward contracts to mitigate our exposure to volatility in metal commodity
prices and foreign exchange rates. We hedge only exposures in the ordinary course of business and do not hold or trade derivatives
for profit. All derivatives are recognized in the Consolidated Balance Sheets at fair value and the classification of each derivative
instrument is based upon whether the maturity of the instrument is less than or greater than 12 months. See Note 8 for more
information on our derivatives.

Income Taxes

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date. Unrecognized tax benefits are accounted
for as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740.
See Note 9 for more information related to income taxes.

Revenue Recognition

Our revenue recognition practices for the sale of goods depend upon the shipping terms for each transaction. Shipping terms
are primarily FOB Shipping Point and, therefore, revenue is recognized for these transactions when products are shipped to
customers and title passes. Certain customers in our smaller operations, primarily outside of North America, have shipping terms
where title and risk of ownership do not transfer until the product is delivered to the customer. For these transactions, revenue is
recognized on the date that the product is received and accepted by such customers. We experience returns for miscellaneous
reasons and record a reserve for these returns at the time we recognize revenue based on historical experience. Our historical rates
of return are insignificant as a percentage of sales. We also recognize revenue net of sales taxes.

For our businesses that provide services, revenue is recognized at the time services are completed. Our Commercial Heating
& Cooling segment also provides sales, installation, maintenance and repair services under fixed-price contracts. Revenue for
these services is recognized over the life of the contract.

We engage in cooperative advertising, customer rebate, and other miscellaneous programs that result in payments or credits
being issued to our customers. We record these customer discounts and incentives as a reduction of sales when the sales are
recorded. For certain cooperative advertising programs, we also receive an identifiable benefit (goods or services) in exchange
for the consideration given, and, accordingly, record a ratable portion of the expenditure to Selling, general and administrative
(“SG&A”) expenses. All other advertising, promotions and marketing costs are expensed as incurred. See Note 22 for more
information on these costs.

Cost of Goods Sold

The principal elements of cost of goods sold are components, raw materials, factory overhead, labor, estimated costs of warranty

expense and freight and distribution costs.

Selling, General and Administrative Expenses

SG&A expenses include payroll and benefit costs, advertising, commissions, research and development, information technology
costs, and other selling, general and administrative related costs such as insurance, travel, non-production depreciation and rent.

Stock-Based Compensation

We recognize compensation expense for stock-based arrangements over the required employee service periods. We measure
stock-based compensation costs on the estimated grant-date fair value of the stock-based awards that are expected to ultimately
vest and we adjust expected vesting rates to actual rates as additional information becomes known. For stock-based arrangements
with performance conditions, we periodically adjust performance achievement rates based on our best estimates of those rates at
the end of the performance period. See Note 14 for more information.

Translation of Foreign Currencies

All assets and liabilities of foreign subsidiaries and joint ventures are translated into U.S. dollars using rates of exchange in
effect at the balance sheet date. Revenue and expenses are translated at weighted average exchange rates during the year. Unrealized
translation gains and losses are included in AOCI in the accompanying Consolidated Balance Sheets. Transaction gains and losses
are included in Losses and other expenses, net in the accompanying Consolidated Statements of Operations.

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 revenue and expenses. Such estimates include the valuation of accounts receivable, inventories,
goodwill, intangible assets and other long-lived assets, contingencies, product warranties, guarantee obligations, indemnifications,
and assumptions used in the calculation of income taxes, pension and post-retirement medical benefits, and stock-based
compensation among others. These estimates and assumptions are based on our 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 will
adjust such estimates and assumptions when facts and circumstances dictate. Volatile equity, foreign currency and commodity
markets and uncertain future economic conditions combine to increase the uncertainty inherent in such estimates and assumptions.
Future events and their effects cannot be determined with precision and actual results could differ significantly from these estimates.
Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial
statements in future periods.

Reclassifications

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

3. Inventories:

The components of inventories are as follows (in millions):

Finished goods

Work in process

Raw materials and parts

Total

Excess of current cost over last-in, first-out cost

Total inventories, net

As of December 31,

2016

2015

287.2

5.1

183.4

475.7
(57.2)
418.5

300.0

4.2

178.3

482.5
(63.7)
418.8

The Company recorded pre-tax loss of $0.2 million in 2016, pre-tax loss of $0.2 million in 2015 and pre-tax loss of $0.9 million
in 2014 from LIFO inventory liquidations. Reserve balances, primarily related to obsolete and slow-moving inventories, were
$19.7 million and $21.5 million at December 31, 2016 and December 31, 2015, respectively.

4. Goodwill and Intangible Assets:

Goodwill

The changes in the carrying amount of goodwill in 2016 and 2015, in total and by segment, are summarized in the table

below (in millions):

Segment:
Residential Heating & Cooling

Commercial Heating & Cooling

Refrigeration

Balance at
December
31, 2014 (2)

Impairment

Other(1)

Balance at
December
31, 2015

Impairment

Other(1)

Balance at
December
31, 2016

26.1

62.3

121.0
209.4

— $ — $

—
(5.5)
(5.5) $

(1.7)
(7.1)
(8.8) $

26.1

60.6

108.4
195.1

— $ — $

—

(0.5)
0.5

—
— $ — $

26.1

60.1

108.9
195.1

(1) Other consists of changes in foreign currency translation rates.
(2) The goodwill balances in the table above are presented net of accumulated impairment charges of $15.7 million, all of

which relate to impairments in periods prior to 2014.

We reviewed our reporting unit structure as part of our annual goodwill impairment testing. We identified several components
one level below our operating segments which were determined to be reporting units. We then performed our analysis to determine
the proper aggregation of our reporting units, which considered similar economic and other characteristics, including product
types, gross profits, production processes, customer types, distribution processes, and regulatory environments. Our analysis
incorporated qualitative and quantitative measures to evaluate economic similarity and concluded that our reporting units continue
to be equivalent to our operating segments except that we began evaluating our North America supermarket display cases and
systems business separately beginning in 2015.

A qualitative review of impairment indicators was performed in 2016 for the Residential Heating & Cooling, the Commercial
Heating & Cooling segments, and the Refrigeration segments we determined that it was not more likely than not the fair values
of our reporting units, individually or collectively, were less than their carrying values. Accordingly, a quantitative impairment
analysis was not performed for these segments. During the fourth quarter of 2015 we performed a quantitative impairment analysis
of our North American supermarket display cases and systems business. Based on the results of the quantitative impairment test,
we recorded impairment of $5.5 million in "Goodwill impairment" in the Consolidated Statement of Operations. No indicators
of goodwill impairment were identified during the current year. Also, we did not record any goodwill impairments related to
continuing operations in 2014.

Intangible Assets

As of December 31, 2016 and 2015, there were $4.3 million and $4.3 million, respectively, of indefinite-lived intangible assets
recorded in Other assets, net in the accompanying Consolidated Balance Sheets. These intangible assets consisted primarily of
trademarks and are not subject to amortization.

Identifiable intangible and other assets subject to amortization were recorded in Other assets, net in the accompanying

Consolidated Balance Sheets and were comprised of the following (in millions):

Customer relationships (1)
Patents and others

Total

As of December 31,

2016

2015

Gross
Amount

Accumulated
Amortization

Net
Amount

Gross
Amount

Accumulated
Amortization

Net
Amount

15.9

12.7

28.6

(14.9)
(6.4)
(21.3) $

1.0

6.3

7.3

15.9

11.2

27.1

(14.6)
(6.3)
(20.9) $

1.3

4.9

6.2

(1) The impairment related to customer relationships has been removed from the gross amount as well as the accumulated

amortization, but is included in amortization expense for the previous year.

Amortization expense related to these intangible and other assets was as follows (in millions):

For the Years Ended December 31,
2015

2014

2016

Amortization expense (1)

0.4

2.7

2.9

(1) The impairment related to customer relationships has been removed from the gross amount as well as the accumulated

amortization, but is included in amortization expense for the previous year.

Estimated amortization expense for the next five years and thereafter is as follows (in millions):

Estimated Future Amortization Expense:
2017
2018
2019
2020
2021
Thereafter

0.4
0.4
0.4
0.4
0.2
5.5

Deferred financing costs were reclassified out of intangible assets and removed from the tables above and are included as

offsets against our debt balances as disclosed in Note 11.

During the fourth quarter of 2015, we completed a strategic review of our North American supermarket display cases and
systems business. As a result, we performed an impairment analysis using a market approach and determined that intangible assets
relating to the North American supermarket display case business trade name and its customer relationships were impaired and
we recorded a charge of $21.2 million in "Asset impairment" in the Consolidated Statement of Operations. We did not have any
impairments of intangible assets related to continuing operations in 2016 or 2014.

5. Property, Plant and Equipment:

Components of Property, plant and equipment, net were as follows (in millions):

Land
Buildings and improvements
Machinery and equipment
Capital leases
Construction in progress and equipment not yet in service

Total

Less accumulated depreciation
Property, plant and equipment, net

As of December 31,

2016

2015

33.9
218.2
742.1
27.3
57.1
1,078.6
(717.2)
361.4

33.9
211.8
699.4
27.1
50.3
1,022.5
(682.9)
339.6

During the fourth quarter of 2015, we completed a strategic review of our North American supermarket display cases and
systems business. As a result, we performed an impairment analysis using a market approach and determined that property,
plant and equipment relating to the North American supermarket display case business unit were impaired and we recorded a
charge of $23.3 million in "Asset impairment" in the Consolidated Statement of Operations. No impairment charges were
recorded in 2016 or 2014.

6. Joint Ventures and Other Equity Investments:

We participate in two joint ventures, the largest located in the U.S. and the other in Mexico, that are engaged in the manufacture
and sale of compressors, unit coolers and condensing units. We exert significant influence over these affiliates based upon our
respective 25% and 50% ownerships, but do not control them due to venture partner participation. Accordingly, these joint ventures
have been accounted for under the equity method and their financial position and results of operations are not consolidated.

The combined balance of equity method investments included in Other assets, net totaled (in millions):

Equity method investments

As of December 31,

2016

2015

30.7

30.3

We purchase compressors from our U.S. joint venture for use in certain of our products. The amounts of purchases included

in Cost of goods sold in the Consolidated Statements of Operations were as follows (in millions):

Purchases of compressors from joint venture

For the Years Ended December 31,
2014
2015
2016

97.7

103.5

114.7

7. Accrued Expenses:

The significant components of Accrued expenses are presented below (in millions):

Accrued compensation and benefits
Accrued rebates and promotions
Accrued warranties
Accrued Sales, Use, Property and VAT taxes
Accrued asbestos reserves
Self insurance reserves
Deferred income
Derivative contracts
Other

Total Accrued expenses

8. Derivatives:

As of December 31,

2016

2015

89.8
64.6
30.0
20.2
9.8
8.2
6.4
4.0
32.9
265.9

69.0
53.6
26.7
15.4
7.7
9.2
6.8
14.4
39.8
242.6

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. Our hedging program includes the use of futures contracts to lock in prices, and
as a result, we are subject to derivative losses should the metal commodity prices decrease and gains should the prices increase.
We utilize a dollar cost averaging strategy so that a higher percentage of commodity price exposures are hedged near-term with
lower percentages hedged at future dates. This strategy allows for protection against near-term price volatility while allowing us
to adjust to market price movements over time.

Interest Rate Risk. A portion of our debt bears interest at variable interest rates, and as a result, we are subject to variability
in the cash paid for interest. To mitigate a portion of that risk, we may choose to engage in an interest rate swap hedging strategy
to eliminate the variability of interest payment cash flows. We are not currently hedged against interest rate risk.

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. We seek to mitigate the impact of currency exchange rate movements on
certain short-term transactions by periodically entering into foreign currency forward contracts.

Cash Flow Hedges

We have commodity futures contracts and foreign exchange forward contracts designated as cash flows hedges that are scheduled
to mature through May 2018 and December 2017, respectively. Unrealized gains or losses from our cash flow hedges are included
in AOCI and are expected to be reclassified into earnings within the next 17 months based on the prices of the commodities at the
settlement dates.

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

Unrealized (gains) losses on unsettled contracts

Income tax expense (benefit)

(Gains) losses included in AOCI, net of tax (1)

As of December 31,

2016

2015

(8.9) $
3.3
(5.6) $

13.2
(4.8)
8.4

(1) Assuming commodity and foreign currency prices remain constant, we expect to reclassify $4.5 million of derivative

gains into earnings within the next 12 months.

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

Notional Amounts
Copper

As of December 31,

2016

2015

30.4

34.7

We had the following outstanding foreign exchange forward contracts designated as cash flow hedges (in millions):

Notional Amounts (in local currency):
Mexican Peso

Canadian Dollar

Derivatives not Designated as Cash Flow Hedges

As of December 31,

2016

2015

310.1

24.9

201.4

—

For commodity derivatives not designated as cash flow hedges, we follow the same hedging strategy as derivatives designated
as cash flow hedges, except that we elect not to designate them 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 of pounds):

Copper
Aluminum

As of December 31,

2016

2015

2.4
2.6

3.3
3.2

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

Notional amounts (in local currency):

Chinese Yuan
Mexican Peso
Euro
British Pound
Indian Rupee
Polish Zloty

As of December 31,

2016

2015

10.5
64.5
46.9
1.3
584.6
—

—
53.0
3.2
—
30.8
25.4

Information About the Locations and Amounts of Derivative Instruments

The following tables provide the locations and amounts of derivative fair values in the Consolidated Balance Sheets and

derivative gains and losses in the Consolidated Statements of Operations (in millions):

Current Assets:
Other assets

Commodity futures contracts

Foreign currency forward contracts

Non-Current Assets:
Other assets, net

Commodity futures contracts

Foreign currency forward contracts

Total Assets

Current Liabilities:
Accrued expenses

Commodity futures contracts

Foreign currency forward contracts

Non-Current Liabilities:
Other liabilities

Commodity futures contracts

Foreign currency forward contracts

Total Liabilities

Fair Values of Derivative Instruments as of December 31 (1)

Derivatives Designated as Hedging
Instruments

Derivatives Not Designated as
Hedging Instruments

2016

2015

2016

2015

8.7

0.5

1.9

— $

11.1

— $

—

— $

0.8

12.5

0.4

—

0.4

—

0.7

0.2

— $

1.1

— $

3.2

—

0.8

13.3

3.2

—

0.2

—

0.2

1.5

—

1.5

(1) All derivative instruments are classified as Level 2 within the fair value hierarchy. See Note 19 for more information on fair

value measurements.

Derivatives in Cash Flow Hedging Relationships

Amount of Loss Reclassified from AOCI into Income (Effective Portion):
Commodity futures contracts (1)
Amount of (Gain) Loss Recognized in Income on Derivatives (Ineffective Portion):
Commodity futures contracts (2)

12.3

12.5

(1.6) $

0.1

5.8

0.1

Derivatives Not Designated as Hedging Instruments

For the Years Ended December 31,
2015

2016

2014

For the Years Ended December 31,
2015

2016

2014

Amount of (Gain) Loss Recognized in Income on Derivatives:
Commodity futures contracts (2)
Foreign currency forward contracts (2)

(0.9) $
4.3
3.4

2.5

0.3
2.8

1.2
(0.8)
0.4

(1) The loss was recorded in Cost of goods sold in the accompanying Consolidated Statements of Operations.
(2) The (gain) loss was recorded in Losses and other expenses, net in the accompanying Consolidated Statements of

Operations.

9. Income Taxes:

Our Provision for income taxes from continuing operations consisted of the following (in millions):

For the Years Ended December 31,
2014
2015
2016

Current:

Federal

State

Foreign

Total current

Deferred:

Federal

State

Foreign

Total deferred

Total provision for income taxes

106.0

101.0

14.5

9.7

130.2

(4.5)
(1.2)
(0.4)
(6.1)
124.1

13.1

3.6

117.7

(21.4)
(0.6)
(0.3)
(22.3)
95.4

84.3

10.1

9.6

104.0

2.3

1.0

2.2

5.5

109.5

Income from continuing operations before income taxes was comprised of the following (in millions):

Domestic
Foreign
Total

For the Years Ended December 31,
2014
2015
2016

374.8
27.9
402.7

276.7
5.9
282.6

283.7
33.9
317.6

The difference between the income tax provision from continuing operations computed at the statutory federal income tax rate

and the financial statement Provision for income taxes is summarized as follows (in millions):

For the Years Ended December 31,

2016

2015

2014

Provision at the U.S. statutory rate of 35%

141.0

98.9

111.2

Increase (reduction) in tax expense resulting from:

State income tax, net of federal income tax benefit

Other permanent items
Tax credits, net of unrecognized tax benefits

Change in unrecognized tax benefits

Change in valuation allowance

Foreign taxes at rates other than 35% and miscellaneous other

Total provision for income taxes

12.8

4.2
(27.9)
(0.3)
(4.3)
(1.4)
124.1

8.0
(9.1)
(0.7)
(0.9)
(0.6)
(0.2)
95.4

8.8
(8.2)
—

0.2

0.2
(2.7)
109.5

Deferred income taxes reflect the tax consequences on future years of temporary differences between the tax basis of assets
and liabilities and their financial reporting basis and depending on the classification of the asset or liability generating the deferred
tax. The deferred tax provision for the periods shown represents the effect of changes in the amounts of temporary differences
during those periods.

Deferred tax assets (liabilities) were comprised of the following (in millions):

Gross deferred tax assets:

Warranties

Loss carryforwards (foreign, U.S. and state)

Post-retirement and pension benefits

Inventory reserves

Receivables allowance

Compensation liabilities

Deferred income

Insurance liabilities

Legal reserves

Hedges

State credits, net of federal effect

Other

Total deferred tax assets

Valuation allowance

Total deferred tax assets, net of valuation allowance

Gross deferred tax liabilities:

Depreciation

Hedges

Intangibles

Other

Total deferred tax liabilities

Net deferred tax assets

As of December 31,

2016

2015

36.3

19.8

33.9

9.6

4.5

20.6

1.5

6.5

12.0

—

18.4

5.4

168.5
(17.1)
151.4

(3.3)
(3.2)
(4.9)
(3.3)
(14.7)
136.7

33.7

20.0

47.7

9.0

4.1

19.3

1.6

6.3

10.9

5.3

8.3

7.1

173.3
(19.9)
153.4

(2.5)
—
(2.2)
(3.0)
(7.7)
145.7

As of December 31, 2016 and 2015, we had $1.6 million and $ 2.6 million in tax-effected state net operating loss carryforwards,
respectively, and $16.8 million and $16.1 million in tax-effected foreign net operating loss carryforwards, respectively. The state
and foreign net operating loss carryforwards began expiring in 2014. The deferred tax asset valuation allowance relates primarily
to the operating loss carryforwards in various states in the U.S., European and Asian tax jurisdictions. The remainder of the
valuation allowance relates to state tax credits which began to expire in 2014.

In assessing whether a deferred tax asset will be realized, we consider whether it is more likely than not that some portion or
all of the deferred tax asset will not be realized. We consider the reversal of existing taxable temporary differences, projected
future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more
likely than not we will realize the benefits of these deductible differences, net of the existing valuation allowances, as of December
31, 2016.

To realize the net deferred tax asset, we will need to generate future foreign taxable income of approximately $62.7 million
during the periods in which those temporary differences become deductible. We do not need to generate additional U.S. federal
income as we have sufficient carryback capacity to fully realize the federal deferred tax asset. U.S. taxable income for the years
ended December 31, 2016 and 2015 was $315.0 million and $225.7 million, respectively.

No provision was made for income taxes which may become payable upon distribution of our foreign subsidiaries' earnings.
These earnings were approximately $107.7 million as of December 31, 2016. It is not practicable to estimate the amount of tax
that might be payable because our intent is to permanently reinvest these earnings or to repatriate earnings when it is tax effective
to do so.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

Balance as of December 31, 2014

Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions

Settlement
Balance as of December 31, 2015

Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions

Settlement
Balance as of December 31, 2016

1.6
0.5
(1.2)
—
(0.4)
0.5
1.0
—
1.4
(0.5)
2.4

Included in the balance of unrecognized tax benefits as of December 31, 2016 are potential benefits of $2.4 million that, if

recognized, would affect the effective tax rate on income from continuing operations.

We are currently under examination for our U.S. federal income taxes for 2016 and 2015 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 2011.

Since January 1, 2016, numerous states, including Delaware, North Carolina and the District of Columbia have enacted
legislation effective for tax years beginning on or after January 1, 2016, including changes to rates and apportionment methods.
The impact of these changes is immaterial.

In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-17, Balance
Sheet Classification of Deferred Taxes (Topic 740). The Update requires that all deferred tax assets and liabilities be classified as
noncurrent in a classified statement of financial position. We adopted this Update retrospectively in the 2015 financial statements.

10. 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, 2016 were as follows (in millions):

2017

2018

2019

2020

2021

Thereafter

Total minimum lease payments

Less amount representing interest

Present value of minimum payments

Operating Leases

Capital Leases

48.3

38.1

27.5

16.9

9.8

18.2

158.8

1.4

0.8

0.2

0.1

—

14.6

17.1

0.4

16.7

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.

Our obligations under the Lake Park Lease 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 Sixth Amended and Restated Credit Facility Agreement. We believe we were in compliance with these financial covenants
as of December 31, 2016.

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 in the following
captions on the accompanying Consolidated Balance Sheets (in millions):

Accrued expenses
Other liabilities

Total environmental accruals

As of December 31,

2016

2015

1.2
4.4
5.6

1.3
4.0
5.3

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):

Accrued expenses

Other liabilities

Total product warranty liabilities

As of December 31,

2016

2015

30.0

71.1

101.1

26.7

65.6

92.3

The changes in product warranty liabilities related to continuing operations for the years ended December 31, 2016 and 2015

were as follows (in millions):

Total warranty liability as of December 31, 2014

Payments made in 2015
Changes resulting from issuance of new warranties
Changes in estimates associated with pre-existing liabilities
Changes in foreign currency translation rates and other

Total warranty liability as of December 31, 2015

Payments made in 2016
Changes resulting from issuance of new warranties
Changes in estimates associated with pre-existing liabilities
Changes in foreign currency translation rates and other

Total warranty liability as of December 31, 2016

87.2
(27.2)
37.1
(2.6)
(2.2)
92.3
(24.7)
36.2
(2.6)
(0.1)
101.1

We have incurred, and will likely continue to incur, product costs not covered by insurance or our suppliers’ warranties, which
is not included in the estimated warranty liabilities tables immediately 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. We currently estimate our probable liability for a certain supplier quality issue within a range of $0.9 million and
$9.1 million with all amounts in that range equally likely. We have accrued a $0.9 million liability in Accrued expenses on the
Consolidated Balance Sheet at December 31, 2016. The supplier is reimbursing the majority of costs related to this liability.

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):

Accrued expenses
Other liabilities

Total self-insurance liabilities

As of December 31,

2016

2015

8.2
22.7
30.9

9.2
23.9
33.1

Litigation

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. For the
years ended December 31, 2016, 2015 and 2014, we recorded expense of $6.3 million, $3.0 million and $0.9 million, respectively,
net of probable insurance recoveries, for known and future asbestos-related litigation.

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.

11. 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):

Short-Term Debt:
Asset Securitization Program

Foreign obligations

Total short-term debt
Current maturities of long-term debt:

Capital lease obligations
Domestic credit facility
Senior unsecured notes
Debt issuance costs
Total current maturities of long-term debt
Long-Term Debt:
Capital lease obligations

Domestic credit facility

Senior unsecured notes

Debt issuance costs
Total long-term debt

Total debt

As of December 31,

2016

2015

50.0

2.4

52.4

0.8
—
200.0
(0.7)
200.1

15.0

256.0

350.0
(5.3)
615.7

868.2

200.0

4.1

204.1

1.2
30.0
—
(0.2)
31.0

15.6

293.0

200.0
(2.6)
506.0

741.1

As of December 31, 2016, the aggregate amounts of required principal payments on total debt were as follows (in millions):

2017
2018

2019

2020

2021

Thereafter

253.2
33.3

30.0

166.0
361.7

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. We adopted this guidance in the first quarter of 2016 and have reclassified the unamortized debt issuance costs into the
debt liability as shown in the table above.

Short-Term Debt

Foreign Obligations

Through several of our foreign subsidiaries, we have available to us facilities to assist in financing seasonal borrowing needs
for our foreign locations. We had $2.4 million and $4.1 million of foreign obligations as of December 31, 2016 and 2015,
respectively, that were primarily borrowings under non-committed facilities. Proceeds on these facilities were $28.4 million,
$79.0 million and $85.3 million during the years ended December 31, 2016, 2015 and 2014, respectively. Repayments on the
facilities were $30.8 million, $85.4 million and $87.8 million during the years ended December 31, 2016, 2015 and 2014,
respectively.

Asset Securitization Program

Under the Asset Securitization Program (“ASP”), we are eligible to sell beneficial interests in a portion of our trade accounts
receivable to participating financial institutions for cash. The ASP 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 accounts receivable securitized under the ASP are high-
quality domestic customer accounts that have not aged significantly. The receivables represented by the retained interest that we
service are exposed to the risk of loss for any uncollectible amounts in the pool of receivables sold under the ASP. The fair values
assigned to the retained and transferred interests are based on the sold accounts receivable carrying value given the short term to
maturity and low credit risk. 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.

Prior to the amendment in July 2016, the ASP provided for a maximum securitization amount ranging from $180.0 million to
$220.0 million, depending on the period. The ASP was amended effective as of July 5, 2016 to increase the maximum securitization
range from $200.0 million to $325.0 million, depending on the period. The maximum capacity under the ASP is the lesser of the
maximum securitization amount or 100% of the net pool balance less allowances, as defined by the ASP. Eligibility for securitization
is limited based on the amount and quality of the qualifying accounts receivable and is calculated monthly. The eligible amounts
available and beneficial interests sold were as follows (in millions):

Eligible amount available under the ASP on qualified accounts receivable

Beneficial interest sold

Remaining amount available

As of December 31,

2016

2015

250.0

50.0

200.0

220.0

200.0

20.0

We pay certain discount fees to use the ASP and to 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 either the average
LIBOR rate or floating commercial paper rate determined by the purchaser of the beneficial interest, plus a program fee of 0.65%.
The average rates as of December 31, 2016 and 2015 were 1.66% and 1.06%, respectively. The unused fee is based on 102% of
the maximum available amount less the beneficial interest sold and calculated at a 0.33% fixed rate throughout the term of the
agreement. In addition, a 0.05% unused fee is charged on incremental available amounts above $200 million during certain months
of the year. We recorded these fees in Interest expense, net in the accompanying Consolidated Statements of Operations.

The ASP contains certain restrictive covenants relating to the quality of our accounts receivable and cross-default provisions
with our Sixth Amended and Restated Credit Facility Agreement ("Domestic Credit Facility"), senior unsecured notes and any
other indebtedness we may have over $75.0 million. The administrative agent under the ASP is also a participant in our Domestic
Credit Facility. The participating financial institutions have investment grade credit ratings. We continue to evaluate their credit
ratings and have no reason to believe they will not perform under the ASP. As of December 31, 2016, we believe we were in
compliance with all covenant requirements.

Long-Term Debt

Domestic Credit Facility

On August 30, 2016, we replaced an earlier $950.0 million credit facility with a $900.0 million Credit Facility (the "Domestic
Credit Facility"), which consisted of a $650.0 million unsecured revolving credit facility and a $250.0 million unsecured term
loan and matures in August 2021 (the "Maturity Date"). Under our Domestic Credit Facility, we had outstanding borrowings of
$256.0 million, of which $220.0 million was the term loan balance, as well as $4.4 million committed to standby letters of credit
as of December 31, 2016. Subject to covenant limitations, $609.6 million was available for future borrowings. The unsecured
term loan also matures on the Maturity Date and requires quarterly principal repayments of $7.5 million beginning in March 2017;
however, we made $30.0 million of required principal repayments for 2017 in November 2016. The revolving credit facility
allows up to $100.0 million of letters of credit to be issued and also includes a subfacility for swingline loans of up to $65.0 million.
Additionally, at our request and subject to certain conditions, the commitments under the Domestic Credit Facility may be increased
by a maximum of $350.0 million as long as existing or new lenders agree to provide such additional commitments.

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

Weighted average borrowing rate

As of December 31,

2016

2015

2.00%

1.90%

Our Domestic Credit Facility is guaranteed by certain of our subsidiaries and contains financial covenants relating to leverage
and interest coverage. Other covenants contained in the Domestic Credit Facility restrict, among other things, certain mergers,
asset dispositions, guarantees, debt, liens, and affiliate transactions. 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 Credit Facility are detailed below:

Consolidated Indebtedness to Adjusted EBITDA Ratio no greater than

Cash Flow to Net Interest Expense Ratio no less than

3.5 : 1.0

3.0 : 1.0

Our Domestic Credit Facility contains customary events of default. These events of default include nonpayment of principal
or other amounts, material inaccuracy of representations and warranties, breach of covenants or other restrictions or requirements,
default on certain other indebtedness or receivables securitizations (cross default), certain voluntary and involuntary bankruptcy
events and the occurrence of a change in control. A cross default under our Domestic 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 $75.0

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 $75.0 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 Domestic Credit Facility, our senior unsecured notes, our lease of our corporate
headquarters in Richardson, Texas (recorded as an operating lease), or our ASP 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 Credit Facility and accelerate amounts due under our
Domestic 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 December 31, 2016, we believe we were in
compliance with all covenant requirements.

Senior Unsecured Notes

We issued $350.0 million of senior unsecured notes in November 2016 (the "2016 Notes") which will mature on November 15,
2023 with interest being paid on May 15 and November 15 at 3.00% per annum semiannually. We also have $200.0 million of
senior unsecured notes issued in 2010 (the "2010 Notes") which will mature on May 15, 2017 with interest being paid at 4.90% per
annum semiannually. Both 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 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, in the case of the 2010 Notes, 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 December 31, 2016, we believe we were in compliance with all covenant
requirements.

12. Employee Benefit Plans:

Over the past several years, we have frozen many of our defined benefit pension and profit sharing plans and replaced them
with defined contribution plans. We have a liability for the benefits earned under these inactive plans prior to the date the benefits
were frozen. Our defined contribution plans generally include both company and employee contributions which are based on
predetermined percentages of compensation earned by the employee. We also have several active defined benefit plans that provide
benefits based on years of service.

In addition to freezing the benefits of our defined benefit pension plans, we have also eliminated nearly all of our post-retirement
medical benefits. In 2012, we amended the post-retirement benefit plan to shift pre-65 medical coverage for the employees of
our largest manufacturing plant so that by 2016, retirees would pay 100% of the cost of post-retirement medical coverage. This
change resulted in a significant reduction in the projected benefit obligation for post-retirement medical benefits in 2012.

Effective for fiscal year 2016, we adopted the full yield curve approach for estimating the service cost and interest cost
components of expense for plans that use a yield curve to determine the discount rate. The new method applies the specific spot
rates along the yield curve used in the most recent measurement of the benefit obligation, resulting in a more precise estimate of
expense. The impact for fiscal year 2016 was a decrease in expense of approximately $3.2 million.

In 2016, we offered certain former employees with vested pension benefits a lump sum payout in an effort to reduce our long-
term pension obligations. As a result, for 2016, the net periodic benefit cost for our pension plans includes a non-cash settlement
charge of $31.4 million and the projected benefit obligation decreased by $50.6 million.

Defined Contribution Plans

We recorded the following expenses related to our contributions to the defined contribution plans (in millions):

Contributions to defined contribution plans

16.3

16.1

14.8

For the Years Ended December 31,

2016

2015

2014

Pension and Post-retirement Benefit Plans

The following tables set forth amounts recognized in our financial statements and the plans' funded status for our pension

and post-retirement benefit plans (dollars in millions):

Accumulated benefit obligation

Changes in projected benefit obligation:
Benefit obligation at beginning of year

Service cost
Interest cost
Plan participants' contributions
Amendments
Other
Actuarial (gain) loss
Effect of exchange rates
Divestiture
Settlements and curtailments
Benefits paid

Benefit obligation at end of year

Changes in plan assets:

Fair value of plan assets at beginning of year
Actual gain (loss) return on plan assets
Employer contribution
Plan participants' contributions
Effect of exchange rates
Divestiture
Plan settlements
Benefits paid

Fair value of plan assets at end of year
Funded status / net amount recognized

Net amount recognized consists of:
Current liability
Non-current liability
Net amount recognized

Pension plans with a benefit obligation in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

Pension Benefits

Other Benefits

2016

2015

2016

2015

374.1

409.2

N/A

415.4
4.4
15.3
—
0.1
—
22.8
(3.8)
—
(50.6)
(22.0)
381.6

293.0
21.0
53.9
—
(2.8)
—
(50.6)
(22.0)
292.5
(89.1) $

446.5
4.8
17.2
—
0.1
—
(29.6)
(5.2)
—
(0.8)
(17.6)
415.4

315.0
(3.2)
3.8
—
(4.2)
—
(0.8)
(17.6)
293.0
(122.4) $

(1.6) $
(87.5)
(89.1) $

(1.6) $

(120.8)
(122.4) $

4.9
—
0.1
0.3
—
—
(0.7)
—
—
—
(1.3)
3.3

— $
—
1.0
0.3
—
—
—
(1.3)
—

(3.3) $

(0.5) $
(2.8)
(3.3) $

5.4
—
0.2
0.5
—
—
0.1
—
—
—
(1.3)
4.9

—
—
0.8
0.5
—
—
—
(1.3)
—
(4.9)

(0.8)
(4.1)
(4.9)

For the Years Ended
December 31,

2016

2015

370.2
362.9
280.8

404.5
398.4
281.8

Our U.S.-based pension plans comprised approximately 88% of the projected benefit obligation and 88% of plan assets as of

December 31, 2016.

Components of net periodic benefit cost as of December 31:

Pension Benefits
2015

2016

2014

2016

Other Benefits
2015

2014

Service cost
Interest cost

Expected return on plan assets
Amortization of prior service cost

Recognized actuarial loss
Settlements and curtailments(1)
Net periodic benefit cost (2)

4.4
15.3
(21.5)
0.3
7.6
31.6

4.8
17.2
(21.4)
0.2
9.5
0.4

4.2
17.7
(22.7)
0.3
6.6
0.4

$ 37.7

$ 10.7

6.5

$ — $ — $ —
0.2

0.2

0.1

—
(3.0)
1.4
—

—
(3.1)
1.5
—
$ (1.5) $ (1.4) $ (1.4)

—
(3.1)
1.5
—

(1) The Consolidated Statements of Operations discloses $31.4 million related to pension settlement charges that represent the

lump-sum payments made in the fourth quarter of 2016.

(2) No pension expense was included in Loss from discontinued operations in 2014, 2015 or 2016.

The following table sets forth amounts recognized in AOCI and Other comprehensive income (loss) in our financial statements

for 2016 and 2015 (in millions):

Amounts recognized in AOCI:

Prior service costs
Actuarial loss

Subtotal
Deferred taxes

Net amount recognized

Changes recognized in other comprehensive income (loss):
Current year prior service costs

Current year actuarial (gain) loss
Effect of exchange rates

Amortization of prior service (costs) credits

Amortization of actuarial loss
Total recognized in other comprehensive income (loss)

Total recognized in net periodic benefit cost and other comprehensive
income (loss)

Pension Benefits

Other Benefits

2016

2015

2016

2015

(0.9) $

(1.2) $

(197.3)
(198.2)
71.0

(214.7)
(215.9)
78.7

$ (127.2) $ (137.2) $

12.0
(16.3)
(4.3)
1.6
(2.7) $

15.0
(18.4)
(3.4)
1.3
(2.1)

0.1

23.3
(1.5)
(0.3)
(39.2)
(17.6) $

0.1
(5.0)
(2.2)
(0.3)
(9.9)
(17.3) $

—
(0.7)
—

3.1
(1.4)
1.0

—

0.1

—

3.1
(1.5)
1.7

20.1

(6.6) $

(0.5) $

0.3

The estimated prior service (costs) credits and actuarial losses that will be amortized from AOCI in 2016 are $(0.2) million

and (8.9) million, respectively, for pension benefits and $2.4 million and $(1.4) million, respectively, for other benefits.

The following tables set forth the weighted-average assumptions used to determine Benefit obligations and Net periodic benefit

cost for the U.S.-based plans in 2016 and 2015:

Weighted-average assumptions used to determine benefit obligations as of
December 31:
Discount rate
Rate of compensation increase

Pension Benefits
2015
2016

Other Benefits

2016

2015

4.17%

4.23%

4.51%

4.23%

3.50%

3.55%

—

Weighted-average assumptions used to determine net
periodic benefit cost for the years ended December 31:

Discount rate - service cost

Discount rate - interest cost
Expected long-term return on plan assets

Rate of compensation increase

Pension Benefits
2015

2016

2014

2016

Other Benefits
2015

2014

4.30%

3.76%

7.50%

4.23%

3.97%

7.50%

4.23%

4.88%

8.00%

4.23%

4.95%

2.49%

3.23%

3.57%

—

The following tables set forth the weighted-average assumptions used to determine Benefit Obligations and Net Periodic Benefit

Cost for the non-U.S.-based plans in 2016 and 2015:

Weighted-average assumptions used to determine benefit obligations as of December 31:

Discount rate

Rate of compensation increase

Weighted-average assumptions used to determine net periodic benefit cost for the years
ended December 31:
Discount rate - service cost

Discount rate - interest cost

Expected long-term return on plan assets

Rate of compensation increase

Pension Benefits

2016

2015

2.83%

3.78%

3.59%

3.70%

Pension Benefits
2015

2016

2014

2.04%

3.45%

4.87%

3.70%

4.12%

5.22%

3.48%

4.38%

6.32%

3.31%

To develop the expected long-term rate of return on assets assumption for the U.S. plans, we considered the historical returns
and the future expectations for returns for each asset category, as well as the target asset allocation of the pension portfolio and
the effect of periodic balancing. These results were adjusted for the payment of reasonable expenses of the plan from plan assets.
This resulted in the selection of the 7.5% long-term rate of return on assets assumption. A similar process was followed for the
non-U.S.-based plans.

To select a discount rate for the purpose of valuing the plan obligations for the U.S. plans, we performed an analysis in which
the projected cash flows from defined benefit and retiree healthcare plans was matched with a yield curve based on the appropriate
universe of high-quality corporate bonds that were available. We used the results of the yield curve analysis to select the discount
rate for each plan. The analysis was completed separately for each U.S. pension and post-retirement benefit plan. A similar process
was followed for the non-U.S.-based plans.

Assumed health care cost trend rates have an effect on the amounts reported for our healthcare plan. The following table sets

forth the healthcare trend rate assumptions used:

Assumed health care cost trend rates as of December 31:

Health care cost trend rate assumed for next year

Rate to which the cost rate is assumed to decline (the ultimate trend rate)

Year that the rate reaches the ultimate trend rate

2016

2015

6.50%

5.00%

2020

7.00%

5.00%

2020

A one percentage-point change in assumed healthcare cost trend rates would have the following effects (in millions):

Effect on total of service and interest cost
Effect on the post-retirement benefit obligation

Expected future benefit payments are shown in the table below (in millions):

1-Percentage-
Point
Increase

1-Percentage-
Point
Decrease

— $
0.1

—
(0.1)

Pension benefits

Other benefits

Pension Plan Assets

For the Years Ended December 31,

2017

2018

2019

2020

2021

2022-2026

18.7
0.6

18.9
0.5

19.2
0.4

19.6
0.4

24.9
0.3

135.1
1.1

We believe asset returns can be optimized at an acceptable level of risk by adequately diversifying the plan assets between equity
and fixed income. In the first quarter of 2014, in order to increase diversification, we changed the targeted allocations for our
plan assets. The target allocations for fixed income, money market, cash and guaranteed investment contracts investments remained
unchanged at 58%, targeted equity investment allocations remained unchanged at 42%. Our targeted exposure to International
equity remained unchanged at 17% of total assets and our exposure to domestic equity remained unchanged at 25%. These categories
are further diversified among various asset classes including high yield and emerging markets debt, and international and emerging
markets equities in order to avoid significant concentrations of risk. Our U.S. pension plan represents 88%, our Canadian pension
plan 6%, and our United Kingdom (“U.K.”) pension plan 6% of the total fair value of our plan assets as of December 31, 2016.

Our U.S. pension plans' weighted-average asset allocations as of December 31, 2016 and 2015, by asset category, are as follows:

Asset Category:
U.S. equity

International equity

Fixed income

Money market/cash

Total

U.S. pension plan assets are invested according to the following targets:

Asset Category:
U.S. equity
International equity
Fixed income
Money market/cash

Plan Assets as of December 31,

2016

2015

27.0%

18.5%

52.5%

2.0%

100.0%

27.1%

17.7%

53.8%

1.4%

100.0%

Target

25.0%
17.0%
56.0%
2.0%

Our Canadian pension plans were invested approximately 70% in Canadian bonds and 30% in international equities. Our U.K.
pension plan was invested in a broad mix of assets consisting of U.K., international equities, and U.K. fixed income securities,
including corporate and government bonds.

The fair values of our pension plan assets, by asset category, are as follows (in millions):

Fair Value Measurements as of December 31, 2016

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total

Asset Category:
Cash and cash equivalents
Commingled pools / Collective Trusts:

U.S. equity (1)
International equity (2)
Fixed income (3)

Balanced pension trust: (4)
International equity
Fixed income

Pension fund:

International equity (5)
Fixed income (6)

Total

Asset Category:
Cash and cash equivalents
Commingled pools / Collective Trusts:

U.S. equity (1)
International equity (2)
Fixed income (3)

Balanced pension trust: (4)
International equity
Fixed income

Pension fund:

International equity (5)
Fixed income (6)

Total

5.3

—
—
—

—
—

—
—
5.3

—

69.5
47.6
134.9

4.7
11.9

13.5
5.1
287.2

—

—
—
—

—
—

—
—
—

5.3

69.5
47.6
134.9

4.7
11.9

13.5
5.1
292.5

Fair Value Measurements as of December 31, 2015

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Total

—

69.7
45.5
138.1

4.7
12.1

11.0
8.1
289.2

—

—
—
—

—
—

—
—
—

3.8

69.7
45.5
138.1

4.7
12.1

11.0
8.1
293.0

3.8

—
—
—

—
—

—
—
3.8

Additional information about assets measured at Net Asset Value (“NAV”) per share (in millions):

Asset Category:
Commingled pools / Collective Trusts:

U.S. equity (1)
International equity (2)
Fixed income (3)

Balanced pension trust: (4)
International equity
Fixed income

Pension fund:

International equity (5)
Fixed income (6)

Total

Asset Category:
Commingled pools / Collective Trusts:

U.S. equity (1)
International equity (2)
Fixed income (3)

Balanced pension trust: (4)
International equity
Fixed income

Pension fund:

International equity (5)
Fixed income (6)

Total

As of December 31, 2016

Fair Value

Redemption
Frequency
(if currently eligible)

Redemption Notice
Period

69.5
47.6
134.9

4.7
11.9

13.5
5.1
287.2

Daily
Daily
Daily

Daily
Daily

5 days
5 days
5-15 days

3-5 days
3-5 days

1-7 days
1-7 days

As of December 31, 2015

Fair Value

Redemption
Frequency
(if currently eligible)

Redemption Notice
Period

69.7
45.5
138.1

4.7
12.1

11.0
8.1
289.2

Daily
Daily
Daily

Daily
Daily

5 days
5 days
5-15 days

3-5 days
3-5 days

1-7 days
1-7 days

(1) This category includes investments primarily in U.S. equity securities that include large, mid and small capitalization

companies.

(2) This category includes investments primarily in international equity securities that include large, mid and small capitalization

companies in large developed markets as well as emerging markets equities.

(3) This category includes investments in U.S. investment grade and high yield fixed income securities, international fixed

income securities and emerging markets fixed income securities.

(4) The investment objectives of the fund are to provide long-term capital growth and income by investing primarily in a well-
diversified, balanced portfolio of Canadian common stocks, bonds and money market securities. The fund also holds a
portion of its assets in international equities.

(5) This category includes investments in international equity securities and aims to provide returns consistent with the markets

in which it invests and provide broad exposure to countries around the world.

(6) This category includes investments in U.K. government index-linked securities (index-linked gilts) that have maturity

periods of 5 years or longer and investment grade corporate bonds denominated in sterling.

The majority of our commingled pool/collective trusts, mutual funds, balanced pension trusts and pension funds are managed
by professional investment advisors. The NAVs per share are furnished in monthly and/or quarterly statements received from the
investment advisors and reflect valuations based upon their pricing policies. We assessed the fair value classification of these

investments as Level 2 for commingled pool/collective trusts, balanced pension trusts and pension funds based on an examination
of their pricing policies and the related controls and procedures. The fair values we report are based on the pool, trust or fund's
NAV per share. The NAVs per share are calculated periodically (daily or no less than one time per month) as the aggregate value
of each pool or trust's underlying assets divided by the number of units owned. See Note 19 for information about our fair value
hierarchies and valuation techniques.

13. Comprehensive Income:

The following table provides information on items not reclassified in their entirety from AOCI to Net Income in the accompanying

Consolidated Statements of Operations (in millions):

AOCI Component
Losses on cash flow hedges:
Commodity derivative contracts
Income tax benefit

Net of tax

Defined Benefit Plan Items:

Pension and Post-Retirement Benefits costs
Income tax benefit

Net of tax

Total reclassifications from AOCI

For the Years Ended December 31,

2016

2015

Affected Line Item(s) in the
Consolidated Statements of Operations

(12.3) $
4.3
(8.0) $

(6.3) $
2.2
(4.1) $

(12.5) Cost of goods sold

Provision for income taxes

Cost of goods sold; Selling, general
and administrative expenses
Provision for income taxes

4.4
(8.1)

(9.7)
3.4
(6.3)

(12.1) $

(14.4)

The following tables provide information on changes in AOCI, by component (net of tax), for the years ended December 31,

2016 and 2015 (in millions):

Gains
(Losses) on
Cash Flow
Hedges

Unrealized Gains
(Losses) on
Available-for-Sale
Securities

Balance as of December 31, 2015

(8.4) $

Other comprehensive income (loss) before
reclassifications

Amounts reclassified from AOCI
Net other comprehensive income (loss)

6.0

8.0
14.0

Balance as of December 31, 2016

5.6

4.4

(2.1)
—
(2.1)
2.3

Gains
(Losses) on
Cash Flow
Hedges

Unrealized Gains
(Losses) on
Available-for-Sale
Securities

Balance as of December 31, 2014

(4.6) $

Other comprehensive income (loss) before
reclassifications

Amounts reclassified from AOCI

Net other comprehensive income (loss)

Balance as of December 31, 2015

(11.9)
8.1
(3.8)
(8.4) $

3.2

1.2

—

1.2

4.4

Defined
Benefit Plan
Items
(139.3) $

5.2

4.1
9.3
(130.0) $

Defined
Benefit Plan
Items
(149.4) $

3.8

6.3

10.1
(139.3) $

Foreign
Currency
Translation
Adjustments

Total AOCI

(61.4) $

(204.7)

(11.6)
—
(11.6)
(73.0) $

(2.5)

12.1
9.6

(195.1)

Foreign
Currency
Translation
Adjustments

Total AOCI

(2.7) $

(153.5)

(58.7)
—
(58.7)
(61.4) $

(65.6)

14.4

(51.2)

(204.7)

14. Stock-Based Compensation:

Stock-based compensation expense related to continuing operations was included in Selling, general and administrative

expenses in the accompanying Consolidated Statements of Operations as follows (in millions):

Compensation expense(1)

For the Years Ended December 31,
2014
2015
2016

31.7

26.6

23.3

(1) Stock-based compensation expense was recorded in our Corporate and other business segment.

Incentive Plan

Under the Lennox International Inc. 2010 Incentive Plan, as amended and restated (the “2010 Incentive Plan”), we are authorized
to issue awards for 24.3 million shares of common stock. The 2010 Incentive Plan provides for various long-term incentive awards,
including performance share units, restricted stock units and stock appreciation rights. A description of these long-term incentive
awards and related activity within each award category is provided below.

As of December 31, 2016, awards for 16.9 million shares of common stock had been granted, net of cancellations and

repurchases, and there were 3.6 million shares available for future issuance.

Performance Share Units

Performance share units are granted to certain employees at the discretion of the Board of Directors with a three-year performance
period beginning January 1st of each year. Upon meeting the performance and vesting criteria, performance share units are converted
to an equal number of shares of our common stock. Performance share units vest if, at the end of the three-year performance
period, at least the threshold performance level has been attained. To the extent that the payout level attained is less than 100%,
the difference between 100% and the units earned and distributed will be forfeited. Eligible participants may also earn additional
units of our common stock, which would increase the potential payout up to 200% of the units granted, depending on LII's
performance over the three-year performance period.

Performance share units are classified as equity awards. Compensation expense is recognized on an earnings curve over the
period and is based on the expected number of units to be earned and the fair value of the stock at the date of grant. The fair value
of units is calculated as the average of the high and low market price of the stock on the date of grant discounted by the expected
dividend rate over the service period. The number of units expected to be earned will be adjusted in future periods as necessary
to reflect changes in the estimated number of award to be issued and, upon vesting, the actual number of units awarded. Our
practice is to issue new shares of common stock or utilize treasury stock to satisfy performance share unit distributions.

The following table provides information on our performance share units:

Compensation expense for performance share units (in millions)
Weighted-average fair value of grants, per share
Payout ratio for shares paid

For the Years Ended December 31,
2014
2015
2016

$
$

18.1
150.21
200.0%

$
$

13.6
126.31
200.0%

$
$

11.5
88.26
153.2%

A summary of the status of our undistributed performance share units as of December 31, 2016, and changes during the year

then ended, is presented below (in millions, except per share data):

Undistributed performance share units as of December 31, 2015

Granted
Adjustment to share paid based on payout ratio
Distributed
Forfeited

Undistributed performance share units as of December 31, 2016 (1)

Weighted-
Average Grant
Date Fair Value
per Share

Shares (2)

0.6
0.1
0.1
(0.3)
—
0.4

67.91
150.21
81.11
51.11
—
101.03

(1) Undistributed performance share units include approximately 0.2 million units with a weighted-average grant date
fair value of $117.60 per share that had not yet vested and 0.2 million units that have vested but were not yet distributed.

(2) Share amounts are rounded but the balance of undistributed performance share units as of December 31, 2016

accurately reflects actual units undistributed.

As of December 31, 2016, we had $22.5 million of total unrecognized compensation cost related to non-vested performance
share units that is expected to be recognized over a weighted-average period of 2.2 years. Our estimated forfeiture rate for these
performance share units was 9.9% as of December 31, 2016.

The total fair value of performance share units distributed and the resulting tax deductions to realize tax benefits were as follows

(in millions):

Fair value of performance share units distributed
Realized tax benefits from tax deductions

Restricted Stock Units

For the Years Ended December 31,
2014
2015
2016

$
$

39.4
15.0

$
$

44.9
17.1

$
$

19.6
7.5

Restricted stock units are issued to attract and retain key employees. Generally, at the end of a three-year retention period, the
units will vest and be distributed in shares of our common stock to the participant. Our practice is to issue new shares of common
stock or utilize treasury stock to satisfy restricted stock unit vestings. Restricted stock units are classified as equity awards. The
fair value of units granted is the average of the high and low market price of the stock on the date of grant discounted by the
expected dividend rate over the service period. Units are amortized to compensation expense ratably over the service period.

The following table provides information on our restricted stock units (in millions, except per share data):

Compensation expense for restricted stock units
Weighted-average fair value of grants, per share

For the Years Ended December 31,
2014
2015
2016

$
$

9.0
150.14

$
$

8.3
126.15

$
$

7.0
88.26

A summary of our non-vested restricted stock units as of December 31, 2016 and changes during the year then ended is presented

below (in millions, except per share data):

Non-vested restricted stock units as of December 31, 2015

Granted
Distributed
Forfeited

Non-vested restricted stock units as of December 31, 2016

Weighted-
Average Grant
Date Fair Value
per Share

0.3
0.1
(0.1)
—
0.3

94.23
150.14
80.40
—
118.38

As of December 31, 2016, we had $17.7 million of total unrecognized compensation cost related to non-vested restricted stock
units that is expected to be recognized over a weighted-average period of 2.4 years. Our estimated forfeiture rate for restricted
stock units was 14.4% as of December 31, 2016.

The total fair value of restricted stock units vested and the resulting tax deductions to realize tax benefits were as follows (in

millions):

Fair value of restricted stock units vested
Realized tax benefits from tax deductions

Stock Appreciation Rights

For the Years Ended December 31,
2014
2015
2016

17.0
6.5

19.7
7.5

19.5
7.4

Stock appreciation rights are issued to certain key employees. Each recipient is given the “right” to receive a value, paid in
shares of our common stock, equal to the future appreciation of our common stock price. Stock appreciation rights generally vest
in one-third increments beginning on the first anniversary date after the grant date and expire after seven years. Our practice is
to issue new shares of common stock or utilize treasury stock to satisfy the exercise of stock appreciation rights.

The following table provides information on our stock appreciation rights (in millions, except per share data):

Compensation expense for stock appreciation rights
Weighted-average fair value of grants, per share

For the Years Ended December 31,
2014
2015
2016

4.6
22.93

4.7
22.74

4.8
19.55

Compensation expense for stock appreciation rights is based on the fair value on the date of grant, estimated using the Black-
Scholes-Merton valuation model, and is recognized over the service period. We used historical stock price data to estimate the
expected volatility. We determined that the recipients of stock appreciation rights can be combined into one employee group that
has similar historical exercise behavior and we used our historical pattern of award exercises to estimate the expected life of the
awards for the employee group. The risk-free interest rate was based on the zero-coupon U.S. Treasury yield curve with a maturity
equal to the expected life of the awards at the time of grant.

The fair value of the stock appreciation rights granted in 2016, 2015 and 2014 were estimated on the date of grant using the

following assumptions:

Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)

2016

2015

2014

1.62%
1.66%
19.60%
3.99

1.61%
1.36%
23.78%
4.00

1.75%
1.27%
29.60%
4.04

A summary of our stock appreciation rights as of December 31, 2016, and changes during the year then ended, is presented

below (in millions, except per share data):

Outstanding stock appreciation rights as of December 31, 2015

Granted

Exercised

Forfeited

Outstanding stock appreciation rights as of December 31, 2016

Exercisable stock appreciation rights as of December 31, 2016

Weighted-
Average
Exercise Price
per Share

1.3

0.2
(0.4)
—

1.1

0.7

72.54

156.94

47.34

—

98.35

72.17

The following table summarizes information about stock appreciation rights outstanding as of December 31, 2016 (in millions,

except per share data and years):

Range of Exercise Prices
$34.06 to $51.40
$81.11 to $92.64
$124.97 to $156.94

Stock Appreciation Rights Outstanding

Stock Appreciation Rights Exercisable

Weighted-Average
Remaining Contractual
Term (in years)

Aggregate
Intrinsic
Value

Weighted-Average
Remaining Contractual
Life (in years)

Aggregate
Intrinsic
Value

0.3
0.4
0.4

2.44
4.54
6.55

$
$
$

34.3
25.2
4.3

0.3
0.3
0.1

2.44
4.44
5.93

$
$
$

34.3
21.0
1.4

As of December 31, 2016, we had $9.0 million of unrecognized compensation cost related to non-vested stock appreciation
rights that is expected to be recognized over a weighted-average period of 2.37 years. Our estimated forfeiture rate for stock
appreciation rights was 13.1% as of December 31, 2016.

The total intrinsic value of stock appreciation rights exercised and the resulting tax deductions to realize tax benefits were as
follows (in millions):

Intrinsic value of stock appreciation rights exercised
Realized tax benefits from tax deductions

Employee Stock Purchase Plan

For the Years Ended December 31,
2014
2015
2016

$
$

36.9
14.1

$
$

27.3
10.4

$
$

27.3
10.4

Under the 2012 Employee Stock Purchase Plan (“ESPP”), all employees who meet certain service requirements are eligible
to purchase our common stock through payroll deductions at the end of three month offering periods. The purchase price for such
shares is 95% of the fair market value of the stock on the last day of the offering period. A maximum of 2.5 million shares is
authorized for purchase until the ESPP plan termination date of May 10, 2022, unless terminated earlier at the discretion of the
Board of Directors. Employees purchased approximately 17,000 shares under the ESPP during the year ended December 31,
2016. Approximately 2.4 million shares remain available for purchase under the ESPP as of December 31, 2016.

15. Stock Repurchases:

Our Board of Directors has authorized a total of $2 billion towards the repurchase of shares of our common stock (collectively
referred to as the "Share Repurchase Plans"), including a $550 million share repurchase authorization in 2016. The Share Repurchase
Plans authorize open market repurchase transactions and do not have a stated expiration date. As of December 31, 2016, $646.0
million of shares may still be repurchased under the Share Repurchase Plans.

On February 10, 2016, the Company entered into a Fixed Dollar Accelerated Share Repurchase Transaction (the “First ASR
Agreement”) with Merrill Lynch International (“Merrill Lynch”), acting through its agent, Merrill Lynch, Pierce, Fenner and Smith
Incorporated to effect an accelerated stock buyback of the Company’s common stock (the “Common Stock”).

Under the First ASR Agreement, on February 10, 2016, the Company paid Merrill Lynch an initial purchase price of $200.0
million, and Merrill Lynch delivered to the Company a total of 1.3 million shares of Common Stock, representing approximately
75% of the shares expected to be purchased under the ASR Agreement. The First ASR Agreement was completed in the third
quarter and Merrill Lynch delivered an additional 0.2 million shares of Common Stock to the Company.

On August 1, 2016, the Company entered into another Fixed Dollar ASR Agreement (the "Second ASR Agreement) with Wells

Fargo to effect an accelerated stock buyback of Common Stock.

Under the Second ASR Agreement, on August 1, 2016, the Company paid Wells Fargo an initial purchase price of $100.0
million, and Wells Fargo delivered to the Company a total of 0.5 million shares of Common Stock, representing approximately
75% of the shares expected to be purchased under the Second ASR Agreement. The Second ASR Agreement was completed in
the fourth quarter and Wells Fargo delivered an additional 0.2 million shares of Common Stock to the Company.

We also repurchased 0.2 million shares for $33.3 million and 0.3 million shares for $32.0 million for the years ended December
31, 2016 and 2015, respectively, from employees who surrendered their shares to satisfy minimum tax withholding obligations
upon the vesting of stock-based compensation awards.

16. Restructuring Charges:

We record restructuring charges associated with management-approved restructuring plans to reorganize or to remove
duplicative headcount and infrastructure within our businesses. Restructuring charges include severance costs to eliminate a
specified number of employees, infrastructure charges to vacate facilities and consolidate operations, contract cancellation costs
and other related activities. The timing of associated cash payments is dependent upon the type of restructuring charge and can
extend over a multi-year period. Restructuring charges are not included in our calculation of segment profit (loss), as more fully
explained in Note 18.

Restructuring Activities in 2016

Information regarding the restructuring charges for all ongoing activities are presented in the table below (in millions):

Severance and related expense
Asset write-offs and accelerated depreciation
Lease termination
Other

Total

Incurred in
2016

Incurred to
Date

Total
Expected to
be Incurred

(0.2) $
0.3
—
1.7
1.8

9.3
2.4
0.2
3.7
15.6

9.3
2.4
0.2
4.1
16.0

While restructuring charges are excluded from our calculation of segment profit (loss), the table below presents the restructuring

charges associated with each segment (in millions):

Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate & Other

Total

Incurred in
2016

Incurred to
Date

Total
Expected to
be Incurred

— $
0.2
(0.1)
1.7
1.8

0.9
1.1
11.9
1.7
15.6

0.9
1.1
11.9
2.1
16.0

Restructuring accruals are included in Accrued expenses in the accompanying Consolidated Balance Sheets. The activity

within the restructuring accruals is summarized in the tables below (in millions):

Description of Reserves:
Severance and related expense

Asset write-offs and accelerated depreciation

Equipment moves

Lease termination

Other

Total restructuring reserves

Description of Reserves:
Severance and related expense

Asset write-offs and accelerated depreciation

Equipment moves

Lease termination

Other

Total restructuring reserves

17. Earnings Per Share:

Balance as of
December 31,
2015

Charged to
Earnings

Cash
Utilization

Non-Cash
Utilization and
Other

Balance as of
December 31,
2016

0.7

—

0.2

—

0.9

1.5

0.1

—
—

—

(0.2) $
0.3

—

1.7

1.8

Charged to
Earnings

2.6

0.3

—
0.2

0.1

3.2

(0.5) $
(0.2)
—
(0.2)
(1.8)
(2.7) $

— $

(0.1)
—

—

0.1

— $

—

Cash
Utilization

Non-Cash
Utilization and
Other

Balance as of
December 31,
2015

(2.9) $
(0.2)
—
—
(0.1)
(3.2) $

(0.5) $
(0.2)
—
—

—
(0.7) $

0.7

—

—
0.2

—

0.9

1.6

Balance as of
December 31,
2014

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):

Net income
Add: Loss from discontinued operations
Income from continuing operations

Weighted-average shares outstanding – basic
Add: Potential effect of diluted securities attributable to stock-based payments
Weighted-average shares outstanding – diluted

Earnings per share - Basic:

Income from continuing operations
Loss from discontinued operations
Net income

Earnings per share - Diluted:

Income from continuing operations
Loss from discontinued operations
Net income

For the Years Ended December 31,
2014
2015
2016

277.8
0.8
278.6

186.6
0.6
187.2

43.4
0.6
44.0

44.9
0.7
45.6

6.41
(0.02)
6.39

6.34
(0.02)
6.32

4.17
(0.01)
4.16

4.11
(0.02)
4.09

205.8
2.3
208.1

47.9
0.7
48.6

4.35
(0.05)
4.30

4.28
(0.05)
4.23

The following 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 (in millions, except for per share data):

Weighted-average number of shares

Price ranges per share

18. Reportable Business Segments:

Description of Segments

For the Years Ended December 31,
2015

2014

2016

—

— $

—

0.3

— $81.11 - $92.64

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
Residential
Heating &
Cooling

Commercial
Heating &
Cooling

Refrigeration

Products or Services
Furnaces, air conditioners, heat pumps, packaged
heating and cooling systems, indoor air quality
equipment, comfort control products, replacement
parts and supplies

Unitary heating and air conditioning equipment,
applied systems, controls, installation and service
of commercial heating and cooling equipment,
variable refrigerant flow commercial products

Condensing units, unit coolers, fluid coolers, air-
cooled condensers, air handlers, process chillers,
controls, compressorized racks, supermarket
display cases and systems

Markets Served
Residential Replacement;
Residential New Construction

Geographic Areas
United States
Canada

Light Commercial

Light Commercial;
Food Preservation;
Non-Food/Industrial

United States
Canada
Europe

United States
Canada
Europe
Asia Pacific
South America

Segment Data

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.

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 segment, along with a reconciliation of segment profit (loss) to Operating income, are

shown below (in millions):

Net Sales (1)
Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration

Segment Profit (Loss) (2)
Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other

Subtotal segment profit

Reconciliation to Operating income:
Special product quality adjustments
Items in Losses and other expenses, net that are excluded from segment profit (loss) (2)
Restructuring charges
Pension settlement
Goodwill impairment
Asset impairment
One time inventory write down
Operating income

For the Years Ended December 31,

2016

2015

2014

$ 2,000.8
917.9
722.9
$ 3,641.6

$ 1,866.9
887.2
713.3
$ 3,467.4

$ 1,736.5
878.5
752.4
$ 3,367.4

348.8
149.3
68.9
(97.4)
469.6

(0.4)
7.4
1.8
31.4
—
—
—
429.4

278.4
130.4
52.9
(84.1)
377.6

(2.2)
15.6
3.2
—
5.5
44.5
5.6
305.4

235.8
124.0
55.4
(74.3)
340.9

(1.4)
4.7
1.9
—
—
—
1.0
334.7

(1) On a consolidated basis, no revenue from transactions with a single customer were 10% or greater of our consolidated net

sales for any of the periods presented.

(2) The Company defines segment profit and loss as a segment's operating income included in the accompanying Consolidated

Statements of Operations, excluding:
• Special product quality adjustments;
• The following items in Losses 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,
Contractor tax payments,
Acquisition costs, and
Other items, net;

• Restructuring charges;
• Goodwill and asset impairments;
• Pension settlement ; and
• One time inventory write down.

The assets in the Corporate and other segment primarily consist of cash, short-term investments and deferred tax assets. Assets

recorded in the operating segments represent those assets directly associated with those segments.

Total assets by segment are shown below (in millions):

Total Assets:

Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other
Total assets

Total capital expenditures by segment are shown below (in millions):

Capital Expenditures:

Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other

Total capital expenditures (1)

As of December 31,
2015

2014

2016

673.4
385.8
442.8
258.3
1,760.3

628.3
363.6
444.9
240.6
1,677.4

632.3
353.4
551.5
227.1
1,764.3

For the Years Ended December 31,
2014
2015
2016

36.7
11.5
12.1
24.0
84.3

28.1
8.6
11.4
21.8
69.9

39.4
14.1
15.8
19.1
88.4

(1) Includes amounts recorded under capital leases. There were no significant new capital leases in 2016, 2015 or 2014.

Depreciation and amortization expenses by segment are shown below (in millions):

Depreciation and Amortization:

Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other

Total depreciation and amortization

The equity method investments are shown below (in millions):

Income from Equity Method Investments:
Refrigeration
Residential

Total income from equity method investments

For the Years Ended December 31,
2014
2015
2016

21.0
9.8
9.7
17.6
58.1

20.7
9.7
15.5
16.9
62.8

20.7
9.3
16.3
14.5
60.8

For the Years Ended December 31,
2014
2015
2016

4.0
14.4
18.4

2.8
10.6
13.4

2.5
11.3
13.8

Geographic Information

Net sales for each major geographic area in which we operate are shown below (in millions):

Net Sales to External Customers by Point of Shipment:

United States
Canada
International

Total net sales to external customers

For the Years Ended December 31,

2016

2015

2014

2,966.8
218.8
456.0
3,641.6

2,793.4
217.7
456.3
3,467.4

2,576.4
236.3
554.7
3,367.4

Property, plant and equipment, net for each major geographic area in which we operate, based on the domicile of our
operations, are shown below (in millions):

Property, Plant and Equipment, net:

United States
Mexico
Canada
International

Total Property, plant and equipment, net

19. Fair Value Measurements:

As of December 31,
2015

2014

2016

237.6
69.4
1.4
53.0
361.4

224.8
60.0
1.2
53.6
339.6

243.4
52.4
0.6
62.2
358.6

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date and requires consideration of our creditworthiness when valuing certain liabilities. Our
framework for measuring fair value is based on the following three-level hierarchy for fair value measurements:

Level 1 - Quoted prices for identical instruments in active markets at the measurement date.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which all significant inputs and significant value
drivers are observable in active markets at the measurement date and for the anticipated term of the instrument.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers
are unobservable inputs that reflect the reporting entity's own assumptions about the assumptions market
participants would use in pricing the asset or liability developed based on the best information available in the
circumstances.

Fair values are estimates and are not necessarily indicative of amounts for which we could settle such instruments currently

nor indicative of our intent or ability to dispose of or liquidate them.

Assets and Liabilities Carried at Fair Value on a Recurring Basis

Derivatives

Derivatives, classified as Level 2, were primarily valued using estimated future cash flows based on observed prices from
exchange-traded derivatives. We also considered the counterparty's creditworthiness, or our own creditworthiness, as appropriate.
Adjustments were recorded to reflect the risk of credit default, but they were insignificant to the overall value of the derivatives.
Refer to Note 8 for more information related to our derivative instruments.

Marketable Equity Securities

The following table presents the fair values of an investment in marketable equity securities, related to publicly traded stock

of a non-U.S. company, recorded in Other assets, net in the accompanying Consolidated Balance Sheets (in millions):

Quoted Prices in Active Markets for Identical Assets (Level 1):

Investment in marketable equity securities

Other Fair Value Disclosures

As of December 31,

2016

2015

4.4

6.5

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 carrying amount of
our Domestic Credit Facility in Long-term debt also approximates fair value due to its variable-rate characteristics.

The fair value of our senior unsecured notes in Long-term debt was based on the amount of future cash flows using current
market rates for debt instruments of similar maturities and credit risk. The following table presents the fair value for our senior
unsecured notes in Long-term debt (in millions):

Quoted Prices in Active Markets for Similar Instruments (Level 2):

Senior unsecured notes

499.3

207.3

20. Selected Quarterly Financial Information (unaudited):

The following tables provide information on Net sales, Gross profit, Net income, Earnings per share and Cash dividends

declared per share by quarter (in millions, except per share data):

As of December 31,

2016

2015

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

2016

715.2
1,019.2
1,010.0
897.3

Net Sales (1)

Gross Profit (1)

2015

2016

2015

Net Income (Loss) (1)
2015
2016

685.8
992.5
955.0
834.1

183.6
315.0
310.3
267.6

163.0
283.4
273.4
227.6

24.9
110.7
101.7
40.4

13.9
81.2
80.3
11.2

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Basic Earnings (Loss)
per Share (2)

Diluted Earnings (Loss)
per Share (2)

Cash Dividends per
Common Share

2016

2015

2016

2015

2016

2015

0.57
2.54
2.35
0.94

0.31
1.80
1.78
0.25

0.56
2.51
2.33
0.93

0.31
1.78
1.76
0.25

0.36
0.43
0.43
0.43

0.30
0.36
0.36
0.36

(1) The sum of the quarterly results for each of the four quarters may not equal the full year results due to rounding.
(2) EPS for each quarter is computed using the weighted-average number of shares outstanding during that quarter, while
EPS for the fiscal year is computed using the weighted-average number of shares outstanding during the year. Thus, the
sum of the EPS for each of the four quarters may not equal the EPS for the fiscal year.

Summary of 2016 Quarterly Results

The following unusual or infrequent pre-tax items were included in the 2016 quarterly results:

1st Quarter. No significant unusual or infrequent items.

2nd Quarter. No significant unusual or infrequent items.

3rd Quarter. No significant unusual or infrequent items.

4th Quarter. As part of our ongoing strategy to de-risk our pension plan obligations, we completed a one-time, lump sum
pension buyout in the fourth quarter of 2016 for certain vested participants. As a result of the pension buy-out, we recorded a
pension settlement charge of $31 million in the fourth quarter.

Summary of 2015 Quarterly Results

The following unusual or infrequent pre-tax items were included in the 2015 quarterly results:

1st Quarter. No significant unusual or infrequent items.

2nd Quarter. No significant unusual or infrequent items.

3rd Quarter. No significant unusual or infrequent items.

4th Quarter. We recorded goodwill impairment and asset impairment charges of $5.5 million and $44.5 million, respectively,
to our North American supermarket display case business. Refer to Notes 4 and 5 for more information related to our impairment
charges.

21. Losses and Other Expenses, net:

Losses and other expenses, net in our Consolidated Statements of Operations were as follows (in millions):

For the Years Ended December 31,
2014
2015

2016

Realized losses on settled futures contracts

1.1

Foreign currency exchange losses
Losses (gains) on disposal of fixed assets
Net change in unrealized losses (gains) on unsettled futures contracts
Asbestos-related litigation
Acquisition expenses
Special legal contingency charges
Environmental liabilities
Contractor tax payments
Other items, net

Losses and other expenses, net

22. Supplemental Information:

2.2
0.5
(3.6)
6.3
0.4
1.9
1.9
0.6
—
11.3

1.9

3.6
0.6
0.6
3.0
1.0
7.4
1.0
2.6
—
21.7

0.8

1.6
(0.3)
0.6
0.9
—
0.9
2.0
—
0.3
6.8

Below is information about expenses included in our Consolidated Statements of Operations (in millions):

Research and development
Advertising, promotions and marketing (1)
Cooperative advertising expenditures (2)
Rent expense

For the Years Ended December 31,
2014
2015

2016

64.6
41.0
14.7
57.9

62.3
42.5
13.7
53.5

60.7
41.9
13.1
50.5

(1) Cooperative advertising expenditures were not included in these amounts.
(2) Cooperative advertising expenditures were included in Selling, general and administrative expenses in the Consolidated

Statements of Operations.

Interest Expense, net

The components of Interest expense, net in our Consolidated Statements of Operations were as follows (in millions):

Interest expense, net of capitalized interest
Interest income

Interest expense, net

For the Years Ended December 31,

2016

2015

2014

28.1
1.1
27.0

25.2
1.6
23.6

18.9
1.7
17.2

23. Condensed Consolidating Financial Statements:

The Company’s senior unsecured notes are unconditionally guaranteed by certain of the Company’s subsidiaries (the “Guarantor
Subsidiaries”) and are not secured by our other subsidiaries (the “Non-Guarantor Subsidiaries”). The Guarantor Subsidiaries are
100% owned, all guarantees are full and unconditional, and all guarantees are joint and several. As a result of the guarantee
arrangements, we are required to present condensed consolidating financial statements.

The condensed consolidating financial statements reflect the investments in subsidiaries of the Company using the equity
method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and
transactions.

Condensed consolidating financial statements of the Company, its Guarantor Subsidiaries and Non-Guarantor Subsidiaries as
of December 31, 2016 and December 31, 2015 and for the years ended December 31, 2016, 2015 and 2014 are shown on the
following pages.

Condensed Consolidating Balance Sheets
As of December 31, 2016
(In millions)

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Parent
ASSETS

1.2

31.9

— $

17.1

30.6

314.7

48.8

411.2

237.6

134.9

524.7

113.5

40.0

375.2

—

12.8

14.0

—

1,166.9

6.8

3.6
(382.4)
808.9

439.2

108.9

67.5

647.5

123.8

60.2
(0.5)
31.1

19.0

80.4

—
(5.1)
(61.7)
(66.8)
—

—
(1,691.1)
(14.7)
(1.4)
(73.2)
(1,847.2) $

Current Assets:

Cash and cash equivalents

Accounts and notes receivable, net

Inventories, net

Other assets

Total current assets

Property, plant and equipment, net

Goodwill

Investment in subsidiaries

Deferred income taxes

Other assets, net

Intercompany receivables (payables), net

Total assets

Current liabilities:

Short-term debt

1,837.1

961.5

LIABILITIES AND STOCKHOLDERS’ EQUITY

— $

52.4

— $

Current maturities of long-term debt

Accounts payable

Accrued expenses

Income taxes payable

Total current liabilities

Long-term debt

Post-retirement benefits, other than pensions

Pensions

Other liabilities

Total liabilities

Commitments and contingencies

Total stockholders' equity

199.3

18.5

6.3
(54.0)
170.1

600.9

—

771.0

0.4

248.5

206.3

89.8

545.0

14.5

2.8

75.5

119.1

756.9

0.4

94.2

53.3

52.5

252.8

0.3

—

12.0

11.1

276.2

37.9

1,080.2

685.3

Total liabilities and stockholders' equity

808.9

1,837.1

961.5

50.2

469.8

418.5

67.4

1,005.9

361.4

195.1

—

136.7

61.2

—

1,760.3

52.4

200.1

361.2

265.9

9.0

888.6

615.7

2.8

87.5

127.7

1,722.3

—

—
(79.3)
(79.3)
—

—

—
(2.5)
(81.8)

(1,765.4)
(1,847.2) $

38.0

1,760.3

Condensed Consolidating Balance Sheets
As of December 31, 2015
(In millions)

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Parent
ASSETS

38.9

422.8

418.8

57.7

938.2

339.6

195.1

—

145.7

58.8

—

1,677.4

204.1

31.0

320.1

242.6

26.0

823.8

506.0

4.1

120.8

121.1

1,575.8

—

—
(75.5)
(75.5)
—

—

—
(4.2)
(79.7)

(1,216.8)
(1,296.5) $

101.6

1,677.4

Current Assets:

Cash and cash equivalents

Accounts and notes receivable, net

Inventories, net

Other assets

Total current assets

Property, plant and equipment, net

Goodwill

Investment in subsidiaries

Deferred income taxes

Other assets, net

Intercompany receivables (payables), net

Total assets

Current liabilities:

Short-term debt

0.5

7.8

30.6

— $

—

3.3

3.8

—

879.0

5.4

1.5
(278.6)
611.1

25.9

324.3

46.9

404.9

261.8

134.9

337.6

126.6

38.2

253.3

396.9

98.9

67.4

593.8

77.8

60.2
(0.6)
28.4

20.6

25.3

1,557.3

805.5

—
(4.4)
(59.9)
(64.3)
—

—
(1,216.0)
(14.7)
(1.5)
—
(1,296.5) $

LIABILITIES AND STOCKHOLDERS’ EQUITY

— $

204.1

— $

Current maturities of long-term debt

Accounts payable

Accrued expenses

Income taxes payable

Total current liabilities

Long-term debt

Post-retirement benefits, other than pensions

Pensions

Other liabilities

Total liabilities

Commitments and contingencies

Total stockholders' equity

29.8

16.1

15.8
(43.0)
18.7

490.4

—

0.4

509.5

0.8

237.9

176.7

106.6

522.0

15.1

4.1

111.9

114.4

767.5

0.4

66.1

50.1

37.9

358.6

0.5

—

8.9

10.5

378.5

101.6

789.8

427.0

Total liabilities and stockholders' equity

611.1

1,557.3

805.5

Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2016
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

— $

3,117.6

728.0

Net Sales

Cost of goods sold

Gross profit

Operating expenses:

Selling, general and administrative expenses

Losses and other expenses, net

Restructuring charges

Goodwill impairment

Asset impairment

Pension settlement

Income from equity method investments

Operational income

Interest expense, net

Other expense, net

Income from continuing operations before
income taxes

Provision for income taxes

Income from continuing operations

Loss from discontinued operations

Net income

Other comprehensive income (loss)

Comprehensive Income

(204.0) $
(203.2)
(0.8)

3,641.6

2,565.1

1,076.5

—
(0.2)
—

—

329.1
(329.7)
—

—

(329.7)
(0.2)
(329.5)
—
(329.5) $
$
1.3
(328.2) $

621.0

11.3

1.8

—

31.4
(18.4)
429.4

27.0
(0.3)

402.7

124.1

278.6
(0.8)
277.8

9.6

287.4

—

—
(3.3)
—

—

—
(292.4)
295.7

24.4

—

271.3
(6.5)
277.8

—

277.8

14.0

291.8

2,203.8

913.8

524.3

9.7

1.9

—

30.5
(40.7)
388.1
(2.2)
—

390.3

108.2

282.1

—

282.1

8.5

290.6

564.5

163.5

96.7

5.1
(0.1)
—

—

0.9
(14.4)
75.3

4.8
(0.3)

70.8

22.6

48.2
(0.8)
47.4
$
(14.2) $
$
33.2

Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2015
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

— $

2,950.6

701.8

Net sales

Cost of goods sold

Gross profit

Operating expenses:

Selling, general and administrative expenses

Losses (gains) and other expenses, net

Restructuring charges

Goodwill Impairment

Asset Impairment

Pension settlement

(Income) loss from equity method investments
Operational income

Interest expense, net

Other expense, net

Income from continuing operations before
income taxes

Provision for income taxes

Income from continuing operations

Loss from discontinued operations

Net income

Other comprehensive income (loss)

Comprehensive income

(185.0) $
(187.3)
2.3

3,467.4

2,520.0

947.4

—
(0.2)
—

—

204.8
(202.3)
—

—

(202.3)
1.0
(203.3)
—
(203.3) $
(4.0) $
(207.3) $

580.5

21.7

3.2

5.5

44.5

—
(13.4)
305.4

23.6
(0.8)

282.6

95.4

187.2
(0.6)
186.6
(51.2)
135.4

—

0.7

—

—
(201.8)
201.1

22.4

—

178.7
(7.8)
186.5

—

2,150.9

799.7

485.6

13.7
(0.5)
5.5

44.5

—
(5.9)
256.8
(2.0)
—

258.8

87.9

170.9

—

186.5

$
(3.5) $
$

183.0

170.9

$
(3.3) $
$

167.6

556.4

145.4

94.9

7.5

3.7

—

—
(10.5)
49.8

3.2
(0.8)

47.4

14.3

33.1
(0.6)
32.5
$
(40.4) $
(7.9) $

Condensed Consolidating Statements of Operations and Comprehensive Income
For the Year Ended December 31, 2014
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Net Sales

Cost of goods sold

Gross profit

Operating expenses:

Selling, general and administrative expenses

Losses and other expenses, net

Restructuring charges

Goodwill impairment

Asset impairment

Pension settlement

Income from equity method investments

Operational income

Interest expense, net

Other expense, net

Income from continuing operations before
income taxes

Provision for income taxes

Income from continuing operations

Loss from discontinued operations

Net income

Other comprehensive income (loss)

Comprehensive Income

— $

2,775.7

818.0

—

—
(216.4)
216.4

16.0

—

200.4
(5.6)
206.0

—

206.0

$
(4.1) $
$

201.9

2,057.8

717.9

628.3

189.7

454.5

119.2

3.2

0.4

—

—
(25.4)
285.2
(3.0)
—

288.2

91.7

196.5

—

196.5
$
(51.2) $
$
145.3

3.6

1.5

—

—
(11.3)
76.7

4.2
(0.1)

72.6

24.9

47.7
(2.3)
45.4
$
(34.8) $
$
10.6

(226.3) $
(222.0)
(4.3)

3,367.4

2,464.1

903.3

—

239.3
(243.6)
—

—

(243.6)
(1.5)
(242.1)
—
(242.1) $
(2.3) $
(244.4) $

573.7

6.8

1.9

—

—
(13.8)
334.7

17.2
(0.1)

317.6

109.5

208.1
(2.3)
205.8
(92.4)
113.4

Cash flows from operating activities:

Cash flows from investing activities:

Proceeds from the disposal of property, plant and
equipment

Purchases of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Short-term borrowings, net

Asset securitization borrowings

Asset securitization payments

Long-term debt borrowings
Borrowings from credit facility

Long-term debt payments

Payments on credit facility

Payments of deferred financing costs

Proceeds from employee stock purchases

Repurchases of common stock to satisfy employee
withholding tax obligations

Repurchases of common stock

Excess tax benefits related to share-based payments

Intercompany debt

Intercompany financing activity

Cash dividends paid

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Effect of exchange rates on cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2016
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

(1.6) $

218.5

137.6

— $

354.5

—
(71.5)
(71.5)

—

—
—
(0.9)
—

—

—
(65.8)
(71.0)
—
(137.7)
9.3

—

7.8

0.2
(12.8)
(12.6)

(2.4)
145.0
(295.0)
—
—
(0.4)
—

—

35.8
(2.8)
—
(119.8)
5.2
(3.9)
30.6

—

—
—

—

0.2
(84.3)
(84.1)

(2.4)
145.0
(295.0)
350.0
2,336.5
(58.8)
(2,346.0)
(4.2)
2.6

(33.3)
(300.0)
19.4

—

—
(69.0)
(255.2)
15.2
(3.9)
38.9

17.1

31.9

— $

50.2

—

350.0
2,336.5
(57.5)
(2,346.0)
(4.2)
2.6

(33.3)
(300.0)
19.4

30.0

73.8
(69.0)
2.3

0.7

—

0.5

1.2

Cash flows from operating activities:

Cash flows from investing activities:

Proceeds from the disposal of property, plant and
equipment

Purchases of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Short-term borrowings, net

Asset securitization borrowings

Asset securitization payments

Long-term debt borrowings
Borrowings from credit facility

Long-term debt payments

Payments on credit facility

Payments of deferred financing costs

Proceeds from employee stock purchases

Repurchases of common stock to satisfy employee
withholding tax obligations
Repurchases of common stock

Excess tax benefits related to share-based payments

Intercompany debt

Intercompany financing activity

Cash dividends paid

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Effect of exchange rates on cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2015
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

226.9

49.3

55.0

— $

331.2

0.1
(60.2)
(60.1)

—

—
—
(1.2)
—

—

7.1

1.2

—

7.1
(3.7)
—

11.5

—
(9.7)
(9.7)

(1.7)
40.0
(60.0)
—
—
(0.3)
—

—

2.3
(8.7)
—
(28.4)
16.9
(11.3)
25.0

—

—
—

—

0.1
(69.9)
(69.8)

(1.7)
40.0
(60.0)
—
1,671.0
(24.0)
(1,807.5)
—

2.4

(32.0)
—

22.4

—

—
(59.3)
(248.7)
12.7
(11.3)
37.5

7.8

30.6

— $

38.9

—

—
1,671.0
(22.5)
(1,807.5)
—

2.4

(32.0)
—

22.4
(9.4)
7.5
(59.3)
(227.4)
(0.5)
—

1.0

0.5

Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2014
(In millions)

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

328.8

(97.2) $

(46.8) $

— $

184.8

1.0
(70.5)
(69.5)

—

—
—
(1.9)
—

—

4.7

164.9

—

167.7

1.0

—

10.5

11.5

0.1
(17.9)
(17.8)

1.5

100.0
(40.0)
—
—
(0.4)
—

—

—
(4.6)
15.2

—

71.7

7.1
(8.5)
26.4

—

—
—

—

25.0

— $

1.1
(88.4)
(87.3)

1.5

100.0
(40.0)
300.0
2,073.5
(2.3)
(1,908.5)
(2.2)
2.0

(22.4)
(550.3)
11.8

—

—
(52.6)
(89.5)
8.0
(8.5)
38.0

37.5

Cash flows from operating activities:

Cash flows from investing activities:

Proceeds from the disposal of property, plant and
equipment

Purchases of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Short-term borrowings, net

Asset securitization borrowings

Asset securitization payments

Long-term debt borrowings

Borrowings from revolving credit facility

Long-term debt payments

Payments on revolving credit facility

Payments of deferred financing costs

Proceeds from employee stock purchases

Repurchases of common stock to satisfy employee
withholding tax obligations

Repurchases of common stock

Excess tax benefits related to share-based payments

Intercompany debt

Intercompany financing activity

Cash dividends paid

Net cash provided by (used in) financing activities

Decrease in cash and cash equivalents

Effect of exchange rates on cash and cash equivalents

—

300.0
2,073.5

—
(1,908.5)
(2.2)
2.0

(22.4)
(550.3)
11.8
(0.1)
(180.1)
(52.6)
(328.9)
(0.1)
—

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

1.1

1.0

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, we carried out an evaluation, under the supervision and with the participation
of our current management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report. There are inherent limitations to the effectiveness of
any system of disclosure controls and procedures, including the possibility of human error and circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance
of achieving their control objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2016, our disclosure controls and procedures were effective to provide reasonable assurance
that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the applicable rules and forms, and that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting

See “Management's Report on Internal Control Over Financial Reporting” included in Item 8 “Financial Statements and

Supplementary Data.”

Attestation Report of the Independent Registered Public Accounting Firm

See “Report of Independent Registered Public Accounting Firm” included in Item 8 “Financial Statements and Supplementary

Data.”

Changes in Internal Control Over Financial Reporting

There were no changes during the fourth quarter ended December 31, 2016 in our internal control over financial reporting that

have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

PART III

The information in the sections of our 2017 Proxy Statement captioned “Proposal 1: Election of Directors, “Section 16(a)
Beneficial Ownership Reporting Compliance,” and “Corporate Governance” is incorporated in this Item 10 by reference. Part I,
Item 1 “Business - Executive Officers of the Company” of this Annual Report on Form 10-K identifies our executive officers and
is incorporated in this Item 10 by reference.

Item 11. Executive Compensation

The sections of our 2017 Proxy Statement captioned “Executive Compensation,” “Director Compensation,” “Corporate
Governance - Compensation and Human Resources Committee” and “Certain Relationships and Related Party Transactions -
Compensation Committee Interlocks and Insider Participation” are incorporated in this Item 11 by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The sections of our 2017 Proxy Statement captioned “Equity Compensation Plan Information” and “Ownership of Common
Stock” are incorporated in this Item 12 by reference. Also, refer to Note 14 in the Notes to the Consolidated Financial Statements
for additional information about our equity compensation plans.

Item 13. Certain Relationships and Related Transactions and Director Independence

The sections of our 2017 Proxy Statement captioned “Corporate Governance - Director Independence and - Board Committees”

and “Certain Relationships and Related Party Transactions” are incorporated in this Item 13 by reference.

Item 14. Principal Accounting Fees and Services

The section of our 2017 Proxy Statement captioned “Proposal 2: Ratification of the Appointment of KPMG LLP as our

Independent Registered Public Accounting Firm for the 2017 Fiscal year” is incorporated in this Item 14 by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements

The following financial statements are included in Part II, Item 8 of the Annual Report on Form 10-K:

• Report of Independent Registered Public Accounting Firm
• Consolidated Balance Sheets as of December 31, 2016 and 2015
• Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014
• Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014
• Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2016, 2015 and 2014
• Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014
• Notes to the Consolidated Financial Statements for the Years Ended December 31, 2016, 2015 and 2014

Financial Statement Schedules

The financial statement schedule included in this Annual Report on Form 10-K is Schedule II - Valuation and Qualifying
Accounts and Reserves for the Years Ended December 31, 2016, 2015 and 2014 (see Schedule II immediately following the
signature page of this Annual Report on Form 10-K).

Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not

applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

Exhibits

A list of the exhibits required to be filed or furnished as part of this Annual Report on Form 10-K is set forth in the Index to

Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

February 20, 2017

LENNOX INTERNATIONAL INC.

By: /s/ Todd M. Bluedorn
Todd M. Bluedorn
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant in the capacities and on the dates indicated.

SIGNATURE

TITLE

DATE

/s/ TODD M. BLUEDORN

Chief Executive Officer and Chairman of the Board of Directors February 20, 2017

Todd M. Bluedorn

(Principal Executive Officer)

/s/ JOSEPH W. REITMEIER
Joseph W. Reitmeier

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

/s/ ROY A. RUMBOUGH
Roy A. Rumbough

Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)

/s/ TODD J. TESKE
Todd J. Teske

/s/ JANET K. COOPER
Janet K. Cooper

/s/ JOHN E. MAJOR
John E. Major

/s/ JOHN W. NORRIS, III
John W. Norris, III

/s/ KAREN H. QUINTOS
Karen. H. Quintos

/s/ KIM K.W. RUCKER
Kim K.W. Rucker

/s/ MAX H. MITCHELL
Max H. Mitchell

/s/ PAUL W. SCHMIDT
Paul W. Schmidt

/s/ TERRY D. STINSON
Terry D. Stinson

/s/ GREGORY T. SWIENTON
Gregory T. Swienton

Lead Director

Director

February 20, 2017

February 17, 2017

February 20, 2017

February 19, 2017

February 20, 2017

LENNOX INTERNATIONAL INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

For the Years Ended December 31, 2016, 2015 and 2014

(In millions)

Balance at
beginning
of year

Additions
charged to
cost and
expenses

Write-offs

Recoveries

Other

Balance at
end of year

2014:

Allowance for doubtful accounts $

2015:

Allowance for doubtful accounts $

2016

Allowance for doubtful accounts $

9.8

7.9

6.3

2.6

2.8

2.4

(4.6) $

(4.9) $

(2.7) $

1.1

0.9

(1.0) $

(0.6) $

(0.2) $

7.9

6.3

6.7

INDEX TO EXHIBITS

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

10.1

10.2

10.3

Restated Certificate of Incorporation of Lennox International Inc. (“LII”) (filed as Exhibit 3.1 to LII’s Registration
Statement on Form S-1 (Registration Statement No. 333-75725) filed on April 6, 1999 and incorporated herein by
reference).

Amended and Restated Bylaws of LII (filed as Exhibit 3.1 to LII’s Current Report on Form 8-K filed on December
16, 2013 and incorporated herein by reference).

Specimen Stock Certificate for the Common Stock, par value $.01 per share, of LII (filed as Exhibit 4.1 to LII’s
Amendment to Registration Statement on Form S-1/A (Registration No. 333-75725) filed on June 16, 1999 and
incorporated herein by reference).

Indenture, dated as of May 3, 2010, between LII and U.S. Bank National Association, as trustee (filed as Exhibit 4.3
to LII’s Post-Effective Amendment No. 1 to Registration Statement on S-3 (Registration No. 333-155796) filed on
May 3, 2010, and incorporated herein by reference).

Form of First Supplemental Indenture among LII, the guarantors party thereto and U.S. Bank National Association,
as trustee (filed as Exhibit 4.11 to LII’s Post-Effective Amendment No. 1 to Registration Statement on S-3
(Registration No. 333-155796) filed on May 3, 2010, and incorporated herein by reference).

Second Supplemental Indenture dated as of March 28, 2011, among Heatcraft Inc., a Mississippi corporation,
Heatcraft Refrigeration Products LLC, a Delaware limited liability company and Advanced Distributor Products
LLC, a Delaware limited liability company (the “Guarantors”), LII, and each other then existing Guarantor under
the Indenture dated as of May 3, 2010, and U.S. Bank National Association as Trustee (filed as Exhibit 4.4 to LII’s
Quarterly Report on Form 10-Q filed on April 26, 2011, and incorporated herein by reference).

Fourth Supplemental Indenture, dated as of December 10, 2013 among Lennox National Account Services LLC,
LGL Australia (US) Inc., Lennox International Inc., each other existing Guarantor under the Indenture, dated as of
May 3, 2010, as subsequently supplemented, and U.S. Bank National Association (filed as Exhibit 4.5 to LII's
Current Report on Form 10-K filed on February 13, 2014 and incorporated herein by reference).

Fifth Supplemental Indenture, dated as of August 30, 2016, among LGL Europe Holding Co., each other existing
Guarantor under the Indenture, dated as of May 3, 2010, as subsequently supplemented, and US Bank National
Association (filed as Exhibit 4.6 to LII’s Quarterly Report on Form 10-Q filed on October 17, 2016, and
incorporated by reference).

Sixth Supplemental Indenture, dated as of November 3, 2016, among LII, each other existing Guarantor under the
Indenture, dated as of May 3, 2010, as subsequently supplemented, and US Bank National Association, as trustee
(filed as Exhibit 4.2 to LII’s Current Report on Form 8-K filed on November 3 , 2016, and incorporated by
reference).

Form of 3.000% Notes due 2023 (filed as Exhibit 4.3to LII’s Current Report on Form 8-K filed on November 3,
2016, and incorporated by reference).

Form of 4.900% Note due 2017 (filed as Exhibit 4.3 to LII’s Current Report on Form 8-K filed on May 6, 2010 and
incorporated herein by reference).

Amendment No. 2 to Amended and Restated Receivables Purchase Agreement, effective as of November 15, 2013,
among LPAC Corp., as the Seller, Lennox Industries Inc., as the Master Servicer, Victory Receivables Corporation,
as a Purchaser, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent, a Liquidity
Bank, and the BTMU Purchaser Agent, and PNC Bank, National Association as a Liquidity Bank and the PNC
Purchaser Agent (filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on November 19, 2013 and
incorporated herein by reference).

Omnibus Amendment No. 3 to the Amended and Restated Receivables Purchase agreement, effective as of
November 21, 2014 among LPAC Corp., as the Seller, Lennox Industries Inc., as the Master Servicer, Victory
Receivables Corporation, as a Purchaser, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as
Administrative Agent, a Liquidity Bank, and the BTMU Purchaser Agent, and PNC Bank, National Association, as
a Liquidity Bank and the PNC Purchaser Agent (filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on
November 21, 2014 and incorporated herein by reference).
Amendment to the Amended and Restated Receivables Purchase Agreement, effective as of December 15, 2014,
among LPAC Corp., as the Seller, Lennox Industries Inc., as the Master Servicer, with Victory Receivables
Corporation, as Purchaser, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent, a
Liquidity Bank and the BTMU purchaser agent, and PNC Bank, National Association, as a Liquidity Bank and the
PNC purchaser agent (filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on December 15, 2014 and
incorporated herein by reference).

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12*

10.13*

10.14*

Sixth Amended and Restated Credit Facility Agreement dated as of August 30, 2016, among Lennox International
Inc., a Delaware corporation, the Lenders party thereto, and JPMorgan Chase Bank, National Association, as
Administrative Agent (filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on September 2, 2016 and
incorporated herein by reference).

Amendment No. 4 to Amended and Restated Receivables Purchase Agreement among LPAC Corp., as the Seller,
Lennox Industries Inc., as the Master Servicer, Victory Receivables Corporation, as Purchaser, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent, a Liquidity Bank and a Purchaser Agent, and
PNC Bank, National Association, as a Liquidity Bank and a Purchaser Agent, effective as of November 13, 2015
(filed as Exhibit 10.1 to LII’s Current Report on Form 8-K filed on November 18, 2015 and incorporated herein by
reference).
Form of Sixth Amended and Restated Subsidiary Guarantee Agreement for the Sixth Amended and Restated Credit
Facility dated as of August 30, 2016 signed by Allied Air Enterprises LLC, Advanced Distributor Products LLC,
Heatcraft Inc., Heatcraft Refrigeration Products LLC, Lennox Global Ltd., Lennox Industries Inc., LGL Australia
(US) Inc., Lennox National Account Services LLC and LGL Europe Holding Co. (filed as Exhibit 10.1 to LII's
Current Report on Form 8-K filed on September 2, 2016 and incorporated herein by reference).
Amendment No. 5 to Amended and Restated Receivables Purchase Agreement among LPAC Corp., as the Seller,
Lennox Industries Inc., as the Master Servicer, Victory Receivables Corporation, as Purchaser and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent, a Liquidity Bank and a Purchaser Agent,
(filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on July 6, 2016 and incorporated herein by
reference).

Amended and Restated Lease Agreement, dated as of March 22, 2013, by and between BTMU Capital Leasing &
Finance, Inc., as lessor, and Lennox International Inc., as lessee (filed as Exhibit 10.1 to LII's Current Report on
Form 8-K filed on March 25, 2013 and incorporated herein by reference).

Amended and Restated Participation Agreement, dated as of March 22, 2013, by and among Lennox International
Inc., as lessee and BTMU Capital Leasing & Finance, Inc., as lessor (filed as Exhibit 10.2 to LII's Current Report
on Form 8-K filed on March 25, 2013 and incorporated herein by reference).

Amended and Restated Memorandum of Lease, Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated as of March 22, 2013, by and among Lennox International Inc., BTMU Capital
Leasing and Finance, Inc. and David Parnell, as Deed of Trust Trustee, for the benefit of BTMU Capital Leasing &
Finance, Inc. (filed as Exhibit 10.3 to LII's Current Report on Form 8-K filed on March 25, 2013 and incorporated
herein by reference).

Mutual Release executed March 13, 2013 among JPMorgan Chase Bank, National Association, Service Experts
LLC and Service Experts Heating & Air Conditioning LLC (filed as Exhibit 10.3 to LII's Current Report on Form
10-K filed on February 13, 2014 and incorporated herein by reference).

Lennox International Inc. 2010 Incentive Plan, as amended and restated (filed as Exhibit 10.1 to LII's Current
Report on Form 8-K filed on May 19, 2010 and incorporated herein by reference).

Form of Long-Term Incentive Award Agreement for U.S. Employees - Vice President and Above (for use under the
2010 Incentive Plan) (filed as Exhibit 4.5 to LII's Current Report on Form 10-K filed on February 16, 2016 and
incorporated herein by reference).

Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (for use under the 2010 Incentive
Plan) (filed as Exhibit 10.9 to LII's Annual Report on Form 10-K filed on February 15, 2013 as incorporated herein
by reference).

10.15* Amendment of Long-Term Incentive Award Agreements for U.S. Employees -Vice President and Above and U.S.
Employees- Directors (filed as Exhibit 10.11 to LII's Current Report on Form 10-K filed on February 13, 2014 and
incorporated herein by reference).
Lennox International Inc. Profit Sharing Restoration Plan, as amended and restated effective January 1, 2009 (filed
as Exhibit 10.3 to LII's Current Report on Form 8-K filed on December 17, 2008 and incorporated herein by
reference).

10.16*

10.17*

10.18*

10.19*

10.20*

Lennox International Inc. Supplemental Retirement Plan, as amended and restated effective January 1, 2009 (filed
as Exhibit 10.2 to LII's Current Report on Form 8-K filed on December 17, 2008 and incorporated herein by
reference).

Form of Indemnification Agreement entered into between LII and certain executive officers and directors of LII
(filed as Exhibit 10.15 to LII's Registration Statement on Form S-1 (Registration No. 333-75725) filed on April 6,
1999 and incorporated herein by reference).

Form of Employment Agreement entered into between LII and certain executive officers of LII (filed as Exhibit
10.30 to LII's Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by
reference).

Form of Amendment to Employment Agreement entered into between LII and certain executive officers of LII
(filed as Exhibit 10.2 to LII's Current Report on Form 8-K filed on December 12, 2007 and incorporated herein by
reference).

10.21*

10.22*

10.23*

21.1

23.1

31.1

31.2

32.1

Form of Change of Control Employment Agreement entered into between LII and certain executive officers of LII
(filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on July 11, 2012 and incorporated herein by
reference).

Lennox International Inc. Directors' Retirement Plan (as Amended and Restated as of January 1, 2010) (filed as
Exhibit 10.1 to LII's Current Report on Form 8-K filed on December 16, 2009 and incorporated herein by
reference).

Form of Change of Control Employment Agreement entered into between LII and certain executive officers of LII
(filed as Exhibit 10.1 to LII's Current Report on Form 8-K filed on December 17, 2008 and incorporated herein by
reference).

Subsidiaries of LII (filed herewith).

Consent of KPMG LLP (filed herewith).
Certification of the principal executive officer (filed herewith).

Certification of the principal financial officer (filed herewith).

Certification of the principal executive officer and the principal financial officer pursuant to 18 U.S.C. Section 1350
(furnished herewith).

Exhibit No. (101).INS XBRL Instance Document
Exhibit No. (101).SCH XBRL Taxonomy Extension Schema Document
Exhibit No. (101).CAL XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit No. (101).LAB XBRL Taxonomy Extension Label Linkbase Document
Exhibit No. (101).PRE XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit No. (101).DEF XBRL Taxonomy Extension Definition Linkbase Document

* Management contract or compensatory plan or arrangement.

CORPORATE INFORMATION

TRANSFER AGENT AND REGISTRAR
Computershare is Lennox
International’s Transfer Agent.
Shareholder correspondence should
be directed to:

Lennox International
c/o Computershare
P.O. Box 43006
Providence, RI 02940-3006

LII stockholders can access their
account information via the internet at:
www.computershare.com/investor
or by calling 1-800-797-5603.

INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS
KPMG LLP
Dallas, Texas

DIVIDEND INFORMATION
In recent years, Lennox International
has declared dividends four times a year.
The amount and timing of dividend
payments are determined by our board
of directors.

CORPORATE HEADQUARTERS
Lennox International Inc.
2140 Lake Park Blvd.
Richardson, Texas 75080
972-497-5000

For more information on
Lennox International, visit:
www.lennoxinternational.com

ANNUAL MEETING
Our annual stockholders meeting will be
held on May 18, 2017. Any stockholder
with proper identification may attend.

The meeting will be held at:
Lennox International Inc.
Corporate Headquarters
2140 Lake Park Blvd.
Richardson, Texas 75080

INVESTOR INQUIRIES
Investors and financial analysts
interested in obtaining information about
Lennox International should contact:

Steve Harrison
Vice President, Investor Relations
Phone: 972-497-6670
Email: investor@lennoxintl.com

STOCK EXCHANGE
Lennox International’s trading
symbol is LII. The common stock
of LII has traded on the New York
Stock Exchange since July 29, 1999.

SEC FILINGS
A copy of Lennox International’s
Annual Report on Form 10-K for
fiscal 2016 and other reports filed
with the Securities and Exchange
Commission are available through
our corporate website at
www.lennoxinternational.com or
will be furnished, without charge,
on written request to:

Lennox International
Investor Relations
P.O. Box 799900
Dallas, Texas 75379-9900

FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-
looking statements within the meaning
of Section 27A of the Securities Act of
1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as
amended, that are based on information
currently available to management as well
as management’s assumptions and beliefs.

fact,

included
constitute

All statements, other than statements
this
of historical
in
Annual Report
forward-
looking statements within the meaning of
the Private Securities Litigation Reform
Act of 1995, including but not limited to
statements identified by the words “may,”
“will,” “should,” “plan,” “predict,” “anticipate,”
“believe,” “intend,” “target,” “see,” “estimate,”
“expect,” and similar expressions.

Such statements reflect LII’s current views
with respect to future events, based on what
LII believes are reasonable assumptions;
however, such statements are subject to
certain risks and uncertainties.

For information concerning these risks and
uncertainties, see LII’s publicly available
filings with the Securities and Exchange
Commission. Should one or more of these
risks or uncertainties materialize, or should
underlying assumptions prove incorrect,
actual results may differ materially from
those in the forward-looking statements.
LII disclaims any intentions or obligation
to update or review any forward-looking
statements or information, whether as a
result of new information, future events
or otherwise.

2140 LAKE PARK BLVD., RICHARDSON, TX 75080
www.lennoxinternational.com

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