2021 Annual Report
NYSE: LII
2021 | Revenue
2021 | Segment profit*
13% 21% 66%
Refrigeration Commercial Residential
7% 16% 77%
Refrigeration Commercial Residential
Commercial
Revenue
(in millions)
$3,840 $3,884 $3,807
$3,634
Segment Profit Margin**
$4,194
13.4%
13.9%
16.0%
13.9% 14.4%
Share Price
(end of year)
$324.36
$273.97
$243.97
$208.26 $218.86
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
2021
Statement of Operations Data
Revenue......................................................................................$4,194.1
Operating income....................................................................... $590.3
Income from continuing operations ........................................... $464.0
Net income................................................................................. $464.0
Basic earnings per share from continuing operations.................. $12.47
Diluted earnings per share from continuing operations.............. $12.39
$3.53
Cash dividends declared per share..............................................
.
.
2020
$3,634.1
$478.5
$357.1
$356.3
$9.32
$9.26
$3.08
2019
$3,807.2
$656.9
$408.8
$408.7
$10.49
$10.38
$2.95
2018
$3,883.9
$509.9
$360.3
$359.0
$8.87
$8.77
$2.43
2017
$3,839.6
$494.5
$307.1
$305.7
$7.28
$7.17
$1.96
Other Data
Capital expenditures................................................................... $106.8
$76.1
Research and development expenses ..........................................
$78.5
$66.8
$105.6
$69.9
$95.2
$72.2
$98.3
$73.6
Balance Sheet Data at Period End
$2,034.9
Total assets................................................................................. $2,171.9
Total debt................................................................................... $1,237.8
$1,171.2
Stockholders’ (deficit) equity....................................................... ($269.0) ($17.1) ($170.2)
$2,032.5
$980.6
.
$1,817.2
$1,041.3
($149.6)
$1,891.5
$1,004.0
$50.1
*Excludes eliminations and unallocated corporate expenses.
**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 3 in the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for
the year ended December 31, 2021, included herein.
TO OUR STOCKHOLDERS
A new chapter has begun for Lennox
International.
In July 2021, Todd
Bluedorn announced that by mid-2022
he would be
stepping down as
Chairman and CEO of the company
after 15 years in the role based on his
desire to create a better balance between
sional priorities.
his personal and profesff
I thank Todd for his leadership and the
excellent perforff mance of the company
over his tenure and wish him the best
for the future.
company
In March
announced Alok Maskara as the new
ve May 9, 2022. Until Alok’skk
CEO of Lennox International, effecti
start date, I will be serving as interim CEO. I haveaa
been appointed
Chairman of the Board after serving as Lead Independent Director
since 2015 and a board member since 2011.
2022,
the
ffff
We are excited to haveaa Alok join us to lead the company as we
continue to drive growth and profitability to maximize shareholder
value. Alok brings 25 years of global
leadership experience in
manufacturing and technology. He has served the last five years
as CEO of Luxferff Holdings PLC, an international
industrial
company focused on advanced materials. He spearheaded the
company’s transformation, led value-enhancing acquisitions and
partnerships, and drove growth in profitability.yy Prior to Luxferff
,rr Alok
served for nearly a decade as president of several global business
units at Pentair, including its former Technical Solutions segment
with $2.2 billion of annual revenue. He previously held various
leadership positions at General Electric and McKinsey & Company.
ff
Along with his impressive experience and proven track record
y operating businesses through various economic
of successfull
challenges, we expect Alok will fit very well with the performance
culture at Lennox. During the search process, we were looking for
many characteristics in the next CEO of Lennox, with experience
and cultural fit being two of the top areas of focus. Given his
background and experience, Alok was the candidate that rose to the
top of an outstanding slate of candidates. I know Alok recognizes the
firm foundation that has been built at Lennox, and we look forward
to the next chapter in the long and storied history of our company.
Although 2021 was a challenging year, the team continued its strong
momentum to another record year. The company posted record
revenue and earnings per share in 2021, a year that was materially
impacted by the ongoing Covid-19 pandemic and global supply
chain disruptions.
Company revenue was a record $4.2 billion for the year, up 15
percent. Operating income rose 23 percent to $590 million. Total
segment profit rose 19 percent to $604 million, and total segment
margin expanded 50 basis points to 14.4 percent.
GAAP earnings per share from continuing operations rose 34
percent to a record $12.39. Adjud sted earnings per share from
continuing operations rose 27 percent to a record $12.60.
Covid-19 variants and global supply chain disruptions had an
especially negative impact on the second half of 2021, creating
significant factory inefficiencies and higher costs. As the company
focused on meeting high customer demand, we continued to
and expand rawaa material and component suppliers and
qualifyff
further diversifyff
geographically, increase our forecast windows,
invenn st in invenn ntory to help mitigate shortages, engage in supplier
partnerships
including on-site Lennox support and active
sub-supplier management, and engage “tiger teams” to help
manage through the disruptions. In addition to supply chain issues,
inflationary pressures had a significant impact on the business. We
worked closely with suppliers to mitigate some but not all of the cost
increases, so we also captured approximately $130 million of price
increases to help offseffff t the impact. As you can see, 2021 presented
significant issues, but our team rose to the challenge.
Our financial position and cash flow capabilities continued to be
very strong in 2021. Cash from operations was $516 million, and
free cash flow was $410 million. The company raised the dividend 19
percent and paid approximately $127 million in dividends. We also
repurchased $600 million of company stock. Our focus will continue
to be good stewards of your capital as we balance invenn stments in the
business with returning capital to you.
The company continued to make invenn stments in key programs to
drive growth and profitability for the future. Digital invenn stments
continue to be a key area of focus and include e-commerce, product
controls and factory productivity.yy Factory productivity includes
automation invenn stments in both the fabrication and assembly
operations in our factories to decrease conversion costs. We
continue to invenn st in inforff mation technology (IT) to ensure the best
inforff mation flow on the factory floor for optimal synchronization.
To complement our productivity efforffff ts, we continue to expand
manufacturing in Mexico. In 2021, we began ramping production
at our third manufacturing plant on our Saltillo, Mexico campus.
We plan for Residential production hours to increase from
approximately 40 percent to 50 percent in Mexico with this new
325,000 sq. ft. facility.yy Saviaa ngs from the third plant are expected to
be approximately $10 million annually.yy
Turning to the perforff mance of our business segments for the
year, Residential set new records for revenue and profit. Revenue
rose 18 percent to a record $2.8 billion on strong growth in both
replacement and new construction business. Residential segment
profit rose 26 percent to a record $540 million, and segment margin
expanded 140 basis points to 19.5 percent.
New product introductions continued as we position the product
line-up for the coming years with a focus on customer experience,
expanding markets and channels, sustainability and regulatory
compliance.
In 2021, our Residential business launched industry-leading
28-SEER air conditioners, which complement our industry-leading
99-percent efficient
furnaces. We also introduced a line of
cold-climate heat pumps with 24-SEER / 12-HSPF efficiency
ratings to meet the needs of northern markets. Residential is on
track to launch more than 20 new products in 2022, including an
industry-leading smart thermostat. The S40 includes a remote
smart room sensor,rr an air quality monitor with updated advanced
diagnostics, remote monitoring, and control capabilities with an
enhanced user interface. The new indoor air quality monitor is the
only one to track three key air quality categories – particles, carbon
dioxide, and total volatile organic compounds – and activate the
system to clean the air.
The Residential team continues to advance our digital experience.
One example is how we help our contractor customers buy more
online and interact more frequently and comprehensively across
our suite of digital tools and platforms. Our most digitally engaged
customers are our best customers – they buy more, buy higher-end
equipment and grow faster.
Another key strategic initiative for us to drive market share gains
and growth is Residential distribution expansion. We opened 12
new stores to take our total portfolio of stores to 231 at the end of
2021. We plan to reaccelerate the pace of new store openings and are
targeting a total of 350 stores by the end of 2026.
ESG focus areas for LII include a low-carbon strategy,yy diversity and
inclusion, and employee health and safety.yy
Our Commercial business continued to be hit the hardest by
the Covid-19 pandemic and global supply chain disruptions.
Commercial revenue was up 8 percent to $865 million. Commercial
segment profit was down 19 percent to $111 million, and segment
margin was down 430 basis points to 12.8 percent.
Market demand and our backlog remained strong through the year,
but the pandemic and supply chain disruptions impacted factory
perforff mance and constrained production, especially in the second
half of the year. Despite these challenges, we sawaa growth across the
business with sales for replacement units being stronger than new
construction. This is not surprising given challenges overall in the
construction industry.yy
the most efficient rooftop units available
Lennox continued to haveaa
in the market that provide the lowest operating cost for the building
owner, which is critical for national account customers. In the
second quarter of 2021, Commercial launched the new Lennox
Model L rooftop unit. The Model L has industry-leading efficiency,yy
variable speed technology, and a new advanced control system.
Our national account equipment customers increasingly want their
HVACVV
units installed, commissioned and maintained by us as well.
That is the job of our National Account Services (NAS) team. NAS
has 107 service branches across North America with a footprint
capable of serving more than 97 percent of North America customer
sites. NAS revenue was up 14 percent in 2021, serving customers
like Amazon, Target and many others.
In Refrigeration, revenue was up 17 percent to $554 million.
Refrigeration segment profit rose 50 percent to $49 million, and
segment margin expanded 190 basis points to 8.9 percent.
In 2021, LII submitted and received approval from the Science Based
Targets initiative (SBTi) regarding our formal targets on greenhouse
is a partnership comprised
gas emissions (GHGs).The SBTi
of
focused on climate change and
significant organizations
envinn ronmental issues to drive ambitious climate action in the private
sector. Companies set science-based emissions reduction targets,
and in doing so, indicate how much and how quickly they will re-
duce their GHG emissions to help prevent the worst effecffff ts of climate
change. We haveaa
committed to reducing Scope 1 and 2 greenhouse
gas emissions by 37.5 percent by 2034 from the 2019 base year
through continued efficiency and operational improvement. The
vast majoa rity of our industry’s Scope 3 GHG emissions come from
consumers’ use of HVACVV
committed to reducing
products. We haveaa
Scope 3 emissions by 30 percent per product sold by 2034 from the
2019 base year. We will do this through continued leadership in the
most efficient and innovative products to reduce end-users’ carbon
footprint.
In 2021, the Lennox team naviaa gated the challenges brought on by
the pandemic and supply chain disruptions while posting a record
year and continuing to position the company for future growth and
higher profitability.yy I would like to personally thank everyone on our
team for the on-going efforffff ts as they naviaa gated the many challenges
over the last few years. I would also like to thank our suppliers
and communities for the on-going support that is so important to
our company. And, to our customers, thank you for your trust in
Lennox; everything we do is with you in mind. Finally, thanks to
you, our shareholders, for trusting us with your hard-earned capital.
The future of Lennox is very bright. I could not be more excited.
Under Alok’skk leadership, with a strong management team, dedicated
employees, and a great foundation on which to grow,ww we look
forward to the future and continued success.
continues
to invest
Our Refrigeration business
in our
industry-leading product line-up to win share in our traditional
markets and take advantage of new opportunities. Markets in
both North America and Europe face an increasingly complex
regulatory envinn ronment as countries seek to reduce carbon intensity.
We continue to address this through higher efficiency products
and using both natural and synthetic refrigerants with lower
global warming potential (GWP). We continue to improve our
refrigeration product lines with an all-new CO2 gas cooler line and
systems optimized for lower GWP refrigerants. Our new European
chillers using envinn ronmentally friendly R-32 refrigerant are among
our fastest growing products.
Todd J. Teske
Chairman of the Board
The 2021 introduction of our new “industrial” grade product line
called Magna Industrial Refrigeration created an attractive new
opportunity for us in the light industrial market. The pandemic
has brought changes in how food is delivered and stored, and our
Magna products are well-positioned to benefit from this market
growth as well as from share gains.
Our Refrigeration business is intently focused on productivity
initiatives to drive higher perforff mance. These include ongoing
invenn stments in facff
tory and logistics productivity,yy eTooTT ls and
eDesign, and sales and service automation.
Across all of Lennox International, we are dedicated to continued
leadership in Envinn ronmental, Social and Governance (ESG) efforffff ts
to the benefit of our stakeholders. Our most recent ESG report,
available on the company website, provides data and inforff mation
aligned with material
topics identified in the Sustainability
Accounting Standard Board (SASB) and the Task Force on
Climate-related Financial Disclosures (TCFD) frameworks. Key
*For a reconciliation of 2021 GAAP and adjud sted financials, refer to the company’s February
oxinternational.com.
1, 2022 earnings release and financial statements available at www.lenn
ww
BOARD OF DIRECTORS
AND MANAGEMENT TEAM
BOARD OF DIRECTORS
Todd J. Teske
Chairman of the Board
and Interim Chief Executive Officer
Sherry L. Buck
Chief Financial Officer
W.L. Gore & Associates
Committees: 1, 4
Janet K.Cooper
Former Senior Vice President and Treasurer
Qwest Communications International Inc.
Committees: 1, 2
Max H. Mitchell
President and Chief Executive Officer
Crane Co.
Committees: 1, 2
FF
John W. Norris, III
Co-Founder
Maine Network Partners
Committees: 3, 4
Karen H.Quintos
Former Executive Vice President
and Chief Customer Officer
Dell Technologies Inc.
Committees: 3, 4
Kim K.W.WW Ruckerkk
Former Executive Vice President,
General Counsel and Secretary
Andeavor
Committees: 2, 3
ww
Gregory T. Swienton
Former Chairman and Chief Executive Officer
Ryder System, Inc.
Committees: 1, 2
Shane D. Wallaa
Former Chief Technology Officer and Global Head
HP Labs of HP Inc.
Committees: 2, 3
MANAGEMENT TEAM
Todd J, Teske
Chairman of the Board
and Interim Chief Executive Officer
Joseph W. Reitmeier
Executive Vice President
and Chief Financial Officer
Prakash Bedapudi
Executive Vice President
and Chief Technology Officer
Gary S. Bedard
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
Elliot S. Zimmer
Executive Vice President,
President and Chief Operating Officer
North America Commercial Heating & Cooling
Chris A. Kosel
Vice President,
Corporate Controller
and Chief Accounting Officer
Committee Legend (bold indicates chairperson)
1: Audit 2: Board Governance
3: Compensation & Human Resources 4: Public Policy
2021
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, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to ______
Commission File Number 001-15149
LENNOX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Delaware
42-0991521
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer 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, $0.01 par value per share
Trading Symbol(s)
LII
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 every Interactive Data File required to be submitted 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 such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
[X]
[ ]
[ ]
☐
☐
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report Yes ☒ No ☐
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, 2021, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $13 billion
based on the closing price of the registrant’s common stock on the New York Stock Exchange. As of February 4, 2022, there were 36,636,874
shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s 2021 Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the
registrant’s 2021 Annual Meeting of Stockholders to be held on May 19, 2022 are incorporated by reference into Part III of this report.
Auditor Name: KPMG LLP
Auditor Location: Dallas, Texas
Auditor Firm ID:
185
LENNOX INTERNATIONAL INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2021
PART I
ITEM 1.
Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
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. Executive Compensation
ITEM 12.
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
ITEM 16.
Form 10-K Summary
SIGNATURES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
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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 global leader in energy-efficient 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 2021 by segment. Segment financial data for 2021, 2020 and 2019, including
financial information about foreign and domestic operations, is included in Note 3 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
Products & Services
Furnaces, air conditioners, heat
pumps, packaged heating and cooling
systems, indoor air quality equipment,
comfort control products, replacement
parts and supplies
Commercial
Heating & Cooling
Refrigeration
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.
Products and Services
Residential Heating & Cooling
Product and Brand Names
Lennox, Dave Lennox Signature Collection,
Armstrong Air, Ducane, AirEase, Concord,
MagicPak, ADP Advanced Distributor
Products, Allied, Elite Series, Merit Series,
Comfort Sync, Healthy Climate, Healthy
Climate Solutions, iComfort ComfortSense
and Lennox Stores
Lennox, Model L, CORE, Energence,
Prodigy, Strategos, Landmark, Raider,
Lennox VRF, Lennox National Account
Services, Allied Commercial, MagicPak
Heatcraft Worldwide Refrigeration, Lennox
(Europe HVAC), Bohn, MAGNA, Larkin,
Climate Control, Chandler Refrigeration,
Friga-Bohn, HK Refrigeration, Hyfra,
IntelliGen and Interlink
Total
2021
Net Sales
(in millions)
2,775.6
$
864.8
553.7
$
4,194.1
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” business and brands (“Dave Lennox Signature Collection,” “Elite Series,” “Merit Series,” “iComfort,”
“ComfortSense” and “Healthy Climate Solutions”) are sold directly to independent installing dealers, making us one of the
largest wholesale distributors of residential heating, ventilation, and air conditioning products in North America. We continue
to invest in our network of 231 Lennox 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,
1
tools, Lennox equipment and OEM parts.
The Allied Air Enterprise business and brands (“Armstrong Air,” “AirEase,” “Concord,” “Ducane,” “Allied,” and
“MagicPak”) include a full line of heating, ventilation and air conditioning products and are sold through independent
wholesale distributors in the U.S. and Canada. The Allied Air Enterprise business also sells a full line of heating, ventilation
and cooling equipment through private label brands.
The Advanced Distributor Products (“ADP”) business and brand (“ADP Advanced Distributor Products”) sells evaporator
coils, air handlers and unit heaters to independent HVAC wholesale distributors across the U.S. and Canada.
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 2021, we launched the Lennox Model L rooftop unit featuring the powerful
CORE control system and advanced variable-speed technology to maximize rebates and energy savings. 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.
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
approximately 100 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 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.
International.
In Europe, we manufacture and sell unitary HVAC 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, the United Kingdom, Eastern Europe, Turkey, Africa, and the Middle East.
We also 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 and
Spain. 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 by offering a full spectrum of products to meet
our customers’ needs. We plan to expand our market position through organic growth while maintaining our focus on cost
reductions to drive margin expansion. This strategy is supported by the following four strategic priorities:
2
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
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.
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” 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,” “MagicPak” 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 Stores.
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
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, 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 a minority equity interest in a joint venture that manufactures
compressors. This joint venture provides us with compressors for our residential and commercial heating and cooling, and
refrigeration businesses.
Research and Development and Technology
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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 control systems as well as heating and cooling products that
include some of the most efficient products in their respective categories. 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.
HVAC 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 - Carrier Global Corporation (Carrier, Bryant, Payne, Tempstar, Comfortmaker, Heil,
Arcoaire, KeepRite, Day & Night); Trane Technologies plc (Trane, American Standard, Ameristar, Oxbox, RunTru);
Paloma Industries, Inc. (Rheem, Ruud, Weather King); Johnson Controls, Inc. (York, Luxaire, Coleman); Daikin
Industries, Ltd. (Daikin, Goodman, Amana, GMC); and Melrose Industries PLC (Maytag, Westinghouse, Frigidaire,
Tappan, Philco, Kelvinator, Gibson, Broan, NuTone).
• Commercial Heating & Cooling - Carrier Global Corporation (Carrier, ICP Commercial); Trane Technologies 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); Carrier Global Corporation (Carrier); GEA Group (Kuba, Searle, Goedhart);
Alfa Laval; Guntner GmbH; Kelvion - Profroid (Carrier); Panasonic Corp. (Sanyo); Technotrans; and Deltatherm.
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Human Capital Management
Lennox’s success, in large part, relies on the character of our people. That character is reflected in Lennox’s core values of
integrity, respect and excellence. Our continued success depends on our ability to attract, motivate, develop and retain
employees who embody our core values.
Management strives to maintain the right number of employees with the necessary skills to match the expected demand for
the products we manufacture and distribute. As of December 31, 2021, we employed approximately 11,000 people. Of these
employees, approximately 4,800 were salaried and 6,200 were hourly. The number of hourly workers varies in order to match
our labor needs during periods of fluctuating demand.
Approximately 2,500 of our employees, including international locations, are represented by unions. We believe we have
good relationships with our employees and with the unions representing our employees. On November 1, 2021, our
Marshalltown, Iowa-based union ratified a five-year labor agreement that was immediately effective. We currently do not
anticipate any material adverse consequences resulting from negotiations to renew other collective bargaining agreements.
To succeed in an ever-changing and competitive labor market, we have identified priorities we believe are critical to our
success in attracting, motivating, developing, and retaining employees. These include among other things: (1) providing
competitive compensation and benefit programs, (2) providing career development programs, (3) promoting health and safety,
and (4) championing a diverse and inclusive work environment. Further information is available in our Environmental Social
and Governance (ESG) report available on our website.
Compensation and Benefit Programs. We are committed to providing our employees with a competitive compensation
package that rewards performance and achievement of desired business results. Our compensation package consists of three
primary benefits: pay (base pay and incentive programs), health and welfare benefits, and retirement contributions. We analyze
our compensation and benefits programs annually to ensure we remain competitive and make changes as necessary.
Career Development Programs. To help our employees succeed in their roles and grow their careers at Lennox, we provide
numerous training and development programs. One example is our “Career Journey” program which provides employees with
engaging tools enabling them to reflect on skills and interests, and explore a variety of potential career paths. Career Journey
allows employees to have more meaningful career development conversations with their manager. In addition to training and
development programs we have a robust performance review and goal setting process for all employees. We believe this helps
ensure that employees meet expectations throughout the year while continuing development of their long-term careers at
Lennox.
Employee Health and Safety. As part of our effort to attract and retain a competitive workforce, we are committed to
ensuring that every employee returns home safe at the end of each day. Safety is our top priority and our safety programs are
succeeding to reduce risks across our operations. In response to the COVID-19 pandemic, we have taken extensive actions that
are aligned with the World Health Organization and Centers for Disease Control and Prevention to protect the health and safety
of our workers.
Diversity and Inclusion. We are committed to a diverse workforce built on a foundation of respect and value for people of
different backgrounds, experiences, and perspectives. Our commitment to diversity and inclusion enables all employees to be
creative, feel challenged, and thrive, which allows us to leverage the unique strengths of our employees to deliver innovative
products and solutions for our customers.
Our senior managers, together with our human resources team, are devoted to promoting the above priorities to ensure we
remain an employer of choice. We regularly conduct anonymous surveys to seek feedback from our employees on a variety of
subjects, including safety, communications, diversity and inclusion, management support to succeed within our company, and
career growth.
Despite these efforts, we have experienced, and could continue to experience, higher employee absenteeism, particularly in
manufacturing and distribution locations, as a result of COVID-19-related concerns and other related factors. These concerns
have decreased the pool of available qualified talent for certain functions. As a result, we have made and continue to make
strong efforts to maintain and recruit qualified talent and are committed to being competitive to retain the best talent possible.
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 affect or could affect our domestic operations. 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
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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 effective dates of all such regulations being considered by the U.S. Department of Energy.
Refrigerants. The use of 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 HFCs. 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.
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 5 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 to our results of operations.
E-Waste and Related Compliance. Many countries around the world as well as many states in the U.S. have enacted
directives, laws, and regulations directed at preventing electrical and electronic equipment waste by encouraging reuse and
recycling as well as restricting the use of hazardous products in electrical and electronic equipment. All HVACR products and
certain components of such products are potentially subject to these types of requirements. We are not uniquely affected as
compared to other manufacturers. We actively monitor the development and evolution of such requirements 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, including exhibits, 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.
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.
Information about our Executive Officers
Our executive officers, their present positions and their ages are as follows as of February 4, 2022:
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Name
Age Position
Todd M. Bluedorn
58 Chairman of the Board and Chief Executive Officer
Joseph W. Reitmeier
57 Executive Vice President, Chief Financial Officer
Douglas L. Young
Gary S. Bedard
59
57
Executive Vice President, President and Chief Operating
Officer, Residential Heating & Cooling
Executive Vice President, President and Chief Operating
Officer, Worldwide Refrigeration
Prakash Bedapudi
55 Executive Vice President, Chief Technology Officer
Daniel M. Sessa
57 Executive Vice President, Chief Human Resources Officer
John D. Torres
63 Executive Vice President, Chief Legal Officer and Secretary
Elliot Zimmer
45
Executive Vice President, President and Chief Operating
Officer, North America Commercial Heating & Cooling
Chris A. Kosel
54 Vice President, Chief Accounting Officer and Controller
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 is Ranger qualified and served in the U.S. Army as a Combat Engineer officer 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 Texas
Instruments Incorporated, a global designer and manufacturer of semiconductors, and on the Board of Trustees of Washington
University in St. Louis. Mr. Bluedorn served on the Board of Directors of Eaton Corporation, a diversified industrial
manufacturer from 2010 to 2020. 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. In July 2021, Mr. Bluedorn advised our Board
of Directors that he intended to resign as Chief Executive Officer and as Chairman and a member of our Board of Directors in
mid-2022.
Joseph W. Reitmeier was appointed Executive Vice President, Chief Financial Officer in July 2012. He had served as Vice
President of Finance for the Company’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, President and Chief Operating Officer of the Company’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 the Company, 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 a past Chairman of the Board of Directors of AHRI (the Air-Conditioning, Heating, and Refrigeration Institute), the trade
association for the HVACR and water heating equipment industries.
Gary S. Bedard was appointed Executive Vice President, President and Chief Operating Officer of the Company’s
Worldwide Refrigeration business in October 2017. Since 2005, Mr. Bedard served as Vice President and General Manager, LII
Residential Heating and Cooling. He has also held the positions of Vice President, Residential Product Management, LII
Worldwide Heating and Cooling, Director of Brand and Product Management, and District Manager for Lennox Industries’
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New York District. Prior to joining the Company in 1998, Mr. Bedard spent eight years at York International in product
management and sales leadership roles for commercial applied and unitary systems as well as residential systems. Mr. Bedard
has a bachelor’s degree in engineering management from the United States Military Academy at West Point.
Prakash Bedapudi was appointed Executive Vice President, 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, 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, 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.
Elliot S. Zimmer was appointed President and Chief Operating Officer LII North America Commercial Heating and Cooling
November 1, 2019. He most recently served as Vice President and General Manager of Lennox North America commercial
equipment business. Previously, Elliot served as Vice President, Worldwide Supply Chain and Logistics and led our business
development efforts. Prior to joining LII in 2010, Elliot served as director of capacity planning and operations at Dr Pepper
Snapple Group and as a senior associate with McKinsey and Company. After receiving his bachelor of science degree in
systems engineering from the United States Military Academy, he served as a Captain in the United States Army and then
received his MBA from the Harvard Business School.
Chris A. Kosel was appointed Vice President, Chief Accounting Officer and Controller in May 2017. He had previously
served as Vice President, Business Analysis and Planning for the Company since 2016. He also had served as Vice President,
Finance and Controller / Director, Finance for the Company’s North America Commercial Business from 2015 - 2016 and
Director, Financial Planning and Analysis for the Company’s Residential Business Unit from 2014 to 2015. Prior to 2014 he
had served as Director, Finance for the Company’s Lennox Stores business and Director of the Company’s Financial Shared
Services function. Prior to joining Lennox, he worked for Ernst & Young. He holds a bachelor’s degree in accounting from
Texas A&M University. He is also a Certified Public Accountant.
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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 occurs, our business, financial condition or results of
operations could be materially adversely affected.
Business and Operational Risks
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 and global supply chain
constraints resulting from the ongoing COVID-19 pandemic, 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 a material adverse effect on our results of operations.
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. 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.
9
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. In certain instances, we heavily rely on
suppliers who also may concentrate production in single locations or source unique, necessary products from only one supplier.
Any significant interruptions in production at one or more of our facilities, or at a facility of one of our key suppliers, could
negatively impact our ability to deliver our products to our customers. We experienced such an event in July 2018, when our
manufacturing facility in Marshalltown, Iowa was severely damaged by a tornado, and we continue to experience disruptions in
supply due to COVID-19.
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 effect on our business, financial condition, and results of operations.
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,
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.
invalidated,
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.
Our Operations Can Be Adversely Affected By Our Ability to Attract, Motivate, Develop, and Retain Our Employees, Labor
Shortages and Work Stoppages, Turnover, Labor Cost Increases and Other Labor Relations Problems.
We are committed to attracting, motivating, developing, and retaining our employees to ensure we remain an employer of
choice. Despite our efforts, we have experienced, and could continue to experience, higher employee turnover and
absenteeism, particularly in manufacturing and distribution locations, as a result of COVID-19 related concerns and other
factors. A number of factors may adversely affect the labor force available or increase labor costs, including high employment
levels, related competition, and federal unemployment subsidies, such as unemployment benefits offered in response to the
COVID-19 pandemic. These concerns have decreased the pool of available qualified talent for certain functions. In addition, as
locations, was unionized. Our
of December 31, 2021, approximately 24% of our workforce,
Marshalltown, Iowa-based union ratified a five-year labor agreement on November 1, 2021; however, the results of future
negotiations with unions are uncertain. If we are unsuccessful in meeting these challenges, our results of operations could be
materially impacted.
including international
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 adverse effect on our
results of operations.
Industry Risks
Our Financial Performance Is Affected by the Conditions and Performance of the U.S. Construction Industry.
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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. Our sales may not improve, or 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. The effects of climate change, such as extreme weather
conditions and events and water scarcity, may exacerbate fluctuations in typical weather patterns, creating financial risks to our
business.
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. Some of these third-party suppliers are located outside of the United States. 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.
The ongoing COVID-19 pandemic has resulted in increased global supply chain constraints and disruption to the operations
of certain of our suppliers and we cannot predict the duration or severity of current supply-chain issues, including increased
input material costs and component shortages, delivery disruptions and delays, and inflation. Additionally, the effects of
climate change, including extreme weather events, long-term changes in temperature levels, water availability, increased cost
for decarbonizing process heating, supply costs impacted by increasing energy costs, or energy costs impacted by carbon prices
or offsets may exacerbate supply chain constraints and disruption. Resulting supply chain constraints have required, and may
continue to require, in certain instances, alternative delivery arrangements and increased costs and could have a material
adverse effect on our business and operations.
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.
Legal, Tax and Regulatory Risks
Changes in Environmental and Climate-Related Legislation, Government Regulations, or Policies Could Have an Adverse
Effect on Our Results of Operations.
The sales, gross margins, and profitability for each of our segments could be directly impacted by changes in legislation,
government regulations, or policies (collectively, “LRPs”) relating to global climate change and other environmental initiatives
and concerns. These LRPs, implemented under global, national, and sub-national climate objectives or policies, can include
changes in environmental and energy efficiency standards and tend to target the global warming potential of refrigerants and
hydrofluorocarbons, equipment energy efficiency, and combustion of fossil fuels as a heating source. Many of our products
consume energy and use refrigerants and hydroflurocarbons. LRPs that seek to reduce greenhouse gas emissions may require
us to make increased capital expenditures to develop or market new products to meet new LRPs. Further, our customers and
the markets we serve may impose emissions or other environmental standards through LRPs or consumer preferences that may
11
require additional time, capital investment, or technological advancement. Our inability or delay in developing or marketing
products that match customer demand while also meeting applicable LRPs may negatively impact our results.
There continues to be a lack of consistent climate legislation and regulations, which creates economic and regulatory
uncertainty. Such regulatory uncertainty could adversely impact the demand for energy efficient buildings and could increase
costs of compliance. Additionally, the extensive and ever-changing legislation and regulations could impose increased liability
for remediation costs and civil or criminal penalties in cases of non-compliance. Because these laws are subject to frequent
change, we are unable to predict the future costs resulting from environmental compliance.
Changes in U.S. Trade Policy, Including the Imposition of Tariffs and the Resulting Consequences, Could Have an Adverse
Effect on our Results of Operations.
The U.S. government has made changes in U.S.
trade policy over the past several years. These changes include
renegotiating and terminating certain existing bilateral or multi-lateral trade agreements, such as the North American Free Trade
Agreement, and initiating tariffs on certain foreign goods from a variety of countries and regions, most notably China. These
changes in U.S. trade policy have resulted in, and may continue to result in, one or more foreign governments adopting
responsive trade policies that make it more difficult or costly for us to do business in or import our products or components
from those countries. The sales, gross margins, and profitability for each of our segments could be directly impacted by changes
in tariffs and trade agreements.
We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes
or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the
terms of any renegotiated trade agreements and their impact on our business. The continuing adoption or expansion of trade
restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the
potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in
turn could have a material adverse effect on our business, operating results, and financial condition.
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, and
product liability claims, and other liabilities and risks for the installation and service of our products. Our product liability
insurance policies have limits that, if exceeded, may result in substantial costs that could have an adverse effect on our results of
operations. In addition, warranty claims are not covered by our product liability insurance and certain product liability claims
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. 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.
We are Subject to Claims, Lawsuits, and Other Litigation 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.
General Risk Factors
The COVID-19 Pandemic Has Disrupted Our Business Operations and Results of Operations.
A novel strain of coronavirus or, COVID-19, surfaced in late 2019 and has spread around the world. Since 2020, the spread
of COVID-19 and the developments surrounding the global pandemic disrupted our business operations and affected our results
12
of operations. In 2021, the COVID-19 pandemic continued to create supply chain disruptions and higher employee absenteeism
in our factories and distribution locations. As the COVID-19 pandemic continues, health concern risks remain. We cannot
predict whether any of our manufacturing, operational, or distribution facilities will experience any future disruptions, or how
long such disruptions would last.
In 2021, various forms of a vaccine for COVID-19 were approved and began to be distributed. However, the large scale and
challenging logistics of distributing the vaccines, as well as uncertainty over the efficacy of the vaccines against new variants of
the virus, may impact the economy as well as our operations in the future.
While we are experiencing positive results despite the COVID-19 pandemic, there remains uncertainty regarding how
COVID-19 will impact our results in the future. The effects of the COVID-19 pandemic may continue for a significant period
of time and may adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic
has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future
developments that we are not able to predict, including the duration and scope of the pandemic; governmental, business, and
individuals’ actions in response to the pandemic; our ability to maintain sufficient qualified personnel due to employee illness,
quarantine, willingness to return to work, vaccine and/or testing mandates, face-coverings and other safety requirements,
general scarcity of employees, or travel and other restrictions; current global supply chain disruptions caused by the COVID-19
pandemic; and the impact on economic activity, including financial market instability.
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
13
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 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, climate change, infectious disease outbreaks or terrorist acts could also cause significant
damage or disruption to our operations, employees, facilities, systems, suppliers, supply chain, 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 approximately 13% of our total net sales in 2021.
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. Attempts have been made to attack our information systems, but we do not believe that material harm has
resulted. 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.
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
in part, on our ability to timely identify those
strategic relationships. The success of these transactions will depend,
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.
Any Future Determination that a Significant Impairment of the Value of Our Goodwill Intangible Asset Occurred Could
Have an Adverse Effect on Our Results of Operations.
As of December 31, 2021, we had goodwill of $186.6 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.
Item 1B. Unresolved Staff Comments
None.
14
Item 2. Properties
The following chart lists our principal domestic and international manufacturing, distribution and office facilities as of
December 31, 2021 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
Saltillo, Mexico
Segment
Residential Heating & Cooling
Type or Use of Facility
Manufacturing & Distribution
Marshalltown, IA
Residential Heating & Cooling
Manufacturing & Distribution
Orangeburg, SC
Residential Heating & Cooling
Manufacturing & Distribution
Grenada, MS
Residential Heating & Cooling
Manufacturing & Distribution
Romeoville, IL
Residential Heating & Cooling
Distribution & Office
McDonough, GA
Residential Heating & Cooling
Grove City, OH
Residential Heating & Cooling
Concord, NC
Pittston, PA
Eastvale, CA
Residential Heating & Cooling
Residential Heating & Cooling
Distribution
Distribution
Distribution
Distribution
Residential & Commercial Heating & Cooling Distribution
Carrollton, TX
Residential & Commercial Heating & Cooling Distribution
Brampton, Canada
Residential & Commercial Heating & Cooling Distribution
Houston, TX
Orlando, FL
Residential & Commercial Heating & Cooling Distribution
Residential & Commercial Heating & Cooling Distribution
Middletown, PA
Residential & Commercial Heating & Cooling Distribution
Lenexa, KS
Residential & Commercial Heating & Cooling Distribution
East Fife, WA
Residential & Commercial Heating & Cooling Distribution
Calgary, Canada
Residential & Commercial Heating & Cooling Distribution
Stuttgart, AR
Commercial Heating & Cooling
Jessup, PA
Commercial Heating & Cooling
Longvic, France
Refrigeration
Longvic, France
Refrigeration
Burgos, Spain
Mions, France
Genas, France
Refrigeration
Refrigeration
Refrigeration
Tifton, GA
Refrigeration
Stone Mountain, GA Refrigeration
Richardson, TX
Corporate and other
Carrollton, TX
Corporate and other
Chennai, India
Corporate and other
Manufacturing
Distribution
Manufacturing
Distribution
Manufacturing
Research & Development
Manufacturing, Distribution &
Offices
Manufacturing & Distribution
Manufacturing & Business
Unit Headquarters
Corporate Headquarters
Research & Development
Research & Development &
Office
Approx. Sq. Ft.
(In thousands) Owned/Leased
1,081
1,000
900
395
697
254
279
248
144
377
252
251
204
173
166
147
112
145
750
130
142
133
140
129
111
738
139
356
294
67
Owned
Owned & Leased
Owned & Leased
Owned & Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned & Leased
Owned
Owned & Leased
Owned
Leased
In addition to the properties described above, we lease numerous facilities in the U.S. and worldwide for use as sales offices,
service offices, district and regional warehouses, and Lennox Stores. 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
15
or cash flows. For more information, see Note 5 in the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity,
ff
Securities
Market Information for Common Stock
PART II
SS
Related Stockholde
r Matters and Issuer Purchases of Equity
MM
Our common stock is listed for trading on
ff
the New York Stock Exchange under the symbol “LII.”
Holders of Common Stock
As of the close of business on February 4, 2022, approximatelyy 548 holders of record held our
48 holders
common stock.
Comparison of Total Stockholder Return
The following graph compares the cumulative total retur
k with the cumulative total returns of the
s common stoc
Standards & Poor’s Midcap 4a
00 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, 2016, with dividends reinvested. Our peer group includes AAON, Inc., Comfort Systems USA,
Inc., Johnson Controls Inc., and Watsco, Inc.
ns of LII’
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2021
250.00
200.00
150.00
100.00
50.00
0.00
2016
2017
2018
2019
2020
2021
Lennox International, Inc.
S&P MidCap 400 Index
Peer Group
This performff
ance 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 Company Equity Securities
16
Our Board of Directors has authorized a total of $4 billion to repurchase shares of our common stock (collectively referred
to as the “Share Repurchase Plans”), including an incremental $1.0 billion share repurchase authorization in July 2021. The
Share Repurchase Plans authorize open market repurchase transactions and do not have a stated expiration date. As of
December 31, 2021, $846 million is available to repurchase shares under the Share Repurchase Plans.
In the fourth quarter of 2021, we purchased shares of our common stock as follows:
October 1 through October 30
October 31 through November 27
November 28 through December 31
Total Shares
Purchased (1)
3,293
306
15,061
18,660
Average Price
Paid per Share
(including fees)
296.81
$
307.87
327.75
Shares
Purchased As
Part of Publicly
Announced Plans
—
—
—
—
Approximate
Dollar Value of
Shares that may
yet be Purchased
Under the Plans
(in millions)
846.0
846.0
846.0
(1) These shares of common stock were surrendered to LII to satisfy employee tax-withholding obligations in connection
with the exercise of long-term incentive awards.
Item 6. Selected Financial Data
Not applicable
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 to the Consolidated Financial Statements in Item 8, “Other Financial Statement Details,”
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 3 in the Notes to the Consolidated Financial Statements.
We sell our products and services through a combination of direct sales, distributors and company-owned 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, vendor 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.
Impact of COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) has surfaced and spread around the world, including to the United States. In
March 2020, the World Health Organization declared COVID-19 a pandemic. Currently the COVID-19 pandemic has disrupted
17
our business operations and caused a significant unfavorable impact on our results of operations in 2020. The COVID-19
pandemic is creating supply chain disruptions and higher employee absenteeism in our factories and distribution locations.
As the COVID-19 pandemic continues, health concern risks remain. We cannot predict whether any of our manufacturing,
operational or distribution facilities will experience any future disruptions, or how long such disruptions would last.
It also
remains unclear how various national, state, and local governments will react if the distribution of vaccines is slower than
expected or new variants of the virus become more dominant. If the COVID-19 pandemic worsens or the pandemic continues
longer than presently expected, COVID 19 could impact our results of operations, financial position and cash flows.
Financial Highlights
•
•
•
•
Net sales increased $560 million, or 15%, to $4,194 million in 2021 from $3,634 million in 2020.
Operating income in 2021 was $590 million compared to $479 million in 2020.
Net income in 2021 increased to $464 million from $356 million in 2020.
Diluted earnings per share from continuing operations were $12.39 per share in 2021 compared to $9.26 per share in
2020.
• We generated $516 million of cash flow from operating activities in 2021 compared to $612 million in 2020.
•
In 2021, we returned $127 million to shareholders through dividend payments and we used $600 million to purchase
1.9 million shares of stock under our Share Repurchase Plans.
Overview of Results
The Residential Heating & Cooling segment performed well in 2021, with an 18% increase in net sales and a $112 million
increase in segment profit compared to 2020 primarily due to higher sales volumes. Our Commercial Heating & Cooling
segment saw an increase in net sales of 8% and a $26 million decrease in segment profit compared to 2020 primarily due to
increased combined price and sales mix and increased product costs, respectively. Sales in our Refrigeration segment increased
17% and segment profit increased $16 million compared to 2020 primarily due to higher sales volumes.
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 (gains) and other expenses, net
Restructuring charges
Loss (gain), net on sale of businesses and related
property
(Gain) loss from natural disasters, net of insurance
Income from equity method investments
i
Operating income
Loss from discontinued operations
Net income
For the Years Ended December 31,
2020
2021
2019
Dollars
$4,194.1
3,005.7
1,188.4
598.9
9.2
1.8
—
—
(11.8)
$ 590.3
—
$ 464.0
Dollars
Percent
100.0 % $3,634.1
71.7 % 2,594.0
28.3 % 1,040.1
555.9
14.3 %
7.4
0.2 %
10.8
— %
Dollars
Percent
100.0 % $3,807.2
71.4 % 2,727.4
28.6 %
15.3 %
0.2 %
0.3 %
1,079.8
585.9
10.3
8.3
—
— %
3.1
— %
(0.3)%
(15.6)
14.1 % $ 478.5
(0.8)
11.1 % $ 356.3
— %
10.6
— %
0.1 %
(178.8)
(0.4)%
(13.4)
13.2 % $ 656.9
— %
(0.1)
9.8 % $ 408.7
Percent
100.0 %
71.6 %
28.4 %
15.4 %
0.2 %
0.3 %
0.3 %
(4.7)%
(0.4)%
17.3 %
— %
10.7 %
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 - Consolidated Results
Net Sales
18
Net sales increased 15% in 2021 compared to 2020, driven by higher sales volumes of 11% and an improved combined
price and mix of 4%. The increase in volume and price and mix was due to strong demand across all three of our business
segments.
Gross Profit
Gross profit margins for 2021 decreased 30 basis points (“bps”) to 28.3% compared to 28.6% in 2020. Gross profit margin
decreased 180 bps from higher commodity costs, 90 bps from other product costs, 20 bps from higher freight and distribution
costs, and 10 bps for lower factory efficiency. Partially offsetting these cost increases was 270 bps from favorable combined
price and mix.
Selling, General and Administrative Expenses
SG&A expenses increased by $43 million in 2021 compared to 2020. As a percentage of net sales, SG&A expenses
decreased 100 bps from 15.3% to 14.3% in the same periods primarily due to lower discretionary expenditures.
Losses (Gains) and Other Expenses, Net
Losses (gains) and other expenses, net for 2021 and 2020 included the following (in millions):
Realized (gains) losses on settled futures contracts
Foreign currency exchange gains
Gain on disposal of fixed assets
Other operating income
Net change in unrealized gains on unsettled futures contracts
Special legal contingency charges
Asbestos-related litigation
Environmental liabilities
Charges incurred related to COVID-19 pandemic
Other items, net
Losses and other expenses, net (pre-tax)
For the Years Ended
December 31,
2021
2020
$
$
(1.2) $
(2.2)
(0.2)
(1.5)
—
1.3
5.4
2.9
2.2
2.5
9.2
$
0.1
(3.6)
(0.2)
(2.2)
(0.3)
1.1
5.6
(1.4)
8.3
—
7.4
The charges incurred related to the COVID-19 pandemic related primarily to facility cleaning costs and sanitization supplies
to ensure the health and safety of our employees. The net change in unrealized losses on unsettled futures contracts was due to
changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note
10 in the Notes to the Consolidated Financial Statements.
Foreign currency exchange gains decreased in 2021 primarily due to weakening in foreign exchange rates in our primary
markets. The special legal contingency charges in 2021 relate to outstanding legal settlements. 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. Refer to Note 5 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 $1.8 million in 2021 compared to $10.8 million in 2020. Charges in 2021 were related to
ongoing cost reduction actions taken in prior years. The charges in 2020 related primarily to several cost reduction actions
taken in response to the economic impact of the COVID-19 pandemic on our business. These actions consisted of employee
terminations for positions that were no longer needed to support the business, selective facility closures, and cancellations of
certain sales and marketing activities. For more information on our restructuring activities, see Note 8 in the Notes to the
Consolidated Financial Statements.
Goodwill
19
We performed a qualitative impairment analysis and noted no indicators of goodwill impairment for the year ended
December 31, 2021. We did not record any goodwill impairments in 2021 or 2020. Refer to Note 10 in the Notes to the
Consolidated Financial Statements for more information on goodwill.
Asset Impairments
We did not have any impairments of assets related to continuing operations in 2021 or 2020.
Pension Settlement
We did not have significant pension buyout activity in 2021 and 2020. Refer to Note 11 in the Notes to the Consolidated
Financial Statements for more information on pensions and employee benefit plans.
Income from Equity Method Investments
Investments over which we do not exercise control but have significant influence are accounted for using the equity method
Income from equity method investments was $12 million in 2021 compared to $16 million in 2020. The
of accounting.
decrease is due to rising production costs at the joint ventures.
Interest Expense, net
Net interest expense of $25 million in 2021 decreased from $28 million in 2020 primarily due to lower borrowing and lower
borrowing costs.
Income Taxes
The income tax provision was $96 million in 2021 compared to $88 million in 2020, and the effective tax rate was 17.2% in
2021 compared to 19.8% in 2020. The 2021 and 2020 effective tax rates differ from the statutory rate of 21% primarily due to
state and foreign taxes. Refer to Note 13 in the Notes to the Consolidated Financial Statements for more information on income
taxes.
Loss from Discontinued Operations
Losses from discontinued operations were immaterial in 2021 and 2020 and relate to changes in retained product liabilities
and general liabilities for the Service Experts business sold in 2013 and the Hearth business sold in 2012.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 - Results by Segment
Residential Heating & Cooling
The following table presents our Residential Heating & Cooling segment’s net sales and profit for 2021 and 2020 (dollars in
millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2021
2020
Difference
% Change
$ 2,775.6
$
540.3
$ 2,361.5
$
428.5
$
$
414.1
111.8
18%
26%
19.5 %
18.1 %
Residential Heating & Cooling net sales increased 18% in 2021 compared to 2020. Sales volume increased 13%, price
increased 5% and favorable foreign currency exchange rates caused an increase of 1%. Partially offsetting these increases was
a 1% reduction due to unfavorable product mix.
Segment profit in 2021 increased $112 million compared to 2020 due to $108 million from favorable pricing, $91 million
from higher sales volume, $9 million from favorable foreign currency exchange, $5 million from higher factory productivity,
and $2 million from sourcing and engineering-led cost reductions. Partially offsetting these increases were $59 million from
20
commodity costs, $20 million from higher warranty and other product costs, $14 million from higher SG&A, $5 million from
unfavorable product mix, and $5 million from lower income from equity method investments.
Commercial Heating & Cooling
The following table presents our Commercial Heating & Cooling segment’s net sales and profit for 2021 and 2020 (dollars
in millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2021
864.8
110.9
$
$
2020
800.9
136.9
$
$
Difference
% Change
$
$
63.9
(26.0)
8 %
(19)%
12.8 %
17.1 %
Commercial Heating & Cooling net sales increased 8% in 2021 compared to 2020. Price and mix combined increased 4%,
sales volume was 3% higher, and foreign currency improved 1%.
Segment profit in 2021 decreased $26 million compared to 2020 due to $17 million from higher other product costs, $14
million from factory inefficiencies, $6 million from sourcing and engineering-led cost increases, $6 million from higher
commodity costs, $6 million from higher freight and distribution costs, $4 million from higher SG&A costs, and $1 million
from unfavorable foreign currency. Partially offsetting these declines was a favorable increase in combined price and mix of
$19 million and $9 million from higher sales volume.
Refrigeration
The following table presents our Refrigeration segment’s net sales and profit for 2021 and 2020 (dollars in millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2021
553.7
49.1
$
$
2020
471.7
32.8
$
$
8.9 %
7.0 %
Difference
% Change
$
$
82.0
16.3
17 %
50 %
Net sales increased 17% in 2021 compared to 2020. Sales volume increased 14%, price increased 3%, and foreign currency
improved 1%. Partially offsetting these increases was a 1% reduction due to unfavorable mix.
Segment profit in 2021 increased $16 million compared to 2020 due to $23 million from higher sales volume, $13 million
from higher price, $3 million from higher factory productivity, and $1 million from higher income from equity method
investments. Partially offsetting these increases were $10 million from higher SG&A, $8 million from higher commodity costs,
$2 million from higher other product costs, $2 million from unfavorable product mix, and $2 million from higher freight and
distribution costs.
Corporate and Other
Corporate and other expenses increased by $5 million in 2021 compared to 2020 primarily due to increased headcount and
increases in incentive compensation costs.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 - Consolidated Results
Net Sales
Net sales decreased 5% in 2020 compared to 2019, driven by lower sales volumes of 5% and a 1% decline related to the sale
of our Kysor Warren business in the first quarter of 2019, partially offset by improved combined price and mix of 1%. The
decrease in sales volume was primarily due to the impact of the COVID-19 pandemic on our Commercial and Refrigeration
segments.
21
Gross Profit
Gross profit margins for 2020 increased 20 basis points (“bps”) to 28.6% compared to 28.4% in 2019. We saw margin
increases of 90 bps from engineering and sourcing led cost reductions, 70 bps from lower commodity costs, and 20 bps from
lower freight and distribution costs. These were partially offset by 120 bps from unfavorable combined price and mix, 30 bps
from higher product warranties, and 10 bps from other product costs.
Selling, General and Administrative Expenses
SG&A expenses decreased by $30 million in 2020 compared to 2019. As a percentage of net sales, SG&A expenses
decreased 10 bps from 15.4% to 15.3% in the same periods primarily due to lower discretionary expenditures.
Losses (Gains) and Other Expenses, Net
Losses (gains) and other expenses, net for 2020 and 2019 included the following (in millions):
Realized losses on settled futures contracts
Foreign currency exchange gains
Gain on disposal of fixed assets
Net change in unrealized gains on unsettled futures contracts
Other operating income
Special legal contingency charges
Asbestos charges
Environmental liabilities
Losses from pandemic
Other items, net
Losses (gains) and other expenses, net
For the Years Ended
December 31,
2020
2019
$
$
0.1
(3.6)
(0.2)
(0.3)
(2.2)
1.1
5.6
(1.4)
8.3
—
7.4
$
$
0.4
(1.5)
(0.2)
(0.5)
(1.7)
1.2
3.1
5.7
—
1.8
8.3
The charges incurred related to the COVID-19 pandemic related primarily to facility cleaning costs and sanitization supplies
to ensure the health and safety of our employees. The net change in unrealized losses on unsettled futures contracts was due to
changes in commodity prices relative to the unsettled futures contract prices. For more information on our derivatives, see Note
10 in the Notes to the Consolidated Financial Statements.
Foreign currency exchange gains increased in 2020 primarily due to strengthening in foreign exchange rates in our primary
markets. The special legal contingency charges in 2020 relate to outstanding legal settlements. 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. Refer to Note 5 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 $10.8 million in 2020 compared to $10.3 million in 2019. The charges in 2020 related primarily
to several cost reduction actions taken in response to the economic impact of the COVID-19 pandemic on our business. These
actions consisted of employee terminations for positions that were no longer needed to support the business, selective facility
closures, and cancellations of certain sales and marketing activities.
Goodwill
We performed a qualitative impairment analysis and noted no indicators of goodwill impairment for the year ended
December 31, 2020. We did not record any goodwill impairments in 2019 or 2020. Refer to Note 10 in the Notes to the
Consolidated Financial Statements for more information on goodwill.
22
Asset Impairments
We did not have any impairments of assets related to continuing operations in 2020 or 2019.
Pension Settlement
In the second and fourth quarters of 2019, we entered into agreements to purchase group annuity contracts and transfer
certain pension assets and related pension benefit obligations to Pacific Life Insurance Company. We recognized $99.2 million
of pension settlement charges related to these transactions. We did not have significant pension buyout activity in 2020. Refer
to Note 11 in the Notes to the Consolidated Financial Statements for more information on pensions and employee benefit plans.
Income from Equity Method Investments
Investments over which we do not exercise control but have significant influence are accounted for using the equity method
Income from equity method investments was $16 million in 2020 compared to $13 million in 2019. The
of accounting.
increase is due to improved operating performance at the joint ventures.
Interest Expense, net
Net interest expense of $28 million in 2020 decreased from $48 million in 2019 primarily due to lower borrowing and lower
borrowing costs.
Income Taxes
The income tax provision was $88 million in 2020 compared to $99 million in 2019, and the effective tax rate was 19.8% in
2020 compared to 19.5% in 2019. The 2020 and 2019 effective tax rates differ from the statutory rate of 21% primarily due to
state and foreign taxes. Refer to Note 13 in the Notes to the Consolidated Financial Statements for more information on income
taxes.
Loss from Discontinued Operations
Losses from discontinued operations were $1 million in 2020 which primarily relate to changes in retained product liabilities
and general liabilities for the Service Experts business sold in 2013 and the Hearth business sold in 2012.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 - Results by Segment
Residential Heating & Cooling
The following table presents our Residential Heating & Cooling segment’s net sales and profit for 2020 and 2019 (dollars in
millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2020
2019
Difference
% Change
$ 2,361.5
$
428.5
$ 2,291.1
$
464.6
$
$
70.4
(36.1)
3%
(8)%
18.1 %
20.3 %
Residential Heating & Cooling net sales increased 3% in 2020 compared to 2019. Sales volume increased 2% and price and
mix combined increased 1%.
Segment profit in 2020 declined $36 million compared to 2019 due to $99 million of non-recurring insurance proceeds for
lost profits related to the Marshalltown tornado, $10 million of higher warranty and other product costs, $5 million of higher
tariffs, $3 million of combined price and mix, and $1 million of factory inefficiency. Partially offsetting these declines were $25
million of lower SG&A, $25 million of engineering and sourcing led cost reductions, $17 million from lower commodity costs,
$8 million of lower freight and distribution expense, $5 million of higher sales volume, and $2 million of higher income from
equity method investments.
23
Commercial Heating & Cooling
The following table presents our Commercial Heating & Cooling segment’s net sales and profit for 2020 and 2019 (dollars
in millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2020
800.9
136.9
$
$
2019
947.4
165.4
$
$
Difference
% Change
$
$
(146.5)
(28.5)
(15)%
(17)%
17.1 %
17.5 %
Commercial Heating & Cooling net sales decreased 15% in 2020 compared to 2019. Sales volume was 14% lower and
price and mix combined decreased 1%.
Segment profit in 2020 decreased $29 million compared to 2019 due to $47 million of lower sales volume and $10 million
of unfavorable mix. Partially offsetting these declines were $9 million of lower SG&A, $7 million of engineering and sourcing
led cost reductions, $6 million from lower commodity costs, $2 million of factory productivity, $2 million of other product
costs, $1 million of lower tariffs on imports, and $1 million of favorable foreign currency exchange rates.
Refrigeration
The following table presents our Refrigeration segment’s net sales and profit for 2020 and 2019 (dollars in millions):
Net sales
Profit
% of net sales
For the Years Ended
December 31,
2020
471.7
32.8
$
$
2019
568.7
61.3
$
$
Difference
% Change
$
$
(97.0)
(28.5)
(17)%
(46)%
7.0 %
10.8 %
Net sales decreased 17% in 2020 compared to 2019. Sales volume was 13% lower and the loss of sales from our divested
Kysor Warren business contributed 6% which was partially offset by 1% of favorable combined price and mix and 1% from
favorable foreign currency exchange rates.
Segment profit in 2020 decreased $29 million compared to 2019 due to $26 million of lower sales volumes, $10 million of
factory inefficiency, $5 million of other product costs and warranty, $2 million from non-recurring European refrigerant quota
sales, $1 million of combined price and mix, and $1 million from lower income from equity method investments. Partially
offsetting these declines were $5 million from lower commodity costs, $4 million of engineering and sourcing led cost
reductions, $4 million lower SG&A, $1 million lower freight and distribution expense, $1 million of higher profit due to the
divestiture of the Kysor Warren business, and $1 million of favorable foreign currency exchange rates.
Corporate and Other
Corporate and other expenses increased by $9 million in 2020 compared to 2019 primarily due to short-term and long-term
stock-based incentive compensation.
24
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 (gains) and other
expenses, net in the accompanying Consolidated Statements of Operations. See Note 10 of the Notes to Consolidated Financial
Statements for more information on our derivatives and Note 3 of the Notes to the Consolidated Financial Statements for more
information on our segments and for a reconciliation of segment profit to operating income.
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, 2021, 2020 and 2019 (in millions):
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in financing activities
2021
2020
2019
$
$
515.5
(106.4)
(498.7)
$
$
612.4
(79.7)
(441.8)
$
$
396.1
15.9
(423.4)
Net Cash Provided by Operating Activities - Net cash provided by operating activities decreased $96 million to $516 million
in 2021 compared to $612 million in 2020. The decrease was primarily attributable to increases in working capital partially
offset by an increase in net income.
Net Cash (Used in) Provided by Investing Activities - Net cash used in investing activities increased $27 million from 2020
to 2021 primarily due to increased capital expenditures. Capital expenditures were $107 million, $79 million and $106 million
in 2021, 2020 and 2019, respectively. Capital expenditures in 2021 were primarily related to the expansion of our
manufacturing capacity and equipment and investments in systems and software to support the overall enterprise.
Net Cash Used in Financing Activities - Net cash used in financing activities increased to $499 million in 2021 from $442
million in 2020. The increase is primarily due to an increase in share repurchases in 2021 partially offset by net borrowings and
repayments on debt. During 2021 we repurchased $600 million of shares compared to $100 million of shares in 2020. We also
returned $127 million to shareholders through dividend payments in 2021. For additional information on share repurchases,
refer to Note 6 in the Notes to the Consolidated Financial Statements.
25
Debt Position
The following table details our lines of credit and financing arrangements as of December 31, 2021 (in millions):
Current maturities of long-term debt:
Asset Securitization Program (1)
Capital lease obligations
Debt issuance costs
Total current maturities of long-term debt
Long-term debt:
Asset Securitization Program (1)
Capital lease obligations
Domestic credit facility (2)
Senior unsecured notes
Debt issuance costs
Total long-term debt
Total debt
Outstanding
Borrowings
$
$
$
$
—
11.3
—
11.3
250.0
29.0
6.5
950.0
(9.0)
1,226.5
1,237.8
(1) The maximum securitization amount ranges from $300.0 million to $450.0 million, depending on the period. The maximum
capacity of the Asset Securitization Program (“ASP”) is the lesser of the maximum securitization amount or 100% of the net
pool balance less reserves, as defined under the ASP. Refer to Note 14 in the Notes to the Consolidated Financial
Statements for more details.
(2) The total capacity on the facility is $750.0 million. The amount available future borrowings on our domestic credit facility
are $742 million after being reduced by the outstanding borrowings and $2 million in outstanding standby letters of credit as
of December 31, 2021.
July 2021 Credit Agreement
In July 2021, we entered into the Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as
administrative agent, and the other lenders party thereto, which refinanced and replaced the Prior Credit Agreement, among the
Company, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto.
The Credit Agreement provides for revolving credit commitments of $750 million with sublimits for swingline loans of up
to $65 million, letters of credit up to $100 million and revolving loans in certain non-U.S. currencies up to the U.S. dollar
equivalent of $40 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026,
unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit
Agreement. At our request and subject to certain conditions, the revolving credit commitments under the Credit Agreement may
be increased by up to a total of $350 million to the extent that existing or new lenders agree to provide additional commitments.
The Credit Agreement is guaranteed by certain of our subsidiaries and contains customary covenants applicable to us and its
subsidiaries including limitations on indebtedness, liens, dividends, stock repurchases, mergers and sales of all or substantially
all of its assets. In addition, the Credit Agreement contains a financial covenant requiring us to maintain, as of the last day of
each fiscal quarter for the four prior fiscal quarters, a Total Net Leverage Ratio of no more than 3.50 to 1.00 (or, at our election,
on up to two occasions following a material acquisition, 4.00 to 1.00). The Credit Agreement is subject to customary events of
default,
inaccuracy of
representations and warranties, breach of covenants, cross-default to other indebtedness in excess of $75 million, judgements in
excess of $75 million, certain voluntary and involuntary bankruptcy events, and the occurrence of a change of control. As of
December 31, 2021, we believe we were in compliance with all covenant requirements.
including non-payment of principal or other amounts under
the Credit Agreement, material
26
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.
We also evaluate our debt-to-capital and debt-to-EBITDA ratios to determine, among other considerations, the appropriate
targets for capital expenditures and share repurchases under our Share Repurchase Plans. Our book value of debt-to-total-
capital ratio increased to 128% at December 31, 2021 compared to 102% at December 31, 2020.
As of December 31, 2021, our senior credit ratings were Baa2 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.
Liquidity
We believe our cash and cash equivalents of $31 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 as of December 31,
2021 was $14 million of cash held in foreign locations, although that amount can fluctuate significantly depending on the
timing of cash receipts and payments. Our cash and cash equivalents held in foreign locations is generally available for use in
our U.S. operations and could be subject to foreign withholding taxes and U.S. state taxes.
No contributions are required to be made to our U.S. defined benefit plans in 2022. We made $2 million in total
contributions to pension plans in 2021.
Dividend payments were $127 million in 2021 compared to $118 million in 2020. On May 19, 2021, our Board of Directors
approved a 19% increase in our quarterly dividend on common stock from $0.77 to $0.92 per share effective with the July 2021
dividend payment.
We also continued to increase shareholder value through our Share Repurchase Plans. We returned $600 million to our
investors through share repurchases in 2021. Our Board of Directors authorized an incremental $1.0 billion of share
repurchases in July 2021, and we had $846 million of repurchases available under the Share Repurchase Plans at December 31,
2021. We expect to repurchase $400 million of shares in 2022.
We expect capital expenditures of approximately $125 million in 2022.
Financial Covenants related to our Debt
Our domestic credit facility is guaranteed by certain of our subsidiaries and contains a financial covenant relating to
leverage. Other covenants contained in the domestic credit facility restrict, among other things, certain mergers, asset
dispositions, guarantees, debt, liens, and affiliate transactions. The financial covenant requires us to maintain a defined
Consolidated Indebtedness to Adjusted EBITDA Ratio of no greater than 3.5 : 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 exceeding
$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 exceeding $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 our domestic credit facility, our senior unsecured notes, or our ASP were to
27
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, the administrative agent, or 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 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, 2021, 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
Refer to Note 5 in the Notes to the Consolidated Financial Statements for more details on our leasing commitments.
Guarantees related to our Debt Obligations
Our senior unsecured notes were issued by Lennox International Inc. (the “Parent”) and are unconditionally guaranteed by
certain of our subsidiaries (the “Guarantor Subsidiaries”) and are not secured by our other subsidiaries. The Guarantor
Subsidiaries are 100% owned and consolidated, all guarantees are full and unconditional, and all guarantees are joint and
several.
In connection with the Credit Agreement, we entered into in July 2021, Heatcraft Technologies Inc., Lennox National
Account Services Inc., Lennox Procurement Company Inc. and Lennox Services LLC became additional guarantors of our debt
In
obligations, guaranteeing the payment when due of all monetary obligations under the Credit Agreement and the Notes.
addition, Lennox Switzerland GmbH was released as a guarantor of all monetary obligations under the Credit Agreement and
the Notes. These changes did not result in a material change to the Parent and Guarantor Subsidiaries financial information.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that we believe may have a material current or future effect on our financial
condition, liquidity or results of operations.
Contractual Obligations
Contractual obligations arise in the normal course of business and include debt and related interest payments, leases,
purchase obligations, pension and post-retirement benefits and warranty liabilities. For additional information regarding our
contractual obligations, see Note 5 of the Notes to the Consolidated Financial Statements. See Note 11 of the Notes to the
Consolidated Financial Statements for more information on our pension and post-retirement benefits obligations. See Note 14
of the Notes to the Consolidated Financial Statements for more information on our debt obligations.
28
Fair Value Measurements
Fair value is the price that would be received to sell an asset or the price 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, 2021 and 2020, the measurement dates. See Note 17 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 asset
Change in fair value from 10% change in forward prices
62.4
13.3
14.2
$
$
Refer to Note 10 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 $0.4 million, $1.3 million and $3.9
million for the years ended December 31, 2021, 2020 and 2019, 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, 2021 and 2020, no interest rate swaps were in effect.
29
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 2021, 2020 and 2019, net sales from outside the U.S. represented 13.1%, 13.0% and 13.2%, respectively, of our total net
sales. For the years ended December 31, 2021, 2020, and 2019, 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 $2.7
million, $0.6 million and $4.2 million impact to net income for the years ended December 31, 2021, 2020 and 2019,
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 10 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 describes our critical accounting estimate
related to product warranties and product-related contingencies and how we develop our judgments, assumptions and estimates
about future events and how such policies can impact our financial statements. 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.
From time to time, we may also incur costs to repair or replace installed products experiencing quality issues in order to
satisfy our customers and protect our brand. These product-related costs may not be covered under our warranties and are not
covered by insurance.
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 5 in the Notes to the Consolidated
Financial Statements for more information on our product warranties and product-related contingencies.
Recent Accounting Pronouncements
See Note 2 in the Notes to the Consolidated Financial Statements for disclosure of recent accounting pronouncements and
the potential impact on our financial statements and disclosures.
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.
30
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, 2021, 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, 2021, 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, 2021, a copy of which is included herein.
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Lennox International Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Lennox International Inc. and subsidiaries (the Company) as
of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders’
deficit, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and
Schedule II – Valuation and Qualifying Accounts and Reserves (collectively, the consolidated financial statements). We also
have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
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, 2021 and 2020, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
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 the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
32
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the product category warranty liability
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company provides a product warranty for
certain of its products with the warranty period generally ranging from one to 20 years. The product warranty liability is
estimated by product category based on the estimated future costs to repair or replace the products under warranty. The
Company’s product warranty liability was $134.2 million as of December 31, 2021.
We identified the evaluation of the product warranty liability as a critical audit matter. Assessing the assumptions used
to estimate the product warranty liability, specifically, the estimated failure rates by product category by year, and
estimated cost per failure, involved subjective and complex auditor judgment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls over the Company’s estimate of the future failure rates
by product category and controls to estimate the cost of failures by product category for products subject to warranty.
We assessed the estimated future failure rates by product category and the estimated cost per failure by product
category used in the estimation of the product warranty liability by comparing them to the Company’s underlying
historical data. We tested a sample of the historical data used as the basis for these assumptions by comparing to the
relevant underlying documentation.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Dallas, Texas
February 15, 2022
33
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par values)
Current Assets:
Cash and cash equivalents
Short-term investments
ASSETS
Accounts and notes receivable, net of allowances of $10.7 and $9.6 in 2021 and 2020,
Inventories, net
Other assets
Total current assets
Property, plant and equipment, net of accumulated depreciation of $888.8 and $880.6 in 2021 and
2020, respectively
Right-of-use assets from operating leases
Goodwill
Deferred income taxes
Other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Current maturities of long-term debt
Current operating lease liabilities
Accounts payable
Accrued expenses
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Pensions
Other liabilities
Total liabilities
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued or outstanding
Common stock, $0.01 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, 50,536,125 shares and 48,820,969 shares for 2021 and 2020, respectively
Total stockholders' deficit
Total liabilities and stockholders' deficit
As of December 31,
2021
2020
$
31.0
$
123.9
5.5
508.3
510.9
119.7
1,175.4
5.1
448.3
439.4
70.9
1,087.6
515.1
196.1
186.6
11.3
87.4
$ 2,171.9
464.3
194.4
186.9
13.2
86.1
$ 2,032.5
11.3
54.8
402.1
358.9
827.1
1,226.5
145.0
83.3
159.0
2,440.9
9.9
55.0
340.3
296.1
701.3
970.7
142.8
92.5
142.3
2,049.6
—
0.9
1,133.7
2,719.3
(88.1)
(4,034.8)
(269.0)
$ 2,171.9
—
0.9
1,113.2
2,385.8
(97.2)
(3,419.8)
(17.1)
$ 2,032.5
The accompanying notes are an integral part of these Consolidated Financial Statements.
34
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 (gains) and other expenses, net
Restructuring charges
Loss on sale of businesses and related property
(Gain) loss from natural disasters, net of insurance recoveries
Income from equity method investments
Operating income
Pension settlements
Interest expense, net
Other expense (income), net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Discontinued operations:
Income (loss) from discontinued operations before income taxes
Income tax expense (benefit)
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
Weighted Average Number of Shares Outstanding - Basic
Weighted Average Number of Shares Outstanding - Diluted
For the Years Ended December 31,
2021
2020
2019
$
4,194.1
$
3,634.1
$
3,005.7
1,188.4
2,594.0
1,040.1
3,807.2
2,727.4
1,079.8
598.9
9.2
1.8
—
—
(11.8)
590.3
1.2
25.0
4.0
560.1
96.1
464.0
—
—
—
555.9
7.4
10.8
—
3.1
(15.6)
478.5
0.6
28.3
4.4
445.2
88.1
357.1
(1.5)
(0.7)
(0.8)
585.9
8.3
10.3
10.6
(178.8)
(13.4)
656.9
99.2
47.5
2.3
507.9
99.1
408.8
(0.1)
—
(0.1)
$
$
$
$
$
464.0
$
356.3
$
408.7
$
$
$
$
12.47
—
12.47
12.39
—
12.39
37.2
37.5
$
$
$
$
9.32
(0.02)
9.30
9.26
(0.02)
9.24
38.3
38.6
10.49
—
10.49
10.38
—
10.38
39.0
39.4
The accompanying notes are an integral part of these Consolidated Financial Statements.
35
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments
Reclassification of foreign currency translation adjustments into earnings
Net change in pension and post-retirement benefit liabilities
Net change in fair value of cash flow hedges
Reclassification of pension and post-retirement benefit losses into earnings
Pension settlements
Share of equity method investments other comprehensive income
Reclassification of cash flow hedge losses into earnings
Other comprehensive income before taxes
Tax expense
Other comprehensive income, net of tax
Comprehensive income
For the Years Ended December 31,
2021
2020
2019
$
464.0
$
356.3
$
408.7
(7.3)
—
11.8
29.8
7.9
1.2
—
(26.9)
16.5
$
(7.4)
9.1
0.8
—
(8.7)
7.0
5.9
0.6
(1.2)
3.7
8.1
(1.5)
6.6
$
473.1
$
362.9
$
3.7
2.1
(7.1)
1.3
5.7
99.2
—
6.9
111.8
(26.8)
85.0
493.7
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
36
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7
3
LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of business
Insurance recoveries received for property damage incurred from natural disaster
Income from equity method investments
Dividends from affiliates
Restructuring charges, net of cash paid
Provision for credit losses
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:
Accounts and notes receivable
Inventories
Other current assets
Accounts payable
Accrued expenses
Income taxes payable and receivable, net
Leases, net
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
Proceeds from (purchases of) short-term investments, net
Net proceeds from sale of business
Insurance recoveries received for property damage incurred from natural disaster
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Short-term debt payments
Short-term debt borrowings
Asset securitization borrowings
Asset securitization payments
Long-term debt payments
Long-term debt borrowings
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
Cash dividends paid
Net cash used in financing activities
(Decrease) 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
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid
Income taxes paid (net of refunds)
Insurance recoveries received
2021
2020
2019
$
464.0
$
356.3
$
408.7
—
—
(11.8)
9.1
1.1
4.9
(0.6)
24.3
72.4
(5.4)
11.3
(1.5)
0.3
(68.8)
(71.0)
(19.2)
55.2
64.2
(26.5)
0.2
13.3
515.5
0.9
(106.8)
(0.5)
—
—
(106.4)
—
—
627.0
(377.0)
(12.3)
—
1,162.5
(1,156.0)
2.4
3.3
(600.0)
(22.1)
(126.5)
(498.7)
(89.6)
(3.3)
123.9
31.0
23.8
128.5
6.6
$
$
$
$
$
$
$
$
—
—
(15.6)
12.3
3.4
8.1
0.3
24.3
72.6
7.2
10.5
(3.3)
0.2
26.5
110.3
5.3
(31.7)
35.4
(5.7)
2.1
(6.1)
612.4
1.0
(78.5)
(2.2)
—
—
(79.7)
(4.6)
4.6
91.0
(376.0)
(10.8)
600.0
1,576.0
(2,081.5)
(7.5)
3.0
(100.0)
(17.9)
(118.1)
(441.8)
90.9
(4.3)
37.3
123.9
$
10.6
(79.6)
(13.4)
12.3
6.8
4.5
(0.5)
21.3
71.1
16.6
106.1
(1.8)
(0.4)
(33.1)
(63.9)
2.8
(56.1)
(5.6)
(1.9)
2.1
(10.5)
396.1
1.3
(105.6)
(2.9)
43.5
79.6
15.9
(5.3)
5.3
184.5
(167.5)
(6.4)
—
2,367.0
(2,269.5)
(0.3)
3.3
(400.0)
(24.0)
(110.5)
(423.4)
(11.4)
2.4
46.3
37.3
25.3
90.3
$
$
— $
46.8
83.0
243.2
The accompanying notes are an integral part of these Consolidated Financial Statements.
38
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 3
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.
Short term Investments
Short-term investments include all investments, exclusive of cash equivalents, with a stated maturity date of one year or less
from the balance sheet date and are expected to be used in current operations.
Accounts and Notes Receivable
Accounts and notes receivable are shown in the accompanying Consolidated Balance Sheet, 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 $302.2 million and $280.5 million
as of December 31, 2021 and 2020, respectively, were valued at the lower of cost or net realizable value using the last-in, first-
out (“LIFO”) cost method. The remainder of inventory is valued at the lower of cost or net realizable value 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 10 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.
39
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 40 years
1 to 39 years
3 to 5 years
3 to 10 years
1 to 15 years
3 to 5 years
3 to 10 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 10 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 10 for additional information on our goodwill.
The provisions of the accounting standard for goodwill allow us to first assess qualitative factors to determine whether it is
necessary to perform a 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.
If a quantitative goodwill impairment test is determined to be necessary, we estimate reporting unit fair values using a
combination of the discounted cash flow approach and 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. The market approach 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
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
If the expected future cash flows do not exceed the carrying value of the asset or assets being reviewed, an
such assets.
40
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.
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 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.
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 category. 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. In most cases, the estimated units to be repaired under warranty are multiplied by the
estimated cost of replacement parts 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 5 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 Sheet. Changes in the funded status are recognized in the year in which
the changes occur through Accumulated other comprehensive loss (“AOCL”). 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 11 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,
industry factors, and trends. The self-insurance liabilities as of December 31, 2021 represent the best estimate of the future
payments to be made on reported and unreported losses for 2021 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 5 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 Sheet 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 10 for more information on our derivatives.
41
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 13 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 and control passes. Certain customers in our smaller operations, primarily outside of North America, have
shipping terms where risks and rewards 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. We have elected to recognize the revenue and cost for freight and shipping when control over the sale of goods passes to
our customers. See Note 9 for more information on our revenue recognition practices.
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
travel, non-production
technology costs, and other selling, general and administrative related costs such as insurance,
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 based 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 16 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 AOCL in the accompanying Consolidated Balance Sheets. Transaction
gains and losses are included in Losses (gains) 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.
42
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.
Impact of COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) has surfaced and spread around the world, including to the United States. In
March 2020, the World Health Organization declared COVID-19 a pandemic. Currently the COVID-19 pandemic has disrupted
our business operations and caused a significant unfavorable impact on our results of operations in 2020. The COVID-19
pandemic is creating supply chain disruptions and higher employee absenteeism in our factories and distribution locations.
As the COVID-19 pandemic continues, health concern risks remain. We cannot predict whether any of our manufacturing,
It also
operational or distribution facilities will experience any future disruptions, or how long such disruptions would last.
remains unclear how various national, state, and local governments will react if the distribution of vaccines is slower than
expected or new variants of the virus become more dominant. If the COVID-19 pandemic worsens or the pandemic continues
longer than presently expected, COVID 19 could impact our results of operations, financial position and cash flows.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP
with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to estimate credit losses. ASU 2016-13 is effective for SEC filers for interim and annual periods
beginning after December 15, 2019. We adopted ASU 2016-13 using the modified retrospective method for all financial assets
measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period
amounts continue to be reported under previously applicable accounting standards. We recorded a $1.3 million net decrease to
retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. ASU 2019-02, in an effort to reduce complexity in accounting for income taxes, removes certain exceptions for
measuring intraperiod tax allocations,
foreign subsidiary equity method investments and interim period tax losses. ASU
2019-12 is effective for calendar year-end public business entities on January 1, 2021. The adoption of ASU 2019-12 did not
have a material impact on our financial statements.
3. Reportable Business Segments:
Description of Segments
We operate in three reportable business segments of the 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
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
Markets Served
Residential Replacement;
Residential New Construction
Geographic Areas
United States
Canada
Light Commercial
United States
Canada
United States
Canada
Europe
Refrigeration(1) Condensing units, unit coolers, fluid coolers, air-
cooled condensers, air handlers, process chillers,
controls, and compressorized racks
Light Commercial;
Food Preservation;
Non-Food/Industrial
43
(1) Descriptions of the products, services, markets and geographic areas of divested businesses were excluded from this
table. Refer to Note 7 for details regarding the divestitures of our Kysor Warren business.
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 our business. 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
Total segment profit
Reconciliation to Operating income:
Special product quality adjustments
Loss on sale of businesses and related property
(Gain) loss from natural disasters, net of insurance recoveries
Items in Losses (gains) and other expenses, net that are excluded from segment
profit (loss) (2)
Restructuring charges
Operating income
For the Years Ended December 31,
2021
2020
2019
$ 2,775.6
864.8
553.7
$ 4,194.1
$ 2,361.5
800.9
471.7
$ 3,634.1
$ 2,291.1
947.4
568.7
$ 3,807.2
$
540.3
110.9
49.1
(96.4)
603.9
(2.5)
—
—
$
$
428.5
136.9
32.8
(91.5)
506.7
1.0
—
3.1
14.3
1.8
590.3
$
13.3
10.8
478.5
$
$
464.6
165.4
61.3
(82.4)
608.9
(0.6)
10.6
(79.6)
11.3
10.3
656.9
(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) We define segment profit (loss) as a segment’s operating income included in the accompanying Consolidated Statements
of Operations, excluding:
• The following items in Losses (gains) and other expenses, net:
◦ Net change in unrealized losses (gains) on unsettled futures contracts,
◦ Special legal contingency charges,
◦ Asbestos-related litigation,
◦ Environmental liabilities,
◦ Charges incurred related to COVID-19 pandemic,
44
◦ Other items, net,
• Special product quality adjustments
•
• Restructuring charges, and
• Loss on sale of business and related property
(Gain) loss from natural disasters, net of insurance recoveries
Total assets by segment are shown below (in millions):
Total Assets:
Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other
Total assets
As of December 31,
2020
2019
2021
$
$
1,149.7
366.2
426.6
229.4
2,171.9
$
$
1,034.6
366.5
387.9
243.5
2,032.5
$
$
1,055.7
409.0
393.3
176.9
2,034.9
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 capital expenditures by segment are shown below (in millions):
Capital Expenditures:
Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Corporate and other
Total capital expenditures
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:
Residential Heating & Cooling
Commercial Heating & Cooling
Refrigeration
Total income from equity method investments
Geographic Information
For the Years Ended December 31,
2019
2020
2021
70.0
4.3
11.5
21.0
106.8
$
$
44.0
5.9
9.2
19.4
78.5
$
$
59.2
11.3
9.4
25.7
105.6
For the Years Ended December 31,
2019
2020
2021
27.6
13.2
7.8
23.8
72.4
$
$
28.5
13.5
7.8
22.8
72.6
$
$
30.0
12.5
7.9
20.7
71.1
For the Years Ended December 31,
2019
2020
2021
$
6.9
1.2
3.7
$
11.4
2.3
1.9
8.8
1.7
2.9
11.8
$
15.6
$
13.4
$
$
$
$
$
$
Property, plant and equipment, net for each major geographic area in which we operate, based on the domicile of our
45
operations, are shown below (in millions):
Property, Plant and Equipment, net:
United States
Mexico
Canada
Other international
Total Property, plant and equipment, net
4. Earnings Per Share:
As of December 31,
2020
2019
2021
$
$
381.0
102.7
2.1
29.3
515.1
$
$
352.9
79.2
2.2
30.0
464.3
$
$
333.6
82.0
2.2
27.6
445.4
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,
2019
2020
2021
464.0
—
464.0
$
$
356.3
0.8
357.1
$
$
37.2
0.3
37.5
12.47
—
12.47
12.39
—
12.39
$
$
$
$
38.3
0.3
38.6
9.32
(0.02)
9.30
9.26
(0.02)
9.24
$
$
$
$
408.7
0.1
408.8
39.0
0.4
39.4
10.49
—
10.49
10.38
—
10.38
$
$
$
$
$
$
An insignificant number of stock appreciation rights and Restricted Stock Units were outstanding but not included in the
diluted earnings per share calculation because the assumed exercise of such rights would have been anti-dilutive.
5. Commitments and Contingencies:
Leases
We lease certain real and personal property under non-cancelable leases. Approximately 78% of our right-of-use assets and
lease liabilities relate to our leases of real estate with the remaining amounts relating to our leases of IT equipment, fleet
vehicles and manufacturing and distribution equipment.
46
The components of lease expense were as follows (in millions):
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other information
Cash paid for amounts included in the measurement lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
Finance lease right-of-use assets(1)
Operating lease right-of-use assets
Finance lease liability, current(2)
Finance lease liability, non-current(3)
Operating lease liability, current
Operating lease liability, non-current
Weighted-average remaining lease term - finance leases
Weighted-average remaining lease term - operating leases
Weighted-average discount rate - finance leases
Weighted-average discount rate – operating leases
(1) Recorded in Property, plant and equipments in Consolidated Balance Sheet
(2) Recorded in Current maturities of long-term debt in Consolidated Balance Sheet
(3) Recorded in Long-term debt in Consolidated Balance Sheet
For the Years Ended December 31,
2021
2020
$
$
$
$
$
$
$
$
$
$
$
$
11.9 $
0.5
62.2
3.8
21.6
100.0 $
61.8 $
12.3 $
14.6 $
61.8 $
10.3
0.7
62.7
4.0
20.3
98.0
61.6
10.8
15.4
67.6
As of December 31,
2021
2020
$
$
$
$
$
$
34.5
196.1
11.3
29.0
54.8
145.0
3.9 years
4.5 years
1.14 %
2.62 %
33.6
194.4
10.1
29.3
55.0
142.8
4.3 years
4.4 years
1.91 %
2.81 %
Future annual minimum lease payments and finance lease commitments as of December 31, 2021 were as follows (in
millions):
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Less imputed interest
Present value of minimum payments
Operating Leases
Finance Leases
$
$
$
59.6
54.9
36.9
23.1
16.9
19.9
211.3
(11.5)
199.8
$
$
$
11.7
8.7
5.2
2.9
0.7
11.7
40.9
(0.6)
40.3
47
On March 1, 2019, we entered into an agreement with a financial institution to renew the lease of our corporate headquarters
in Richardson, Texas for a term of five years through March 1, 2024 (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, we are
obligated 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 of $41.2 million, we must pay any such deficit to
the financial institution. Any such deficit payment cannot exceed 87% of the lease balance. The headquarters lease 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 Renewal are secured by a pledge of our interest in the leased property. The Lake Park
Renewal contains customary lease covenants and events of default as well as events of default if (i) indebtedness of $75 million
or more is not paid when due, (ii) there is a change of control or (iii) we fail to comply with certain covenants incorporated
from our existing credit facility agreement. We believe we were in compliance with these financial covenants as of
December 31, 2021.
Environmental
Environmental laws and regulations in the locations we operate can potentially impose obligations to remediate hazardous
substances at our properties, properties formerly owned or operated by us, and facilities to which we have sent or send waste
for treatment or disposal. We are aware of contamination at some facilities; however, we do not believe that any future
remediation related to those facilities will be material to our results of operations. Total environmental accruals are included
Accrued expenses and Other liabilities on the accompanying Consolidated Balance Sheets. Future environmental costs are
estimates and may be subject to change due to changes in environmental remediation regulations, technology or site-specific
requirements.
Product Warranties and Product Related Contingencies
We incur the risk of liability for claims related to the installation and service of heating and air conditioning products, and
we maintain liabilities for those claims that we self-insure. We are involved in various claims and lawsuits related to our
products. Our product liability insurance policies have limits that, if exceeded, may result in substantial costs that could have
an adverse effect on our results of operations. In addition, warranty claims and certain product liability claims are not covered
by our product liability insurance.
Total product warranty liabilities related to continuing operations are included in the following captions on the
accompanying Consolidated Balance Sheets (in millions):
Accrued expenses
Other liabilities
Total product warranty liabilities
As of December 31,
2021
2020
$
$
37.2
97.0
134.2
$
$
37.7
82.1
119.8
48
The changes in product warranty liabilities related to continuing operations for the years ended December 31, 2021 and
2020 were as follows (in millions):
Total warranty liability as of December 31, 2019
Payments made in 2020
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, 2020
Payments made in 2021
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, 2021
$
$
$
112.8
(35.5)
41.7
0.2
0.6
119.8
(31.6)
43.6
2.7
(0.3)
134.2
We have incurred, and will likely continue to incur, product costs not covered by insurance or our suppliers’ warranties,
which are not included in the table above. Also, to satisfy our customers and protect our brands, we have repaired or replaced
installed products experiencing quality-related issues, and will likely continue such repairs and replacements.
Self-Insurance
We use a combination of third-party insurance and self-insurance plans to provide protection against claims relating to
workers’ compensation/employers’ liability, general liability, product liability, auto liability, auto physical damage and other
exposures. We use large deductible insurance plans, written through third-party insurance providers,
for workers’
compensation/employers’ liability, general liability, product liability and auto liability. We also carry umbrella or excess
liability insurance for all third-party and self-insurance plans, except for directors’ and officers’ liability, property damage and
certain other insurance programs.
For directors’ and officers’ liability, property damage and certain other exposures, we use
third-party insurance plans that may include per occurrence and annual aggregate limits. We believe the deductibles and
liability limits for all of our insurance policies are appropriate for our business and are adequate for companies of our size in our
industry.
We maintain safety and manufacturing programs that are designed to remove risk, improve the effectiveness of our business
processes and reduce the likelihood and significance of our various retained and insured risks. In recent years, our actual claims
experience has collectively trended favorably and, as a result, both self-insurance expense and the related liability have
decreased.
Total self-insurance liabilities were included in the following captions on the accompanying Consolidated Balance Sheets
(in millions):
Accrued expenses
Other liabilities
Total self-insurance liabilities
Litigation
As of December 31,
2021
2020
$
$
3.2
15.7
18.9
$
$
3.6
16.0
19.6
We are involved in a number of claims and lawsuits incident to the operation of our businesses. Insurance coverages are
maintained and estimated costs are recorded for such claims and lawsuits, including costs to settle claims and lawsuits, based on
experience involving similar matters and specific facts known.
Some of these claims and lawsuits allege personal injury or health problems resulting from exposure to asbestos that was
integrated into certain of our products. We have never manufactured asbestos and have not incorporated asbestos-containing
components into our products for several decades. A substantial majority of these 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.
49
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. As of December 31, 2021 and 2020, we estimated
our probable liability for known cases at $13.1 million and $10.1 million, respectively, and these amounts were recorded in
Accrued expenses in the Consolidated Balance Sheets. As of December 31, 2021 and 2020, we estimated future asbestos-
related litigation cases to be $29.9 million and $27.9 million, respectively, before consideration of probable insurance
recoveries and these amounts were recorded in Other liabilities in the Consolidated Balance Sheets. As of December 31, 2021
and 2020, we had receivables for probable insurance recoveries of $21.4 million and $19.8 million, respectively, that were
recorded in Other Assets in the Consolidated Balance Sheets. For the years ended December 31, 2021, 2020 and 2019, we
recorded expense of $5.4 million, $5.6 million and $3.1 million, respectively, net of probable insurance recoveries, for known
and future asbestos-related litigation and is recorded in Losses (gains) and other expenses, net in the Consolidated Statements of
Operations.
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.
Natural Disasters and Recovery
On July 19, 2018, our manufacturing facility in Marshalltown, Iowa was severely damaged by a tornado. On August 10,
2020, the Marshalltown facility was partially damaged by a derecho wind storm. The costs and losses incurred as well as any
insurance recoveries for both of these natural disasters are shown in (Gain) loss from natural disasters, net of insurance
recoveries in the Consolidated Statements of Operations.
The following table summarizes the components of (Gain) loss from natural disasters, net of insurance recoveries (in
millions):
Marshalltown tornado
Marshalltown wind storm
(Loss) gain from natural disasters, net of insurance recoveries
Marshalltown Tornado
For the Year Ended December 31,
2021
2020
2019
$
$
— $
—
— $
(3.0) $
178.8
(0.1)
—
(3.1) $
178.8
Insurance covered the repair or replacement of our assets that suffered damage or loss, and business interruption costs,
including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and
losses suffered. In December 2019, we reached a final settlement with our insurance carriers for a total cumulative insurance
recovery of $367.5 million, for the losses we incurred and will incur from the tornado. All recoveries related to the final
settlement were received by 2019. The following table summarizes the (Gain) loss from natural disasters, net of insurance
recoveries relating to the tornado (in millions):
50
(Amounts in millions)
For the Year Ended December 31,
Insurance recoveries received
Less losses and expenses incurred:
Site clean-up and remediation
Factory inefficiencies due to lower productivity
Other
Total losses and expenses
(Loss) gain from natural disasters, net of insurance recoveries
Components of (Loss) gain from natural disasters, net of insurance recoveries:
Insurance proceeds for lost profits
(Loss) gain from property damage, net of insurance recoveries
Marshalltown Wind Storm
$
$
$
2020
2019
— $
243.2
—
—
3.0
3.0
$
(3.0) $
—
(3.0)
20.4
9.3
34.7
64.4
178.8
99.2
79.6
Insurance covered the repair or replacement of our assets that suffered damage or loss, and business interruption costs
including lost profits, and reimbursement for other expenses and costs that have been incurred relating to damages and losses
suffered. In December 2020, we reached a settlement with our insurance carriers for a total cumulative insurance recovery of
$6.6 million. The following table summarizes the (Gain) loss from natural disasters, net of insurance recoveries relating to the
wind storm (in millions):
Insurance recoveries
Inventory write-offs
Site clean-up and remediation
Building repairs
Factory inefficiencies due to lower productivity
Other
Total losses and expenses
Components of Loss (gain) from natural disasters, net of insurance recoveries:
Loss from natural disaster, net of insurance recoveries
6. Stock Repurchases:
For the Year
Ended
December 31,
2020
6.6
0.1
1.7
3.0
0.2
1.7
6.7
(0.1)
$
$
$
Our Board of Directors have authorized a total of $4 billion to repurchase shares of our common stock (collectively referred
to as the “Share Repurchase Plans”), including a $1.0 billion share repurchase authorization in July 2021. The Share
Repurchase Plans allow us to repurchase shares from time to time in open market transactions and in privately negotiated
transactions based on business, market, applicable legal requirements and other considerations. The Share Repurchase Plans do
not require the repurchase of a specific number of shares and may be terminated at any time. As of December 31, 2021, $846
million of shares is available to repurchase shares under the Share Repurchase Plans.
We entered into multiple Fixed Dollar Accelerated Share Repurchase Transaction (the "ASR Agreements") to effect an
accelerated stock buyback of the Company's common stock in 2021. Under the ASR Agreements, we paid banks $600.0
million and the banks delivered to us common stock representing approximately 85% of the shares expected to be purchased
under the ASR Agreement. After the ASR Agreements were completed, the banks delivered the remaining shares under the
arrangement. The banks delivered a total of 1.9 million shares of common stock repurchased under this ASR Agreement.
51
We also repurchased 0.1 million shares for $22.1 million, 0.1 million shares for $17.9 million, and 0.1 million shares for
$24.0 million for the years ended December 31, 2021, 2020, and 2019, respectively, from employees who tendered their shares
to satisfy minimum tax withholding obligation upon the vesting of stock-based compensation awards.
7. Divestitures:
2019 Divestiture:
During the first quarter of 2019, we obtained Board of Directors' approval and signed an agreement with EPTA S.p.A., a
private Italian company, for the sale of our Kysor Warren business. The sale was completed on March 29, 2019 and the
following table summarizes the net loss recognized in connection with this divestiture. There were no gains or losses on the
sale of this business for the year ended December 31, 2021.
(Amounts in millions)
Cash received from the buyer
Net assets sold
AOCI reclassification adjustments, primarily foreign currency translation
Direct costs to sell
Loss on sale of business
8. Restructuring Charges:
For the Year Ended
December 31, 2019
$
$
49.0
(52.0)
(2.1)
(5.5)
(10.6)
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 3.
We recorded $1.8 million of restructuring charges in 2021 from actions initiated in prior years. Cost were primarily related
severance and related expenses. Due to the economic impact of COVID-19 on our business, we implemented several cost
reduction actions in the second quarter of 2020. We recorded $10.8 million of restructuring charges for the year ended
December 31, 2020 primarily related to these actions, which consisted of employee terminations for positions that were no
longer needed to support the business, selective facility closures, and cancellations of certain sales and marketing activities. We
recorded $10.3 million of restructuring charges for the year ended December 31, 2019. There is not expected to be a material
amount of costs expected to be incurred from existing restructuring actions in future periods.
Restructuring accruals are included in Accrued expenses in the accompanying Consolidated Balance Sheets.
9. Revenue Recognition:
The following table disaggregates our revenue by business segment by geography which provides information as to the
major sources of revenue. See Note 3 for additional description of our reportable business segments and the products and
services being sold in each segment.
52
Primary Geographic Markets
Residential
Heating & Cooling
Commercial
Heating & Cooling
Refrigeration
Consolidated
For the Year Ended December 31, 2021
United States
Canada
International
Total
$
$
2,532.4
$
790.1
$
324.0
$
243.2
—
73.1
1.6
—
229.7
2,775.6
$
864.8
$
553.7
$
3,646.5
316.3
231.3
4,194.1
For the Year Ended December 31, 2020
Primary Geographic Markets
Residential
Heating & Cooling
Commercial
Heating & Cooling
Refrigeration
Consolidated
United States
Canada
International
Total
$
$
2,181.8
$
721.1
$
257.9
$
179.7
—
77.6
2.2
—
213.8
2,361.5
$
800.9
$
471.7
$
3,160.8
257.3
216.0
3,634.1
For the Year Ended December 31, 2019
Primary Geographic Markets
Residential
Heating & Cooling
Commercial
Heating & Cooling
Refrigeration
Consolidated
United States
Canada
International
Total
$
$
2,135.6
$
847.1
$
321.9
$
155.5
—
98.5
1.8
0.7
246.1
2,291.1
$
947.4
$
568.7
$
3,304.6
254.7
247.9
3,807.2
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 and control passes. Certain customers in our smaller operations, primarily outside of North America, have
shipping terms where risks and rewards 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. We have elected to recognize the revenue and cost for freight and shipping when control over the sale of goods passes to
our customers.
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
services is recognized as the services are performed under the contract based on the relative fair value of the services provided.
We allocate a portion of the revenue for extended labor warranty obligations and recognize the revenue over the term of the
extended warranty. Revenue from extended warranties is insignificant. See Note 5 for more information on product warranties.
Residential Heating & Cooling - 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 sold under various brand names and are sold either through direct sales to a network of
independent installing dealers, including through our network of Lennox stores or to independent distributors. For the years
ended December 31, 2021, 2020 and 2019, direct sales represented 73%, 75% and 75% of revenues, respectively, and sales to
independent distributors represented the remainder. Given the nature of our business, customer product orders are fulfilled at a
point in time and not over a period of time.
Commercial Heating & Cooling - 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. These
products are distributed primarily through commercial contractors and directly to national account customers in the planned
replacement, emergency replacement and new construction markets. Revenue for the products sold is recognized at a point in
time when control transfers to the customer, which is generally at time of shipment. Lennox National Account Services
53
provides installation, service and preventive maintenance for HVAC national account customers in the United States and
Canada. Revenue related to service contracts is recognized as the services are performed under the contract based on the
relative fair value of the services provided. For the years ended December 31, 2021, 2020 and 2019, equipment sales
represented 82%, 85% and 86% of revenues, respectively, and the remainder of our revenue was generated from our service
business.
Refrigeration - We manufacture and market equipment for the global commercial refrigeration markets under the Heatcraft
Worldwide Refrigeration name. Our products are used in the food retail, food service, cold storage as well as non-food
refrigeration markets. We sell
installing contractors, engineering design firms, original
equipment manufacturers and end-users. In Europe, we also manufacture and sell unitary heating and cooling products and
applied systems. Substantially all segment revenue was related to these types of equipment and systems and is recognized at a
point in time when control transfers to the customer, which is generally at time of shipment. Approximately 1% of segment
revenue relates to services for start-up and commissioning activities.
these products to distributors,
Variable Consideration - 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
SG&A expenses. All other advertising, promotions and marketing costs are expensed as incurred.
Other Judgments and Assumptions - We apply the practical expedient in ASC 606-10-50-14 and do not disclose
information about remaining performance obligations that have original expected durations of one year or less. Applying the
practical expedient in ASC 340-40-25-4, we recognize the incremental costs of obtaining contracts as an expense when incurred
if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are included in
SG&A expenses. ASC 606-10-32-18 allows us to not adjust the amount of consideration to be received in a contract for any
significant financing component if we expect to receive payment within twelve months of transfer of control of goods or
services. We have elected this expedient as we expect all consideration to be received in one year or less at contract inception.
We have also elected not to provide the remaining performance obligations disclosures related to service contracts in
accordance with the practical expedient in ASC 606-10-55-18. We recognize revenue in the amount to which the entity has a
right to invoice and have adopted this election to not provide the remaining performance obligations related to service contracts.
Contract Assets - We do not have material amounts of contract assets since revenue is recognized as control of goods is
transferred or as services are performed. There are a small number of installation services that may occur over a period of time,
but that period of time is generally very short in duration and right of payment does not exist until the installation is completed.
Any contract assets that may arise are recorded in Other assets in our Consolidated Balance Sheets.
Contract Liabilities - Our contract liabilities consist of advance payments and deferred revenue. Our contract liabilities are
reported in a net position on a contract-by-contract basis at the end of each reporting period. We classify advance payments and
deferred revenue as current or noncurrent based on the timing of when we expect to recognize revenue. Generally all contract
liabilities are expected to be recognized within one year and are included in Accrued expenses in our Consolidated Balance
Sheet. The noncurrent portion of deferred revenue is included in Other liabilities in our Consolidated Balance Sheets.
Net contract assets (liabilities) consisted of the following:
December 31,
2021
December 31,
2020
Contract liabilities - current
Contract liabilities - noncurrent
Total
(10.2)
(5.5)
(15.7) $
$
$ Change % Change
85.5 %
(1.8)%
(4.7)
0.1
(4.6)
(5.5)
(5.6)
(11.1) $
For the years ended December 31, 2021, 2020, and 2019 we recognized revenue of $3.6 million, $7.2 million and $3.3
million related to our contract liabilities at January 1, 2021, 2020 and 2019, respectively. Impairment losses recognized in our
receivables and contract assets were de minimis in 2021, 2020 and 2019.
10. Other Financial Statement Details:
54
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,
2021
2020
$
310.8
$
12.4
262.1
585.3
(74.4)
$
510.9
$
280.1
6.5
207.8
494.4
(55.0)
439.4
The Company recorded a pre-tax gain of $0.7 million and $0.2 million in 2020 and 2019, respectively, from LIFO
inventory liquidations. There were no pre-tax gains or losses in 2021 from LIFO inventory liquidations. Reserves for obsolete
and slow-moving inventories were $26.5 million and $24.6 million at December 31, 2021 and December 31, 2020, respectively.
Goodwill
The changes in the carrying amount of goodwill in 2021 and 2020, 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,
2019 (1)
Changes in
foreign
currency
translation
rates
Balance at
December
31, 2020
Changes in
foreign
currency
translation
rates
Balance at
December
31, 2021
$
$
26.1
61.1
99.3
186.5
$
$
— $
—
0.4
0.4
$
26.1
61.1
99.7
186.9
$
$
— $
—
(0.3)
(0.3) $
26.1
61.1
99.4
186.6
(1) The goodwill balances in the table above are presented net of accumulated impairment charges of $32.7 million, all of
which relate to impairments in periods prior to 2019.
the
A qualitative review of impairment indicators was performed in 2021 for the Residential Heating & Cooling,
Commercial Heating & Cooling, and the Refrigeration segments. We did not record any goodwill impairments in 2021, 2020,
or 2019.
Property, Plant and Equipment
Components of Property, plant and equipment, net were as follows (in millions):
Land
Buildings and improvements
Machinery and equipment
Finance leases
Construction in progress and equipment not yet in service
Total
Less accumulated depreciation
Property, plant and equipment, net
No impairment charges were recorded in 2021 or 2020.
55
As of December 31,
2021
2020
$
$
24.0
285.9
946.5
63.5
84.0
1,403.9
(888.8)
515.1
$
$
24.0
266.1
928.0
57.1
69.7
1,344.9
(880.6)
464.3
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
Deferred income
Self insurance reserves
Derivative contracts
Other
Total Accrued expenses
Derivatives
Objectives and Strategies for Using Derivative Instruments
As of December 31,
2021
2020
$
$
114.9
102.9
37.2
26.9
13.1
10.2
3.2
1.0
49.5
358.9
$
$
96.6
81.9
37.7
20.3
10.1
5.5
3.6
2.2
38.2
296.1
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 2023 and January 2023, respectively. Unrealized gains or losses from our cash flow hedges
are included in AOCL and are expected to be reclassified into earnings within the next 18 months based on the prices of the
commodities and foreign currencies at the settlement dates.
We recorded the following amounts related to our cash flow hedges in AOCL (in millions):
Gains on unsettled contracts
Income tax expense
Gains included in AOCL, net of tax (1)
As of December 31,
2021
2020
$
$
(13.4) $
2.7
(10.7) $
(10.5)
2.3
(8.2)
(1) Assuming commodity and foreign currency prices remain constant, we expect to reclassify $10.5 million of
derivative gains into earnings within the next 12 months.
Expenses included in our Consolidated Statements of Operations
Below is information about expenses included in Selling, general and administrative expenses in our Consolidated
56
Statements of Operations (in millions):
Research and development
Advertising, promotions and marketing (1)
Cooperative advertising expenditures
For the Years Ended December 31,
2019
2020
2021
$
$
76.1
26.9
27.6
$
66.8
26.5
22.2
69.9
43.7
21.3
(1) Cooperative advertising expenditures were not included in these amounts.
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
Less: Interest income
Interest expense, net
Losses (Gains) and Other Expenses, net
For the Years Ended December 31,
2021
2020
2019
$
$
26.0
1.0
25.0
$
$
29.7
1.4
28.3
$
$
48.6
1.1
47.5
Losses (gains) and other expenses, net in our Consolidated Statements of Operations were as follows (in millions):
Realized (gains) losses on settled futures contracts
Foreign currency exchange gains
Gain on disposal of fixed assets
Other operating income
Net change in unrealized gains on unsettled futures contracts
Special legal contingency charges
Asbestos-related litigation
Environmental liabilities
Charges incurred related to COVID-19 pandemic
Other items, net
Losses and other expenses, net (pre-tax)
11. Employee Benefit Plans:
For the Years Ended December 31,
2019
2020
2021
$
$
(1.2)
(2.2)
(0.2)
(1.5)
—
1.3
5.4
2.9
2.2
2.5
9.2
$
0.1
$
(3.6)
(0.2)
(2.2)
(0.3)
1.1
5.6
(1.4)
8.3
—
7.4
$
$
0.4
(1.5)
(0.2)
(1.7)
(0.5)
1.2
3.1
5.7
—
1.8
8.3
Many of our defined benefit pension and profit sharing plans have been frozen and replaced with defined contribution plans.
We have a liability for the benefits earned under these inactive plans prior to the date the benefits were frozen. We also have
several active defined benefit plans that provide benefits based on years of service. Our defined contribution plans generally
include both company and employee contributions which are based on predetermined percentages of compensation earned by
the employee.
In addition to freezing the benefits of our defined benefit pension plans, we have also eliminated nearly all of our post-
retirement medical benefits.
Defined Contribution Plans
We recorded the following contributions to the defined contribution plans (in millions):
57
Contributions to defined contribution plans
$
19.9
$
17.8
$
19.1
For the Years Ended December 31,
2021
2020
2019
Pension and Post-retirement Benefit Plans
Pension Settlement Activity in 2019
On April 3, 2019, we entered into an agreement with Pacific Life Insurance Company to purchase a group annuity contract
and transfer $100 million of our pension plan assets and $105.6 million of related pension benefit obligations. In the second
quarter of 2019, we recognized a $60.6 million pension settlement charge in the Statement of Operations and reclassified $5.6
million of pension benefit obligations to AOCL as a result of this transaction.
On October 15, 2019, we entered into an agreement with Pacific Life Insurance Company to purchase a group annuity
In the fourth
contract and transfer $73.5 million of our pension plan assets and $77.9 million of related benefit obligations.
quarter of 2019, we recognized a $38.6 million pension settlement charge in the Statement of Operations and reclassified $4.4
million of pension benefit obligations to AOCL as a result of this transaction.
58
Benefit Obligations, Fair Value of Plan Assets, Funded Status, and Balance Sheet Position
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
Amendments
Actuarial (gain) loss
Effect of exchange rates
Settlements
Benefits paid
Benefit obligation at end of year
Changes in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Effect of exchange rates
Plan settlements
Benefits paid
Fair value of plan assets at end of year
Funded status / net amount recognized
Net amount recognized consists of:
Non-current assets
Current liability
Non-current liability
Net amount recognized
Plans with Benefit Obligations in Excess of Plan Assets
Pension plans with a benefit obligation in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Net Periodic Benefit Cost
Pension Benefits
2021
2020
266.1
$
273.2
$
$
$
276.2
6.1
5.1
—
(11.2)
(0.7)
(2.1)
(4.2)
269.2
179.7
9.5
1.5
(0.1)
(2.1)
(4.2)
184.3
(84.9) $
$
6.5
(8.1)
(83.3)
(84.9) $
241.5
5.5
6.6
0.1
27.2
2.2
(1.3)
(5.6)
276.2
154.3
27.3
3.4
1.6
(1.3)
(5.6)
179.7
(96.5)
5.0
(9.0)
(92.5)
(96.5)
$
$
$
$
$
$
$
For the Years Ended December 31,
2021
2020
$
$
234.8
231.4
143.7
236.6
233.3
135.2
Our U.S.-based pension plans comprised approximately 84% of the projected benefit obligation and 78% of plan assets as of
December 31, 2021.
59
Components of net periodic benefit cost as of December 31:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Recognized actuarial loss
Settlements
Other
Net periodic benefit cost
2021
Pension Benefits
2020
2019
$
$
$
6.1
5.1
(8.6)
0.2
7.7
1.2
(0.4)
11.3
$
$
5.5
6.6
(8.2)
0.2
5.8
0.6
—
10.5
$
4.9
10.2
(13.4)
0.1
5.6
99.2
(0.5)
106.1
Amounts recognized in AOCL and Other Comprehensive Income
The following table sets forth amounts recognized in AOCL and Other comprehensive income (loss) in our financial
statements for 2021 and 2020 (in millions):
Amounts recognized in AOCL:
Prior service costs
Actuarial loss
Subtotal
Deferred taxes
Net amount recognized
Changes recognized in other comprehensive loss:
Current year actuarial (gain) loss
Effect of exchange rates
Amortization of prior service costs
Amortization of actuarial loss, including settlements and other
Total recognized in other comprehensive income (loss)
Total recognized in net periodic benefit cost and other comprehensive income
Pension Benefits
2021
2020
(0.5) $
(83.1)
(83.6)
18.6
(65.0) $
(12.2)
—
(0.2)
(8.5)
(20.9) $
(9.6) $
(0.7)
(103.8)
(104.5)
25.6
(78.9)
8.1
0.5
(0.2)
(6.4)
2.0
12.5
$
$
$
$
The estimated prior service costs and actuarial losses for pension benefits that will be amortized from AOCL in 2022 are
$0.1 million and $6.1 million, respectively.
Assumptions
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 2021 and 2020:
Weighted-average assumptions used to determine benefit obligations
as of December 31:
Discount rate
Rate of compensation increase
Pension Benefits
2021
2020
2.69 %
4.1 %
2.40 %
4.13 %
60
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
2021
Pension Benefits
2020
2019
1.85 %
2.16 %
6.50 %
4.13 %
2.89 %
2.99 %
6.50 %
4.23 %
3.96 %
3.67 %
6.50 %
4.23 %
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 2021 and 2020:
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
2021
2020
1.99 %
3.14 %
1.48 %
3.17 %
Pension Benefits
2020
2019
2021
0.42 % 0.73 %
1.6 %
1.51 %
2.3 % 2.98 %
2.10 % 3.31 % 3.92 %
3.17 % 3.20 % 3.77 %
To develop the expected long-term rate of return on assets assumption for the U.S. plans, we considered the historical
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 6.50% 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 OPEB plan. A similar
process was followed for the non-U.S.-based plans with sufficient corporate bond information. In other countries, the discount
rate was selected based on the approximate duration of plan obligations.
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
Expected future benefit payments are shown in the table below (in millions):
2021
2020
6.00 %
5.00 %
2025
6.00 %
5.00 %
2023
Pension benefits
Composition of Pension Plan Assets
For the Years Ended December 31,
2022
2023
2024
2025
2026
2027-2031
$
12.0
$
6.8
$
13.0
$
33.0
$
8.8
$
76.9
61
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 fourth quarter of 2019, we changed the targeted allocations for our plan assets. The targeted
allocation for fixed income and cash investments was changed to 50%, and the targeted allocation for equity investments was
changed to 50%. Our targeted exposure to International equity including emerging markets was changed to 6.0% of total assets
and our exposure to domestic equity was changed to 44.0%. Our U.S. pension plan represents 78%, our Canadian pension plan
9%, and our United Kingdom (“U.K.”) pension plan 13% of the total fair value of our plan assets as of December 31, 2021.
Our U.S. pension plans’ weighted-average asset allocations as of December 31, 2021 and 2020, by asset category, were as
follows:
Asset Category:
U.S. equity
International equity
Fixed income
Money market/cash
Total
Our U.S. pension plans’ assets were invested according to the following targets:
Asset Category:
U.S. equity
International equity
Fixed income
Plan Assets as of December 31,
2021
2020
36.1 %
15.5 %
48.2 %
0.2 %
34.8 %
17.0 %
48.0 %
0.2 %
100.0 %
100.0 %
Target
44.0 %
6.0 %
50.0 %
Our Canadian pension plans were invested approximately 74% in Canadian bonds and 26% in equities. Our U.K. pension
plan was invested in fixed income securities, including corporate and government bonds.
62
The fair values of our pension plan assets, by asset category, were as follows (in millions):
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:
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:
Fixed income (5)
Total
Fair Value Measurements as of December 31, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$
0.4
$
— $
— $
0.4
—
—
—
—
—
51.8
22.2
69.3
4.4
12.6
—
—
—
—
—
51.8
22.2
69.3
4.4
12.6
$
—
0.4
$
23.6
183.9
$
—
— $
23.6
184.3
Fair Value Measurements as of December 31, 2020
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Total
$
0.4
$
— $
— $
0.4
—
—
—
—
—
47.0
23.0
64.9
5.1
14.1
—
—
—
—
—
47.0
23.0
64.9
5.1
14.1
$
—
0.4
$
25.2
179.3
$
—
— $
25.2
179.7
63
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:
Fixed income (5)
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:
Fixed income (5)
Total
As of December 31, 2021
Fair Value
Redemption
Frequency
(if currently eligible)
Redemption Notice
Period
51.8
22.2
69.3
4.4
12.6
23.6
183.9
Daily
Daily
Daily
Daily
Daily
Daily
5 days
5 days
5-15 days
3-5 days
3-5 days
1 - 3 days
As of December 31, 2020
Fair Value
Redemption
Frequency
(if currently eligible)
Redemption Notice
Period
47.0
23
64.9
5.1
14.1
25.2
179.3
Daily
Daily
Daily
Daily
Daily
Daily
5 days
5 days
5-15 days
3-5 days
3-5 days
1 - 3 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 plan 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 plan also holds
a portion of its assets in international equities, a portion of which may be invested in U.S. securities.
(5) This category includes investments in U.K. government index-linked securities (index-linked gilts) that have maturity
periods of 5 years or longer with a derivatives overlay 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 17 for
information about our fair value hierarchies and valuation techniques.
12. 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
64
manufacture and sale of compressors, unit coolers and condensing units. We exert significant influence over these affiliates
based upon our respective 25% and 50% ownership, 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,
2021
2020
$
37.7
$
37.0
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
13. Income Taxes:
For the Years Ended December 31,
2019
2020
2021
$
141.7
$
123.1
$
123.1
Our Provision for income taxes from continuing operations consisted of the following (in millions):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision for income taxes
For the Years Ended December 31,
2019
2020
2021
$
$
72.0
17.0
13.4
102.4
(2.6)
(1.5)
(2.2)
(6.3)
$
61.7
14.1
4.8
80.6
(0.7)
1.1
7.1
7.5
$
96.1
$
88.1
$
55.9
14.2
9.3
79.4
15.0
3.9
0.8
19.7
99.1
Income from continuing operations before income taxes was comprised of the following (in millions):
Domestic
Foreign
Total
For the Years Ended December 31,
2019
2020
2021
$
$
307.8
252.3
560.1
$
$
268.4
176.8
445.2
$
$
383.2
124.7
507.9
65
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):
Provision at the U.S. statutory rate of 21%
Increase (reduction) in tax expense resulting from:
State income tax, net of federal income tax benefit
Tax credits, net of unrecognized tax benefits
Change in unrecognized tax benefits
Change in valuation allowance
Foreign taxes at rates other than U.S. statutory rate
Deemed inclusions
Global intangible low-taxed income
Change in rates from the Tax Act & other law changes
Excess tax benefits from stock-based compensation
Miscellaneous other
Total provision for income taxes
For the Years Ended December 31,
2021
2020
2019
$
117.6
$
93.5
$
106.7
12.1
(9.3)
0.2
—
(43.6)
7.7
18.8
0.1
(5.7)
(1.8)
10.8
(7.8)
0.2
7.8
(33.6)
9.2
10.3
0.7
(4.2)
1.2
$
96.1
$
88.1
$
13.2
(13.8)
3.1
1.9
(20.7)
8.3
9.5
(0.8)
(10.9)
2.6
99.1
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
Legal reserves
Tax 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
Intangibles
Insurance liabilities
Other
Total deferred tax liabilities
Net deferred tax assets
As of December 31,
2021
2020
$
$
32.9
28.5
15.6
7.1
4.5
9.5
12.1
11.5
9.6
131.3
(37.3)
94.0
(58.7)
(15.5)
(1.4)
(7.1)
(82.7)
$
11.3
$
29.2
26.8
24.8
7.3
3.8
10.2
10.1
11.1
8.0
131.3
(37.0)
94.3
(58.7)
(15.2)
(1.0)
(6.2)
(81.1)
13.2
As of December 31, 2021 and 2020, we had $20.3 million and $18.6 million in tax-effected foreign net operating loss
carryforwards, respectively. The deferred tax asset valuation allowance relates primarily to the operating loss carryforwards in
66
European tax jurisdictions. The remainder of the valuation allowance relates to state tax credits.
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, 2021.
No provision was made for income taxes which may become payable upon distribution of our foreign subsidiaries’ earnings.
An actual repatriation in the future from our non-U.S. subsidiaries could still be subject to foreign withholding taxes and U.S.
state taxes, but we expect any amounts to be immaterial.
We are currently under examination for our U.S. federal income taxes for 2021 and 2020 and are subject to examination by
numerous other taxing authorities in the U.S. and foreign jurisdictions. We are generally no longer subject to U.S., state and
local or non-U.S. income tax examinations by taxing authorities for years before 2014.
14. Lines of Credit and Financing Arrangements:
The following tables summarize our outstanding debt obligations and their classification in the accompanying Consolidated
Balance Sheets (in millions):
Current maturities of long-term debt:
Asset securitization program
Finance lease obligations
Debt issuance costs
Total current maturities of long-term debt
Long-Term Debt:
Asset Securitization Program
Finance lease obligations
Domestic credit facility
Senior unsecured notes
Debt issuance costs
Total long-term debt
Total debt
As of December 31,
2021
2020
$
$
$
$
$
— $
$
$
11.3
—
11.3
250.0
29.0
6.5
950.0
(9.0)
1,226.5
1,237.8
$
$
—
10.1
(0.2)
9.9
—
29.3
—
950.0
(8.6)
970.7
980.6
As of December 31, 2021, the aggregate amounts of required principal payments on total debt excluding finance lease
obligations (see Note 5) were as follows (in millions):
2022
2023
2024
2025
2026
Thereafter
$
—
600.0
—
300.0
6.5
300.0
67
Short-Term Debt
Foreign Obligations
Through several of our foreign subsidiaries, we have facilities available to assist in financing seasonal borrowing needs for
our foreign locations. As of December 31, 2021 or 2020, we did not have any outstanding short-term foreign obligations.
Proceeds and repayments from these facilities were $0.0 million, $4.6 million and $5.3 million during the years ended
December 31, 2021, 2020 and 2019, respectively.
Long-Term Debt
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 a financial institution for cash. The ASP contains a provision whereby we retain the right to repurchase all of the
outstanding beneficial interests transferred. As a result of the repurchase right, the transfer of the receivables under the ASP is
not accounted for as a sale. Accordingly, the cash received from the transfer of the beneficial interests in our trade accounts
receivable is reflected as secured borrowings in the accompanying Consolidated Balance Sheet and proceeds received are
included in Cash flows from financing activities in the accompanying Consolidated Statements of Cash Flows. 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 transferred under the ASP.
We renewed the ASP in November 2021, extending its term to November 2023 and increasing the maximum securitization
amount to a range from $300.0 million to $450.0 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
Less: Beneficial interest transferred
Remaining amount available
As of December 31,
2021
2020
$
$
335.6
(250.0)
85.6
$
$
279.1
—
279.1
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
0.70%. The average rates as of December 31, 2021 and 2020 were 0.82% and 0.00%, respectively. The unused fee is based on
101% of the maximum available amount less the beneficial interest transferred and is calculated at rate ranging between 0.25%
and 0.35%, depending on available borrowings, throughout the term of the agreement. 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 Credit 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. As of December 31, 2021, we believe we were in compliance with
all covenant requirements.
Domestic Credit Agreement
In July 2021, we entered into a new Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as
administrative agent, and the other lenders party thereto, which refinanced and replaced the Seventh Amended and Restated
Credit Facility.
The Credit Agreement consists of a $750.0 million unsecured revolving credit facility that matures in July 2026. We had
outstanding borrowings of $6.5 million as well as $2.0 million committed to standby letters of credit as of December 31, 2021.
68
Subject to covenant limitations, $741.5 million was available for future borrowings. The revolving credit facility includes a
subfacility for swingline loans of up to $65.0 million.
Below is a summary of the weighted average interest rate for both December 31, 2021 and 2020:
Weighted average borrowing rate
As of December 31,
2021
2020
1.38 %
— %
The Credit Agreement is guaranteed by certain of our subsidiaries and contains customary covenants applicable to us and its
subsidiaries including limitations on indebtedness, liens, dividends, stock repurchases, mergers and sales of all or substantially
all of its assets. In addition, the Credit Agreement contains a financial covenant requiring us to maintain, as of the last day of
each fiscal quarter for the four prior fiscal quarters, a Total Net Leverage Ratio of no more than 3.50 to 1.00 (or, at our election,
on up to two occasions following a material acquisition, 4.00 to 1.00).
The Credit Agreement contains customary events of default. These events of default include nonpayment of principal or
interest, breach of covenants or other restrictions or requirements, default on certain other indebtedness or receivables
securitizations (cross default), and bankruptcy. A cross default under our Domestic Credit Facility could occur if:
• We fail to pay any principal or interest when due on any other indebtedness or receivables securitization exceeding
$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 exceeding $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, the administrative agent, or 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, 2021, we believe we were in compliance with all covenant requirements.
Senior Unsecured Notes
We issued two series of senior unsecured notes on July 30, 2020 for $300.0 million each, which will mature on August 1,
2025 (the "2025 Notes") and August 1, 2027 (the "2027 Notes") with interest being paid semi-annually on February and August
at 1.35% and 1.70% respectively, per annum. We also issued $350.0 million of senior unsecured notes in November 2016 (the
"2023 Notes," and together with the 2025 Notes and the 2027 Notes, the "Notes") which will mature on November 15, 2023
with interest being paid semi-annually on May 15 and November 15 at 3.00% per annum.
All the Notes are guaranteed, on a senior unsecured basis, by certain of our subsidiaries that guarantee 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;
and enter into certain mergers, consolidations and transfers of substantially all of our assets. 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, 2021, we believe we were in
compliance with all covenant requirements.
15. Comprehensive Income:
The following table provides information on items not reclassified in their entirety from AOCL to Net Income in the
accompanying Consolidated Statements of Operations (in millions):
69
AOCL Component
Gains/(Losses) on cash flow hedges:
Derivative contracts
Income tax benefit
Net of tax
Defined Benefit Plan Items:
Pension and post-retirement benefits costs
Pension settlements
Income tax benefit
Net of tax
Total reclassifications from AOCL
For the Years Ended December 31,
2021
2020
Affected Line Item(s) in the
Consolidated Statements of Operations
26.9
(6.2)
20.7
$
$
(7.9) $
(1.2)
2.2
(6.9) $
Cost of goods sold and
Losses (gains) and other expenses,
net.
(3.7)
0.9
Provision for income taxes
(2.8)
Cost of goods sold; Selling, general,
administrative expenses and Other
(income) expense, net
(5.9)
(0.6) Pension settlements
1.6
(4.9)
Provision for income taxes
13.8
$
(7.7)
$
$
$
$
$
The following tables provide information on changes in AOCL, by component (net of tax), for the years ended
December 31, 2021 and 2020 (in millions):
Gains on
Cash Flow
Hedges
Share of equity
method investments
other
comprehensive
income
Defined
Benefit Plan
Items
Foreign
Currency
Translation
Adjustments
Total
AOCL
Balance as of December 31, 2020
$
8.2
$
(1.2) $
(82.7) $
(21.5) $
(97.2)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCL
Net other comprehensive income (loss)
23.2
(20.7)
2.5
—
—
—
7.0
6.9
13.9
(7.3)
—
(7.3)
22.9
(13.8)
9.1
Balance as of December 31, 2021
$
10.7
$
(1.2) $
(68.8) $
(28.8) $
(88.1)
Gains
(Losses) on
Cash Flow
Hedges
Share of equity
method investments
other
comprehensive
income
Defined
Benefit Plan
Items
Foreign
Currency
Translation
Adjustments
Total
AOCL
Balance as of December 31, 2019
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCI
Net other comprehensive income (loss)
Balance as of December 31, 2020
$
$
— $
— $
(81.5) $
(22.3) $
(103.8)
5.4
2.8
8.2
8.2
(1.2)
—
(1.2)
(6.1)
4.9
(1.2)
0.8
—
0.8
(1.1)
7.7
6.6
$
(1.2) $
(82.7) $
(21.5) $
(97.2)
16. 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,
2019
2020
2021
$
24.3
$
24.3
$
21.3
(1) Stock-based compensation expense was recorded in our Corporate and other business segment.
70
Incentive Plan
Under the Lennox International Inc. 2019 Equity and Incentive Compensation Plan, we are authorized to issue awards for
1.7 million shares of common stock. The 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, 2021, awards for 0.2 million shares of common stock had been granted, net of cancellations and
repurchases, and there were 1.5 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,
2019
2020
2021
10.8
$
$ 314.27
8.9
$
$ 265.96
6.8
$
$ 245.06
100.0 %
132.7 %
157.2 %
A summary of the status of our undistributed performance share units as of December 31, 2021, and changes during the year
then ended, is presented below (in thousands, except per share data):
Weighted-
Average Grant
Date Fair Value
per Share
Shares
Undistributed performance share units as of December 31, 2020
Granted
Adjustment to shares paid based on payout ratio
Distributed
Forfeited
Undistributed performance share units as of December 31, 2021 (1)
$
$
159.4
25.4
11.1
(44.9) $
(1.8) $
$
149.2
224.95
314.27
204.64
197.54
232.66
246.84
(1) Undistributed performance share units include approximately 95.0 thousand units with a weighted-average grant date fair
value of $270.87 per share that had not yet vested and 54.2 thousand units that have vested but were not yet distributed.
As of December 31, 2021, we had $15.7 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 2.3 years. Our weighted-average estimated
forfeiture rate for these performance share units was 30.3% as of December 31, 2021.
The total fair value of performance share units distributed and the resulting tax deductions to realized tax benefits were as
71
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,
2019
2020
2021
$
$
10.8
2.7
$
$
15.1
0.7
$
$
20.2
5.1
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,
2019
2020
2021
$
$
8.7
315.70
$
$
10.4
265.96
$
$
9.7
247.02
A summary of our non-vested restricted stock units as of December 31, 2021 and changes during the year then ended is
presented below (in thousands, except per share data):
Non-vested restricted stock units as of December 31, 2020
Granted
Vested
Forfeited
Non-vested restricted stock units as of December 31, 2021 (1)
Weighted-
Average Grant
Date Fair Value
per Share
Shares
$
136.0
50.3
$
(47.1) $
(4.1) $
$
135.1
237.45
315.70
205.54
232.39
277.85
(1) As of December 31, 2021, we had $22.0 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 2.31 years. Our estimated forfeiture rate for
restricted stock units was 21.8% as of December 31, 2021.
The total fair value of restricted stock units vested and the resulting tax deductions to realized 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,
2019
2020
2021
$
$
11.0
2.7
$
15.0
2.7
10.9
2.7
Stock appreciation rights are issued to certain key employees. Each recipient is given the “right” to receive compensation,
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):
72
Compensation expense for stock appreciation rights
Weighted-average fair value of grants, per share
For the Years Ended December 31,
2019
2020
2021
$
$
4.8
70.50
$
$
5.0
55.21
$
$
4.8
39.40
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 2021, 2020 and 2019 were estimated on the date of grant using the
following assumptions:
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
2021
2020
2019
1.69 %
0.88 %
29.80 %
4.35
1.64 %
0.27 %
29.70 %
3.95
1.77 %
1.59 %
21.23 %
3.96
A summary of our stock appreciation rights as of December 31, 2021, and changes during the year then ended, is presented
below (in thousands, except per share data):
Outstanding stock appreciation rights as of December 31, 2020
Granted
Exercised
Forfeited
Outstanding stock appreciation rights as of December 31, 2021
Exercisable stock appreciation rights as of December 31, 2021
Weighted-
Average
Exercise Price
per Share
Shares
679.5
75.7
$
$
(269.4) $
(7.5) $
478.3
311.7
$
$
205.41
328.65
179.61
243.87
241.61
212.22
The following table summarizes information about stock appreciation rights outstanding as of December 31, 2021 (in
millions, except per share data and years; shares in thousands):
Stock Appreciation Rights Outstanding
Stock Appreciation Rights Exercisable
Weighted-Average
Remaining Contractual
Term (in years)
Aggregate
Intrinsic
Value
Shares
Weighted-Average
Remaining Contractual
Life (in years)
Aggregate
Intrinsic
Value
Range of Exercise Prices
$131.94 to $205.53
$214.63 to $257.08
$278.00 to $328.65
2.26 $
4.57 $
6.47 $
(1) Share amounts are rounded but the balance accurately reflects the actual amount of exercisable stock appreciation rights as
2.26 $
4.46 $
6.00 $
133.7
184.8
159.8
20.2
15.8
3.9
20.2
13.5
1.3
Shares (1)
133.7
150.0
28.0
of December 31, 2021.
As of December 31, 2021, we had $8.2 million of unrecognized compensation cost related to non-vested stock appreciation
rights that is expected to be recognized over a weighted-average period of 2.4 years. Our estimated forfeiture rate for stock
appreciation rights was 20.0% as of December 31, 2021.
The total intrinsic value of stock appreciation rights exercised and the resulting tax deductions to realize tax benefits were as
follows (in millions):
73
Intrinsic value of stock appreciation rights exercised
Realized tax benefits from tax deductions
Employee Stock Purchase Plan
For the Years Ended December 31,
2019
2020
2021
$
$
31.2
7.7
$
$
26.7
6.7
$
$
37.1
9.3
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 10,300 shares under the ESPP during the year ended
December 31, 2021. Approximately 2.3 million shares remain available for purchase under the ESPP as of December 31, 2021.
17. 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 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 -
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
interest rates and
parameters, such as credit default swap spreads, yield curves, reported trades, broker/dealer quotes,
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, 2021 and 2020, the measurement dates.
The methodologies used to determine the fair value of our financial assets and liabilities as of December 31, 2021 were the
same as those used as of December 31, 2020.
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, 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 10 for more information related to our derivative instruments.
Other Fair Value Disclosures
74
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
$
959.2
$
971.6
As of December 31,
2021
2020
75
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, 2021, 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 year ended December 31, 2021 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
Incorporated herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days
after December 31, 2021. Also, refer to Part I, Item 1 “Business - Information about our Executive Officers ” of this Annual
Report on Form 10-K, which identifies our executive officers and is incorporated herein by reference.
Item 11. Executive Compensation
Incorporated herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days
after December 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days
after December 31, 2021. Also, refer to Note 16 in the Notes to the Consolidated Financial Statements for additional
information about our equity compensation plans.
76
Item 13. Certain Relationships and Related Transactions and Director Independence
Incorporated herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days
after December 31, 2021.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is KPMG LLP, Dallas, TX, Auditor Firm ID: 185.
Incorporated herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days
after December 31, 2021.
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
PART IV
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 (KPMG LLP, Dallas, TX, Auditor Firm ID: 185)
• Consolidated Balance Sheets as of December 31, 2021 and 2020
• Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
• Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019
• Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2021, 2020 and 2019
• Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
• Notes to the Consolidated Financial Statements for the Years Ended December 31, 2021, 2020 and 2019
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, 2021, 2020 and 2019 (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.
77
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
INDEX TO EXHIBITS
Restated Certificate of Incorporation of Lennox International Inc. (“LII”) (filed herewith).
Amended and Restated Bylaws of LII (filed herewith).
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).
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 U.S. 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 herein by
reference).
Form of 3.000% Notes due 2023 (filed as Exhibit A in Exhibit 4.2 to LII’s Current Report on Form 8-K filed on
November 3, 2016 and incorporated herein by reference).
Ninth Supplemental Indenture, dated as of July 30, 2020, among LII, each existing Guarantor under the Indenture,
dated as of May 3, 2010, as subsequently supplemented, and U.S. Bank National Association, as trustee (filed as
Exhibit 4.2 to LII’s Current Report on Form 8-K filed on July 30, 2020 and incorporated herein by reference).
Form of 1.350% Notes due 2025 (filed as Exhibit A in Exhibit 4.2 to LII’s Current Report on Form 8-K filed on
July 30, 2020 and incorporated herein by reference).
Form of 1.700% Notes due 2027 (filed as Exhibit B in Exhibit 4.2 to LII’s Current Report on Form 8-K filed on
July 30, 2020 and incorporated herein by reference).
Tenth Supplemental Indenture, dated as of July 14, 2021, among LII, each existing Guarantor under the Indenture,
dated as of May 3, 2010, as subsequently supplemented, and U.S. Bank National Association, as trustee (filed
herewith).
Description of Securities (filed herewith).
Credit Agreement, dated as of July 14, 2021, among Lennox International Inc., a Delaware corporation, the Banks
party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to LII’s Current
Report on Form 8-K filed on July 15, 2021 and incorporated herein by reference).
Guaranty Agreement, dated as of July 14, 2021, among the guarantors party thereto and JPMorgan Chase Bank,
N.A., as Administrative Agent (filed as Exhibit 10.2 to LII’s Current Report on Form 8-K filed on July 15, 2021
and incorporated herein by reference).
Amendment No. 11 to Amended and Restated Receivables Purchase Agreement, dated as of November 12, 2021,
among LPAC Corp., as the Seller, Lennox Industries Inc., as the Master Servicer, Lennox International Inc., Victory
Receivables Corporation, as a Purchaser, MUFG Bank, Ltd., formerly known as The Bank of Tokyo-Mitsubishi
UFJ, Ltd., as administrative agent for the Investors, the purchaser agent for the MUFG Purchaser Group and a
MUFG Liquidity Bank, Wells Fargo Bank, N.A., as the purchaser agent for the WFB Purchaser Group and a WFB
Liquidity Bank, and PNC Bank, N.A., as the purchaser agent for the PNC Purchaser Group and a PNC Liquidity
Bank, including attachments (filed as Exhibit 10.1 to LII’s Current Report on Form 8-K filed on November 12,
2021 and incorporated herein by reference).
Lennox International Inc. 2019 Equity and Incentive Compensation Plan (filed as Exhibit 10.1 to LII’s Current
Report on Form 8-K filed on May 24, 2019 and incorporated herein by reference).
Form of Long-Term Incentive Award Agreement for U.S. Employees - Vice President and Above (for use under the
2019 Incentive Plan) (filed as Exhibit 10.18 to LII’s Annual Report on Form 10-K filed on February 18, 2020 and
incorporated herein by reference).
Form of Long-Term Incentive Award Agreement for Non-U.S. Employees - Vice President and Above (for use
under the 2019 Incentive Plan) (filed as Exhibit 10.3 to LII’s Quarterly Report on Form 10-Q filed on October 25,
2021 and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors (for use under the 2019 Incentive
Plan) (filed as Exhibit 10.19 to LII’s Annual Report on Form 10-K filed on February 18, 2020 and incorporated
herein by reference).
Form of Short-Term Incentive Program for Lennox International Inc. and its Subsidiaries (filed as Exhibit 10.20 to
LII’s Annual Report on Form 10-K filed on February 18,2020 and incorporated herein by reference).
Lennox International Inc. Profit Sharing Restoration Plan, as amended and restated as of 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).
10.10*
Lennox International Inc. Supplemental Retirement Plan, as amended and restated as of 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).
78
10.11* Amendment Number One to the Lennox International Inc. Supplemental Retirement Plan, as amended and restated
as of January 1, 2009, dated December 28, 2018 (filed as Exhibit 10.23 to LII’s Annual Report on Form 10-K filed
on February 19, 2019 and incorporated herein by reference).
10.12*
10.13*
Lennox International Inc. Supplemental Restoration Retirement Plan, effective as of January 1, 2019, dated
December 28, 2018 (filed as Exhibit 10.24 to LII’s Annual Report on Form 10-K filed on February 19, 2019 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).
10.14*
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 filed on February 27, 2007 and incorporated herein by reference).
10.15*
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).
10.16*
Form of Change of Control 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 17, 2012 and incorporated herein by reference).
10.17*
10.18*
10.19*
10.20*
21.1
22.1
23.1
31.1
31.2
32.1
101
101
101
101
101
104
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).
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).
Retention Agreement, dated July 12, 2021, between Lennox International Inc. and Douglas L. Young (filed as
Exhibit 10.1 to LII’s Current Report on Form 8-K filed on July 14, 2021 and incorporated herein by reference).
Form of Award Agreement, dated December 10, 2021, between Lennox International Inc. and certain named
executive officers (filed as Exhibit 10.1 to LII’s Current Report on Form 8-K filed on December 14, 2021 and
incorporated herein by reference).
Subsidiaries of LII (filed herewith).
List of Guarantor Subsidiaries (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).
SCH Inline XBRL Taxonomy Extension Schema Document
CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
LAB Inline XBRL Taxonomy Extension Label Linkbase Document
PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan or arrangement.
79
Item 16. Form 10-K Summary
None.
80
SIGNATURES
Pursuant to the requirements 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.
LENNOX INTERNATIONAL INC.
By:
/s/ Todd M. Bluedorn
Todd M. Bluedorn
Chief Executive Officer
February 15, 2022
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
Todd M. Bluedorn
Chief Executive Officer and Chairman of the Board of Directors February 15, 2022
(Principal Executive Officer)
/s/ JOSEPH W. REITMEIER
Joseph W. Reitmeier
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ CHRIS A. KOSEL
Chris A. Kosel
/s/ TODD J. TESKE
Todd J. Teske
/s/ SHERRY L. BUCK
Sherry L. Buck
/s/ JANET K. COOPER
Janet K. Cooper
/s/ MAX H. MITCHELL
Max H. Mitchell
/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/ GREGORY T. SWIENTON
Gregory T. Swienton
/s/ SHANE D. WALL
Shane D. Wall
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
Lead Director
Director
Director
Director
Director
Director
Director
Director
Director
81
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
LENNOX INTERNATIONAL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2021, 2020 and 2019
(In millions)
Additions
charged to
cost and
expenses
Write-offs
Balance at
beginning
of year
Recoveries
Other
Balance at
end of year
2019
Allowance for doubtful accounts $
2020
Allowance for doubtful accounts $
2021
Allowance for doubtful accounts $
6.3
6.1
9.6
$
$
$
4.5
8.1
0.3
$
$
$
(4.9) $
(4.2) $
(0.4) $
1.6
1.2
1.2
$
$
$
(1.4) $
(1.6) $
6.1
9.6
— $
10.7
82
CORPORATE INFORMATION
TRANSFER AGENT
AND REGISTRAR
Computershare is LII’s Transfer Agent.
Shareholder correspondence should be
directed to:
Lennox International Inc.
c/o Computershare
P.O. Box 43006
Providence, RI 02940-3006
LII stockholders of record can access their
account information via the internet at:
www.computershare.com/investor
or by calling 1-800-797-5603.
p
INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS
KPMG LLP
Dallas, Texas
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.
All statements, other than statements of
historical fact, included in this Annual Report
constitute 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.
DIVIDEND INFORMATION
In recent years, LII has declared dividends
four times a year. The amount and timing of
dividend payments are determined by our
board of directors.
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 the information in Item
1A-Risk Factors in the Annual Report on
10-K for the year ended December 31, 2021 as
well as other 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
intentions
statements. LII disclaims any
or obligation to update or review any
forward-looking statements or information,
whether as a result of new information, future
events or otherwise.
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 virtual Annual Meeting will be
conducted on the internet via live webcast
on May 19, 2022. Stockholders will be able
to participate in the Annual Meeting online
and submit your questions to the meeting by
.
visiting www.proxydocs.com/LII
p
y
If your shares are registered in your name,
your control number will be found on your
proxy card. If your shares are registered
in the name of your broker, bank, or other
agent, you are the “beneficial owner” of
those shares, and your control number
will be found on the voting instruction
form received from your broker, bank, or
other agent.
INVESTOR INQUIRIES
Investors and financial analysts
interested in obtaining information
about LII 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 has traded
on the New York Stock Exchange since
July 29, 1999.
SEC FILINGS
A copy of LII’s Annual Report on Form
10-K for the year ended December 31,
2021 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 Inc.
Investor Relations
P.O. Box 799900
Dallas, Texas 75379-9900
2140 LAKE PARK BLVD., RICHARDSON, TX 75080
www.lennoxinternational.com
©2022 Lennox International Inc. All Rights Reserved.
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