UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

_________________________________________________


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

For the quarterly period ended September 30, ~~2022~~2023


☐			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.

Incorporated pursuant to the laws of the State of Delaware

_________________________________________________

Internal Revenue Service Employer Identification No. 42-0991521

2140 LAKE PARK BLVD., RICHARDSON, Texas, 75080

(972) 497-5000

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	LII	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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

☒

Accelerated Filer

☐

Non-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 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~14, 2022,~~16, 2023, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was ~~35,438,759.~~35,539,725.

LENNOX INTERNATIONAL INC.

FORM 10-Q

For the three and nine months ended September 30, ~~2022~~2023

INDEX


		Page
Part I	Financial Information
	Item 1. Financial Statements
	Consolidated Balance Sheets - September 30, ~~2022~~2023 (Unaudited) and December 31, ~~2021~~2022	1
	Consolidated Statements of Operations (Unaudited) - Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	2
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	3
	Consolidated Statements of Stockholders' ~~Deficit~~Equity (Deficit) (Unaudited) - Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	4
	Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022	6
	Notes to Consolidated Financial Statements (Unaudited)	7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3031
	Item 4. Controls and Procedures	31
Part II	Other Information
	Item 1. Legal Proceedings	31
	Item 1A. Risk Factors	31
	Item 2. Unregistered Sales of Equity Securities ~~and~~ ,Use of Proceeds, and Issuer Purchases of Equity Securities	31
	Item 5. Other Information	31
	Item 6. Exhibits	3233

Part I - Financial Information

Item 1. Financial Statements

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets


(Amounts in millions, except shares and par values)	(Amounts in millions, except shares and par values)	As of September 30, 2022		As of December 31, 2021		(Amounts in millions, except shares and par values)	As of September 30, 2023		As of December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	40.7	$	31.0	Cash and cash equivalents	$	132.0	$	52.6
Short-term investments	Short-term investments	7.5		5.5		Short-term investments	9.6		8.5
Accounts and notes receivable, net of allowances of $13.2 and $10.7 in 2022 and 2021, respectively		708.4		508.3
Accounts and notes receivable, net of allowances of $15.3 and $15.5 in 2023 and 2022, respectively						Accounts and notes receivable, net of allowances of $15.3 and $15.5 in 2023 and 2022, respectively	694.8		608.5
Inventories, net	Inventories, net	743.4		510.9		Inventories, net	747.9		753.0

Assets held for sale						Assets held for sale	92.8		—
Other assets	Other assets	94.1		119.7		Other assets	65.3		73.9
Total current assets	Total current assets	1,594.1		1,175.4		Total current assets	1,742.4		1,496.5
Property, plant and equipment, net of accumulated depreciation of $905.7 and $888.8 in 2022 and 2021, respectively		520.4		515.1
Property, plant and equipment, net of accumulated depreciation of $897.5 and $920.8 in 2023 and 2022, respectively						Property, plant and equipment, net of accumulated depreciation of $897.5 and $920.8 in 2023 and 2022, respectively	602.1		548.9
Right-of-use assets from operating leases	Right-of-use assets from operating leases	200.5		196.1		Right-of-use assets from operating leases	214.1		219.9
Goodwill	Goodwill	185.9		186.6		Goodwill	181.7		186.3
Deferred income taxes	Deferred income taxes	34.2		11.3		Deferred income taxes	50.1		27.5
Other assets, net	Other assets, net	90.7		87.4		Other assets, net	99.7		88.5
Total assets	Total assets	$	2,625.8	$	2,171.9	Total assets	$	2,890.1	$	2,567.6

LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)						LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:	Current Liabilities:					Current Liabilities:

Current maturities of long-term debt	Current maturities of long-term debt	$	11.1	$	11.3	Current maturities of long-term debt	$	361.6	$	710.6
Current operating lease liabilities	Current operating lease liabilities	61.3		54.8		Current operating lease liabilities	60.2		63.3
Accounts payable	Accounts payable	430.5		402.1		Accounts payable	345.8		427.3
Accrued expenses	Accrued expenses	409.6		358.9		Accrued expenses	408.7		376.9

Liabilities held for sale						Liabilities held for sale	69.7		—
Income taxes payable	Income taxes payable	19.2		—		Income taxes payable	9.0		17.6
Total current liabilities	Total current liabilities	931.7		827.1		Total current liabilities	1,255.0		1,595.7
Long-term debt	Long-term debt	1,593.4		1,226.5		Long-term debt	1,121.6		814.2
Long-term operating lease liabilities	Long-term operating lease liabilities	143.6		145.0		Long-term operating lease liabilities	162.5		161.8

Pensions	Pensions	86.5		83.3		Pensions	33.9		40.1
Other liabilities	Other liabilities	175.8		159.0		Other liabilities	157.6		158.9
Total liabilities	Total liabilities	2,931.0		2,440.9		Total liabilities	2,730.6		2,770.7
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders' deficit:
Stockholders' equity (deficit):						Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued or outstanding	Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued or outstanding	—		—		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	Common stock, $0.01 par value, 200,000,000 shares authorized, 87,170,197 shares issued	0.9		0.9		Common stock, $0.01 par value, 200,000,000 shares authorized, 87,170,197 shares issued	0.9		0.9
Additional paid-in capital	Additional paid-in capital	1,150.4		1,133.7		Additional paid-in capital	1,178.9		1,155.2
Retained earnings	Retained earnings	3,013.9		2,719.3		Retained earnings	3,400.3		3,070.6
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(132.5)		(88.1)		Accumulated other comprehensive loss	(77.0)		(90.6)
Treasury stock, at cost, 51,735,764 shares and 50,536,125 shares for 2022 and 2021, respectively		(4,337.9)		(4,034.8)
Total stockholders' deficit		(305.2)		(269.0)
Total liabilities and stockholders' deficit		$	2,625.8	$	2,171.9
Treasury stock, at cost, 51,633,264 shares and 51,700,260 shares for 2023 and 2022, respectively						Treasury stock, at cost, 51,633,264 shares and 51,700,260 shares for 2023 and 2022, respectively	(4,343.6)		(4,339.2)
Total stockholders' equity (deficit)						Total stockholders' equity (deficit)	159.5		(203.1)
Total liabilities and stockholders' equity (deficit)						Total liabilities and stockholders' equity (deficit)	$	2,890.1	$	2,567.6

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)


(Amounts in millions, except per share data)	(Amounts in millions, except per share data)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				(Amounts in millions, except per share data)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net sales	Net sales	$	1,244.9	$	1,059.9	$	3,624.6	$	3,229.3	Net sales	$	1,366.3	$	1,244.9	$	3,827.1	$	3,624.6
Cost of goods sold	Cost of goods sold	910.7		764.7		2,625.1		2,294.5		Cost of goods sold	937.8		910.7		2,634.1		2,625.1
Gross profit	Gross profit	334.2		295.2		999.5		934.8		Gross profit	428.5		334.2		1,193.0		999.5
Operating Expenses:	Operating Expenses:									Operating Expenses:
Selling, general and administrative expenses	Selling, general and administrative expenses	147.3		134.2		472.2		447.4		Selling, general and administrative expenses	178.9		147.3		527.6		472.2
Losses (gains) and other expenses, net	Losses (gains) and other expenses, net	3.3		2.1		5.4		4.7		Losses (gains) and other expenses, net	3.5		3.3		5.2		5.4
Restructuring charges	Restructuring charges	0.2		0.3		1.2		1.6		Restructuring charges	0.3		0.2		0.2		1.2

Impairment on assets held for sale										Impairment on assets held for sale	63.2		—		63.2		—
Income from equity method investments	Income from equity method investments	(2.4)		(4.1)		(3.9)		(11.6)		Income from equity method investments	(4.2)		(2.4)		(8.0)		(3.9)
Operating income	Operating income	185.8		162.7		524.6		492.7		Operating income	186.8		185.8		604.8		524.6
Pension settlements	Pension settlements	—		0.3		0.3		1.1		Pension settlements	0.3		—		0.4		0.3
Interest expense, net	Interest expense, net	10.5		6.5		26.1		18.8		Interest expense, net	11.2		10.5		40.4		26.1
Other expense (income), net	Other expense (income), net	0.7		1.1		1.9		2.9		Other expense (income), net	0.1		0.7		(0.1)		1.9
Income from continuing operations before income taxes		174.6		154.8		496.3		469.9
Net income before income taxes										Net income before income taxes	175.2		174.6		564.1		496.3
Provision for income taxes	Provision for income taxes	32.7		28.5		93.6		89.4		Provision for income taxes	44.8		32.7		118.5		93.6
Income from continuing operations		141.9		126.3		402.7		380.5
Discontinued Operations:
Loss from discontinued operations before income taxes		—		—		—		(0.1)
Income tax benefit		—		—		—		—
Loss from discontinued operations		—		—		—		(0.1)

Net income	Net income	$	141.9	$	126.3	$	402.7	$	380.4	Net income	$	130.4	$	141.9	$	445.6	$	402.7

Earnings per share – Basic:	Earnings per share – Basic:									Earnings per share – Basic:	$	3.67	$	4.00	$	12.55	$	11.25
Income from continuing operations		$	4.00	$	3.43	$	11.25	$	10.17
Loss from discontinued operations		—		—		—		—
Net income		$	4.00	$	3.43	$	11.25	$	10.17

Earnings per share – Diluted:	Earnings per share – Diluted:									Earnings per share – Diluted:	$	3.65	$	3.99	$	12.51	$	11.22
Income from continuing operations		$	3.99	$	3.41	$	11.22	$	10.10
Loss from discontinued operations		—		—		—		—
Net income		$	3.99	$	3.41	$	11.22	$	10.10

Weighted Average Number of Shares Outstanding - Basic	Weighted Average Number of Shares Outstanding - Basic	35.4		36.8		35.8		37.4		Weighted Average Number of Shares Outstanding - Basic	35.5		35.4		35.5		35.8
Weighted Average Number of Shares Outstanding - Diluted	Weighted Average Number of Shares Outstanding - Diluted	35.5		37.0		35.9		37.7		Weighted Average Number of Shares Outstanding - Diluted	35.7		35.5		35.6		35.9

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)


(Amounts in millions)	(Amounts in millions)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				(Amounts in millions)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income	Net income	$	141.9	$	126.3	$	402.7	$	380.4	Net income	$	130.4	$	141.9	$	445.6	$	402.7
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	(11.6)		(6.7)		(20.7)		(5.1)		Foreign currency translation adjustments	(5.7)		(11.6)		8.7		(20.7)

Net change in pension and post-retirement liabilities	Net change in pension and post-retirement liabilities	(0.8)		(1.8)		(3.5)		(7.1)		Net change in pension and post-retirement liabilities	—		(0.8)		(0.8)		(3.5)
Reclassification of pension and post-retirement benefit losses into earnings	Reclassification of pension and post-retirement benefit losses into earnings	1.5		1.8		4.4		6.0		Reclassification of pension and post-retirement benefit losses into earnings	—		1.5		0.6		4.4
Pension settlements	Pension settlements	—		0.3		0.3		1.1		Pension settlements	0.3		—		0.4		0.3
Share of equity method investments other comprehensive income	Share of equity method investments other comprehensive income	—		—		0.7		—		Share of equity method investments other comprehensive income	1.1		—		1.1		0.7
Net change in fair value of cash flow hedges	Net change in fair value of cash flow hedges	(8.4)		6.3		(19.7)		26.9		Net change in fair value of cash flow hedges	3.1		(8.4)		3.6		(19.7)
Reclassification of cash flow hedge losses (gains) into earnings	Reclassification of cash flow hedge losses (gains) into earnings	3.7		(7.8)		(12.5)		(21.3)		Reclassification of cash flow hedge losses (gains) into earnings	0.8		3.7		1.2		(12.5)
Other comprehensive (loss) income before taxes	Other comprehensive (loss) income before taxes	(15.6)		(7.9)		(51.0)		0.5		Other comprehensive (loss) income before taxes	(0.4)		(15.6)		14.8		(51.0)
Tax benefit (expense)		1.0		(0.4)		6.6		(4.7)
Other comprehensive loss, net of tax		(14.6)		(8.3)		(44.4)		(4.2)
Tax (expense) benefit										Tax (expense) benefit	(0.8)		1.0		(1.2)		6.6
Other comprehensive (loss) income, net of tax										Other comprehensive (loss) income, net of tax	(1.2)		(14.6)		13.6		(44.4)
Comprehensive income	Comprehensive income	$	127.3	$	118.0	$	358.3	$	376.2	Comprehensive income	$	129.2	$	127.3	$	459.2	$	358.3

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~DEFICIT~~EQUITY (DEFICIT)

For the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)

(In millions, except per share data)

Common Stock Issued Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock at Cost Total Stockholders' Deficit
(For the three months ended September 30, 2022) Shares Amount
Balance as of June 30, 2022 $ 0.9 $ 1,144.0 $ 2,909.5 $ (117.9) 51.7 $ (4,337.8) $ (401.3)
Net income — — 141.9 — — — 141.9
Dividends, $1.06 per share — — (37.5) — — — (37.5)
Foreign currency translation adjustments — — — (11.6) — — (11.6)
Pension and post-retirement liability changes, net of tax expense of $0.2 — — — 0.5 — — 0.5
Stock-based compensation expense — 5.8 — — — — 5.8
Change in cash flow hedges, net of tax benefit of $1.2 — — — (3.5) — — (3.5)
Treasury shares reissued for common stock — 0.6 — — — 0.3 0.9
Treasury stock purchases — — — — — (0.4) (0.4)
Balance as of September 30, 2022 $ 0.9 $ 1,150.4 $ 3,013.9 $ (132.5) 51.7 $ (4,337.9) $ (305.2)


	Common Stock Issued		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock at Cost			Total Stockholders' Equity (Deficit)
(For the three months ended September 30, 2023)									Shares	Amount
Balance as of June 30, 2023	$	0.9	$	1,169.3	$	3,309.0	$	(75.8)	51.7	$	(4,340.8)	$	62.6

Net income	—		—		130.4		—		—	—		130.4
Dividends, $1.10 per share	—		—		(39.1)		—		—	—		(39.1)
Foreign currency translation adjustments	—		—		—		(5.7)		—	—		(5.7)
Pension and post-retirement liability changes, net of tax expense of $0.0	—		—		—		0.3		—	—		0.3
Share of equity method investments other comprehensive income	—		—		—		1.1		—	—		1.1
Stock-based compensation expense	—		9.7		—		—		—	—		9.7
Change in cash flow hedges, net of tax expense of $0.8	—		—		—		3.1		—	—		3.1
Treasury shares reissued for common stock	—		(0.1)		—		—		(0.1)	1.2		1.1
Treasury stock purchases	—		—		—		—		—	(4.0)		(4.0)
Balance as of September 30, 2023	$	0.9	$	1,178.9	$	3,400.3	$	(77.0)	51.6	$	(4,343.6)	$	159.5

Common Stock Issued Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock at Cost Total Stockholders' Deficit
(For the three months ended September 30, 2021) Shares Amount
Balance as of June 30, 2021 $ 0.9 $ 1,128.9 $ 2,576.6 $ (93.1) 50.0 $ (3,826.6) $ (213.3)
Net income — — 126.3 — — — 126.3
Dividends, $0.92 per share — — (33.8) — — — (33.8)
Foreign currency translation adjustments — — — (6.7) — — (6.7)
Pension and post-retirement liability changes, net of tax benefit of $0.6 — — — (0.4) — — (0.4)
Stock-based compensation expense — (0.6) — — — — (0.6)
Change in cash flow hedges, net of tax expense of $0.2 — — — (1.2) — — (1.2)
Treasury shares reissued for common stock — (0.8) — — 0.6 1.6 0.8
Treasury stock purchases — — — — — (205.9) (205.9)
Balance as of September 30, 2021 $ 0.9 $ 1,127.5 $ 2,669.1 $ (101.4) 50.6 $ (4,030.9) $ (334.8)


	Common Stock Issued		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock at Cost			Total Stockholders' Deficit
(For the three months ended September 30, 2022)									Shares	Amount
Balance as of June 30, 2022	$	0.9	$	1,144.0	$	2,909.5	$	(117.9)	51.7	$	(4,337.8)	$	(401.3)

Net income	—		—		141.9		—		—	—		141.9
Dividends, $1.06 per share	—		—		(37.5)		—		—	—		(37.5)
Foreign currency translation adjustments	—		—		—		(11.6)		—	—		(11.6)
Pension and post-retirement liability changes, net of tax expense of $0.2	—		—		—		0.5		—	—		0.5

Stock-based compensation expense	—		5.8		—		—		—	—		5.8
Change in cash flow hedges, net of tax benefit of $1.2	—		—		—		(3.5)		—	—		(3.5)
Treasury shares reissued for common stock	—		0.6		—		—		—	0.3		0.9

Treasury stock purchases	—		—		—		—		—	(0.4)		(0.4)

Balance as of September 30, 2022	$	0.9	$	1,150.4	$	3,013.9	$	(132.5)	51.7	$	(4,337.9)	$	(305.2)

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' ~~DEFICIT~~EQUITY (DEFICIT)

For the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)

(In millions, except per share data)


		Common Stock Issued				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock at Cost						Total Stockholders' Deficit					Common Stock Issued			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock at Cost						Total Stockholders' Equity (Deficit)
(For the nine months ended September 30, 2022)																Shares			Amount
Balance as of December 31, 2021				$	0.9			$	1,133.7			$	2,719.3			$	(88.1)		50.5			$	(4,034.8)				$	(269.0)
(For the nine months ended September 30, 2023)																										(For the nine months ended September 30, 2023)			Common Stock Issued						Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Shares			Amount			Total Stockholders' Equity (Deficit)
Balance as of December 31, 2022																										Balance as of December 31, 2022						51.7										$	(4,339.2)

Net income	Net income	—				—				402.7				—				—		—				402.7		Net income					—			—			445.6			—		—				—			445.6
Dividends, $3.04 per share		—				—				(108.1)				—				—		—				(108.1)
Dividends, $3.26 per share																										Dividends, $3.26 per share			—			—			(115.9)			—			—			—			(115.9)
Foreign currency translation adjustments	Foreign currency translation adjustments	—				—				—				(20.7)				—		—				(20.7)		Foreign currency translation adjustments			—			—			—			8.7			—			—			8.7
Pension and post-retirement liability changes, net of tax expense of $0.7		—				—				—				0.5				—		—				0.5
Pension and post-retirement liability changes, net of tax expense of $0.0																										Pension and post-retirement liability changes, net of tax expense of $0.0			—			—			—			0.2			—			—			0.2
Share of equity method investments other comprehensive income	Share of equity method investments other comprehensive income	—				—				—				0.7				—		—				0.7		Share of equity method investments other comprehensive income			—			—			—			1.1			—			—			1.1
Stock-based compensation expense	Stock-based compensation expense	—				16.4				—				—				—		—				16.4		Stock-based compensation expense			—			23.5			—			—			—			—			23.5
Change in cash flow hedges, net of tax benefit of $7.3		—				—				—				(24.9)				—		—				(24.9)
Change in cash flow hedges, net of tax expense of $1.2																										Change in cash flow hedges, net of tax expense of $1.2			—			—			—			3.6			—			—			3.6
Treasury shares reissued for common stock	Treasury shares reissued for common stock	—				0.3				—				—				(0.1)		2.4				2.7		Treasury shares reissued for common stock			—			0.2			—			—			(0.1)			2.7			2.9
Treasury stock purchases	Treasury stock purchases	—				—				—				—				1.3		(305.5)				(305.5)		Treasury stock purchases			—			—			—			—			—			(7.1)			(7.1)
Balance as of September 30, 2022		$	0.9			$	1,150.4			$	3,013.9			$	(132.5)			51.7		$	(4,337.9)			$	(305.2)
Balance as of September 30, 2023																										Balance as of September 30, 2023			$	0.9		$	1,178.9		$	3,400.3		$	(77.0)		51.6			$	(4,343.6)		$	159.5

Common Stock Issued Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock at Cost Total Stockholders' Deficit
(For the nine months ended September 30, 2021) Shares Amount
Balance as of December 31, 2020 $ 0.9 $ 1,113.2 $ 2,385.8 $ (97.2) 48.8 $ (3,419.8) $ (17.1)
Net income — — 380.4 — — — 380.4
Dividends, $2.61 per share — — (97.1) — — — (97.1)
Foreign currency translation adjustments — — — (5.1) — — (5.1)
Pension and post-retirement liability changes, net of tax expense of $3.8 — — — (3.8) — — (3.8)
Stock-based compensation expense — 16.8 — — — — 16.8
Change in cash flow hedges, net of tax expense of $0.9 — — — 4.7 — — 4.7
Treasury shares reissued for common stock — (2.5) — — (0.1) 5.0 2.5
Treasury stock purchases — — — — 1.9 (616.1) (616.1)
Balance as of September 30, 2021 $ 0.9 $ 1,127.5 $ 2,669.1 $ (101.4) 50.6 $ (4,030.9) $ (334.8)


	Common Stock Issued		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock at Cost			Total Stockholders' Deficit
(For the nine months ended September 30, 2022)									Shares	Amount
Balance as of December 31, 2021	$	0.9	$	1,133.7	$	2,719.3	$	(88.1)	50.5	$	(4,034.8)	$	(269.0)

Net income	—		—		402.7		—		—	—		402.7
Dividends, $3.04 per share	—		—		(108.1)		—		—	—		(108.1)
Foreign currency translation adjustments	—		—		—		(20.7)		—	—		(20.7)
Pension and post-retirement liability changes, net of tax expense of $0.7	—		—		—		0.5		—	—		0.5
Share of equity method investments other comprehensive income	—		—		—		0.7		—	—		0.7
Stock-based compensation expense	—		16.4		—		—		—	—		16.4
Change in cash flow hedges, net of tax benefit of $7.3	—		—		—		(24.9)		—	—		(24.9)
Treasury shares reissued for common stock	—		0.3		—		—		(0.1)	2.4		2.7
Treasury stock purchases	—		—		—		—		1.3	(305.5)		(305.5)
Balance as of September 30, 2022	$	0.9	$	1,150.4	$	3,013.9	$	(132.5)	51.7	$	(4,337.9)	$	(305.2)

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

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)
(Amounts in millions) For the Nine Months Ended September 30,
2022 2021
Cash flows from operating activities:
Net income $ 402.7 $ 380.4
Adjustments to reconcile net income to net cash provided by operating activities:
Income from equity method investments (3.9) (11.6)
Dividends from affiliates 1.2 9.1
Restructuring charges, net of cash paid 0.7 1.1
Provision for credit losses 4.3 4.3
Unrealized losses (gains), net on derivative contracts 0.8 (0.2)
Stock-based compensation expense 16.4 16.8
Depreciation and amortization 56.2 53.3
Deferred income taxes (16.6) (2.2)
Pension expense 5.1 8.4
Pension contributions (0.7) (1.1)
Other items, net (1.4) 0.1
Changes in assets and liabilities:
Accounts and notes receivable (214.9) (139.5)
Inventories (245.7) (21.1)
Other current assets (5.1) (13.1)
Accounts payable 78.7 65.0
Accrued expenses 36.0 49.4
Income taxes payable and receivable, net 35.5 (10.3)
Leases, net 0.8 —
Other, net 20.0 7.5
Net cash provided by operating activities 170.1 396.3
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment 1.2 0.7
Purchases of property, plant and equipment (67.0) (68.5)
(Purchases of) proceeds from short-term investments, net (2.4) 0.2
Net cash used in investing activities (68.2) (67.6)
Cash flows from financing activities:
Asset securitization borrowings 382.0 504.0
Asset securitization payments (232.0) (214.0)
Long-term debt payments (9.8) (3.0)
Borrowings from credit facility 1,967.5 1,021.4
Payments on credit facility (1,752.0) (1,012.5)
Proceeds from employee stock purchases 2.7 2.5
Repurchases of common stock (300.0) (600.0)
Repurchases of common stock to satisfy employee withholding tax obligations (5.5) (16.1)
Cash dividends paid (142.0) (92.8)
Net cash used in financing activities (89.1) (410.5)
Increase (decrease) in cash and cash equivalents 12.8 (81.8)
Effect of exchange rates on cash and cash equivalents (3.1) (2.7)
Cash and cash equivalents, beginning of period 31.0 123.9
Cash and cash equivalents, end of period $ 40.7 $ 39.4
Supplemental disclosures of cash flow information:
Interest paid $ 23.2 $ 17.7
Income taxes paid (net of refunds) $ 75.4 $ 101.6


(Amounts in millions)	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	445.6	$	402.7

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





Income from equity method investments	(8.0)		(3.9)
Impairment on assets held for sale	63.2		—
Dividends from affiliates	—		1.2
Restructuring charges, net of cash paid	—		0.7
Provision for credit losses	4.7		4.3
Unrealized losses, net on derivative contracts	5.6		0.8
Stock-based compensation expense	23.5		16.4
Depreciation and amortization	62.0		56.2
Deferred income taxes	(24.9)		(16.6)
Pension expense	2.4		5.1
Pension contributions	(2.8)		(0.7)
Other items, net	(1.4)		(1.4)
Changes in assets and liabilities:
Accounts and notes receivable	(142.5)		(214.9)
Inventories	(44.9)		(245.7)
Other current assets	(0.5)		(5.1)
Accounts payable	(10.9)		78.7
Accrued expenses	69.4		36.0
Income taxes payable and receivable, net	(6.7)		35.5
Leases, net	3.4		0.8
Other, net	(7.3)		20.0


Net cash provided by operating activities	429.9		170.1
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment	1.6		1.2
Purchases of property, plant and equipment	(125.0)		(67.0)

Purchases of short-term investments	(1.1)		(2.4)

Net cash used in investing activities	(124.5)		(68.2)
Cash flows from financing activities:


Asset securitization borrowings	190.0		382.0
Asset securitization payments	(540.0)		(232.0)
Long-term debt payments	(10.6)		(9.8)

Issuance of senior unsecured notes	500.0		—
Borrowings from credit facility	1,547.5		1,967.5
Payments on credit facility	(1,739.5)		(1,752.0)
Payments of deferred financing costs	(5.4)		—
Proceeds from employee stock purchases	2.9		2.7
Repurchases of common stock	—		(300.0)
Repurchases of common stock to satisfy employee withholding tax obligations	(7.1)		(5.5)
Cash dividends paid	(153.4)		(142.0)
Net cash used in financing activities	(215.6)		(89.1)
Increase in cash and cash equivalents	89.8		12.8
Cash balances classified as assets held for sale	(7.6)		—
Effect of exchange rates on cash and cash equivalents	(2.8)		(3.1)
Cash and cash equivalents, beginning of period	52.6		31.0
Cash and cash equivalents, end of period	$	132.0	$	40.7

Supplemental disclosures of cash flow information:
Interest paid	$	42.0	$	23.2
Income taxes paid (net of refunds)	$	151.3	$	75.4

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

LENNOX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General:

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

Basis of Presentation

The accompanying unaudited Consolidated Balance Sheet as of September 30, ~~2022,~~2023, the accompanying unaudited Consolidated Statements of Operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the accompanying unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the accompanying unaudited Consolidated Statements of Stockholders' ~~Deficit~~Equity (Deficit) for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, and the accompanying unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 should be read in conjunction with our audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying consolidated financial statements contain all material adjustments, consisting principally of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations, although we believe that the disclosures herein are adequate to make the information presented not misleading. The operating results for the interim periods are not necessarily indicative of the results that may be expected for a full year.

Our fiscal quarterly periods are comprised of approximately 13 weeks, but the number of days per quarter may vary year-over-year. Our quarterly reporting periods usually end on the Saturday closest to the last day of March, June and September. Our fourth quarter and fiscal year ends on December 31, regardless of the day of the week on which December 31 falls. For convenience, the 13-week periods comprising each fiscal quarter are denoted by the last day of the respective calendar quarter.

Use of Estimates

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

We evaluate these estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates and assumptions to be reasonable under the circumstances and will adjust such estimates and assumptions when facts and circumstances dictate. Volatile equity, foreign currency and commodity markets 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 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. The COVID-19 pandemic is creating supply chain disruptions and higher employee absenteeism in our factories and distribution locations since 2020. 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 new variants of the virus spread. If the pandemic worsens or continues longer than presently expected, COVID-19 could impact our results of operations, financial position and cash flows.

~~Executive Leadership Transition~~

On March 23, 2022, the Board of Directors appointed Alok Maskara as Chief Executive Officer ("CEO") effective May 9, 2022. Mr. Maskara succeeded Todd Bluedorn, who announced in July 2021 his plans to step down by mid-2022 as Chairman and CEO. Todd J. Teske was appointed Chairman of the Board and served as interim CEO until Mr. Maskara assumed the role on May 9, 2022.

2. Reportable Business Segments:

We operate in ~~three~~two reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”) industry. Our segments are organized primarily by the nature of the products and services we provide. The following table describes each segment:

Segment

Product or Services

Markets Served

Geographic Areas

Residential ~~Heating & Cooling~~

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

Residential Replacement;
Residential New Construction

United States
Canada

Commercial ~~Heating & Cooling~~

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

~~Light Commercial~~

United States
Canada

~~Refrigeration~~

~~Condensing~~ condensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, ~~process chillers,~~ controls, and compressorized racks

Light Commercial;
Food Preservation;
Non-Food/Industrial

United States
Canada
~~Europe~~

Prior to January 1, 2023, we operated in three reportable business segments. In November 2022, we announced the decision to explore strategic alternatives for our European commercial HVAC and refrigeration businesses. We will continue to invest in our Heatcraft Worldwide Refrigeration business which became part of the Commercial segment effective on January 1, 2023 while the European portfolio will be presented with Corporate and Other until disposition. The consolidation of our Heatcraft business within the Commercial segment provides the opportunity to leverage synergies and create long-term growth opportunities by integrating entities with similar products, end consumers and financial performance metrics under the same management. The change in segment reporting better aligns with how the businesses are managed and evaluated given the change in portfolio. Recast Segment Results were presented in our March 31, 2023 Form 10-Q for both the previously presented segment results as well as the recast financial information to reflect the change in our segment presentation.

We use segment profit or loss as the primary measure of profitability to evaluate operating performance and to allocate capital resources. We define segment profit or loss as a segment’s income or loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding certain items. The reconciliation in the table below details the items excluded.

Our corporate costs include those costs related to our European operations, as well as our corporate functions such as legal, internal audit, treasury, human resources, tax compliance and senior executive staff. Corporate costs also include the long-term stock-based incentive awards provided to employees throughout LII. We record these stock-based awards as corporate costs because they are determined at the discretion of the Board of Directors and based on the historical practice of doing so for internal reporting purposes.

Any intercompany sales and associated profit (and any other intercompany items) are eliminated from segment results. There were no significant intercompany eliminations for the periods presented.

Segment ~~Data~~Net Sales and Profit (Loss)

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Net sales
Residential Heating & Cooling $ 835.3 $ 711.0 $ 2,494.9 $ 2,155.3
Commercial Heating & Cooling 252.9 211.5 660.2 663.4
Refrigeration 156.7 137.4 469.5 410.6
$ 1,244.9 $ 1,059.9 $ 3,624.6 $ 3,229.3
Segment profit (loss) (1)
Residential Heating & Cooling $ 153.8 $ 144.0 $ 477.7 $ 430.1
Commercial Heating & Cooling 29.6 22.6 53.1 95.3
Refrigeration 22.4 14.5 60.0 35.8
Corporate and other (16.5) (16.3) (57.1) (59.2)
Total segment profit 189.3 164.8 533.7 502.0
Reconciliation to Operating income:
Special product quality adjustments — (1.1) — (1.0)
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)
3.3 2.9 7.9 8.7
Restructuring charges 0.2 0.3 1.2 1.6
Operating income $ 185.8 $ 162.7 $ 524.6 $ 492.7


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022 (2)		2023		2022 (2)
Net sales
Residential	$	896.3	$	835.3	$	2,513.6	$	2,494.9
Commercial (2)	405.5		352.3		1,121.5		959.2
Corporate and other (2)	64.5		57.3		192.0		170.5
	$	1,366.3	$	1,244.9	$	3,827.1	$	3,624.6

Segment profit (loss) (1)
Residential	$	181.4	$	153.8	$	495.2	$	477.7
Commercial (2)	97.3		52.4		250.3		117.4
Corporate and other (2)	(23.4)		(16.9)		(65.2)		(61.4)
Total segment profit	255.3		189.3		680.3		533.7
Reconciliation to Operating income:
Impairment on assets held for sale	$	63.2	—		$	63.2	—





Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)	5.0		3.3		12.1		7.9
Restructuring charges	0.3		0.2		0.2		1.2
Operating income	$	186.8	$	185.8	$	604.8	$	524.6

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

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

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

▪Environmental liabilities and special litigation charges,

▪~~Charges incurred related to COVID-19 pandemic, and~~ and;

▪Other items, net

◦~~Special product quality adjustments, and~~Restructuring charges and;

◦~~Restructuring charges.~~Impairment on assets held for sale

(2) 2022 results have been recast to reflect the realignment of our reportable segments.

3. Earnings Per Share:

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

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


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income	Net income	$	141.9	$	126.3	$	402.7	$	380.4	Net income	$	130.4	$	141.9	$	445.6	$	402.7
Exclude: Income from discontinued operations		—		—		—		0.1
Income from continuing operations		$	141.9	$	126.3	$	402.7	$	380.5

Weighted-average shares outstanding – basic	Weighted-average shares outstanding – basic	35.4		36.8		35.8		37.4		Weighted-average shares outstanding – basic	35.5		35.4		35.5		35.8
Add: Potential effect of dilutive securities attributable to stock-based payments	Add: Potential effect of dilutive securities attributable to stock-based payments	0.1		0.2		0.1		0.3		Add: Potential effect of dilutive securities attributable to stock-based payments	0.2		0.1		0.1		0.1
Weighted-average shares outstanding – diluted	Weighted-average shares outstanding – diluted	35.5		37.0		35.9		37.7		Weighted-average shares outstanding – diluted	35.7		35.5		35.6		35.9

Earnings per share – Basic:	Earnings per share – Basic:									Earnings per share – Basic:	$	3.67	$	4.00	$	12.55	$	11.25
Income from continuing operations		$	4.00	$	3.43	$	11.25	$	10.17
Income from discontinued operations		—		—		—		—
Net income		$	4.00	$	3.43	$	11.25	$	10.17

Earnings per share – Diluted:	Earnings per share – Diluted:									Earnings per share – Diluted:	$	3.65	$	3.99	$	12.51	$	11.22
Income from continuing operations		$	3.99	$	3.41	$	11.22	$	10.10
Income from discontinued operations		—		—		—		—
Net income		$	3.99	$	3.41	$	11.22	$	10.10

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Weighted-average number of shares 0.3 — 0.3 —


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2023	2022	2023	2022
Weighted-average number of shares	0.1	0.3	0.1	0.3

4. Commitments and Contingencies:

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in our Consolidated Balance Sheets as Right-of-use assets from operating leases, Current operating lease liabilities and Long-term operating lease liabilities. Finance leases are included in Property, plant and equipment, Current maturities of long-term debt and Long-term debt in our Consolidated Balance Sheets. We do not recognize a right-of-use asset and lease liability for leases with a term of 12 months or less. We do not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component.

Many of our lease agreements contain renewal options; however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs. Some of our lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvement funding or other lease concessions. We recognize our minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. We amortize this expense over the term of the lease beginning with the date of initial possession. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate, and are recognized as incurred. Under certain of our third-party service agreements, we control a specific space or underlying asset used in providing the service by the third-party service provider. These arrangements meet the definition under ASC 842 and therefore are accounted for under ASC 842.

In determining our right-of-use assets and lease liabilities, we apply a discount rate to the minimum lease payments within each lease agreement. ASC 842 requires us to use the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. When we cannot readily determine the discount rate implicit in the lease agreement, we utilize our incremental borrowing rate. To estimate our specific incremental borrowing rates over various periods (ranging from 1-year through 30-years), a comparable market yield curve consistent with our credit quality was calibrated to our publicly outstanding debt instruments.

We lease certain real and personal property under non-cancelable operating leases. Approximately ~~79%~~81% of our right-of-use assets and lease liabilities relate to our leases of real estate with the remaining amounts primarily relating to our leases of IT equipment, fleet vehicles and manufacturing and distribution equipment.

Product Warranties and Product Related Contingencies

We provide warranties to customers for some of our products and record liabilities for the estimated future warranty-related costs based on failure rates, cost experience and other factors. We periodically review the assumptions used to determine the product warranty liabilities and will adjust the liabilities in future periods for changes in experience, as necessary.

Liabilities for estimated product warranty costs related to continuing operations are included in the following captions on the accompanying Consolidated Balance Sheets (in millions): as of:


		As of September 30, 2022		As of December 31, 2021			September 30, 2023		December 31, 2022
Accrued expenses	Accrued expenses	$	39.8	$	37.2	Accrued expenses	$	44.0	$	41.3
Other liabilities	Other liabilities	110.4		97.0		Other liabilities	100.6		101.4
Total warranty liability	Total warranty liability	$	150.2	$	134.2	Total warranty liability	$	144.6	$	142.7

The changes in product warranty liabilities related to continuing operations for the nine months ended September 30, ~~2022~~2023 were as follows (in millions):



Total warranty liability as of December 31, ~~2021~~2022	$	~~134.2~~142.7
Warranty claims paid	~~(27.1)~~(33.2)
Changes resulting from issuance of new warranties	~~41.8~~44.7
Changes in estimates associated with pre-existing liabilities	~~2.7~~ (5.2)
Changes in foreign currency translation rates and other	~~(1.4)~~(0.1)
Warranty liability reclassified as liabilities held for sale	(4.3)
Total warranty liability as of September 30, ~~2022~~2023	$	~~150.2~~144.6

Litigation

We are involved in a number of claims and lawsuits ~~incident~~incidental 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.

It is management's opinion that none of these claims or lawsuits or any threatened litigation will have a material adverse effect 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 for a particular period.

5. Stock Repurchases:

~~In July 2021, our~~Our Board of Directors has authorized ~~an additional $1.0 billion, for~~ a total of $4.0 billion to repurchase shares of our common stock (collectively referred to as the "Share Repurchase Plans")~~. Under this program, we may~~, 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 ~~repurchase program does~~Share Repurchase Plans do not require the repurchase of a specific number of shares and may be terminated at any time. As of September 30, ~~2022,~~2023, $546 million was available for repurchase under the Share Repurchase Plans.

In February 2022, we entered into a fixed dollar accelerated share repurchase transaction with Wells Fargo Bank, to effect an accelerated stock buyback of our common stock. We paid Wells Fargo Bank $200.0 million and Wells Fargo Bank initially delivered to us approximately 87% of the shares expected to be purchased. The ASR
~~was completed~~ ~~in April 2022 and Wells Fargo Bank delivered a total~~ ~~of 0.8 million shares of common stock repurchased under this ASR Agreement.~~

6. Assets Held for Sale:

~~In May 2022,~~During the third quarter of 2023, we ~~entered into a fixed dollar accelerated share repurchase transaction with Bank~~obtained Board approval and reached agreements to sell our European commercial HVAC and refrigeration businesses as well as our European Process Cooling business, both of America, to effect an accelerated stock buyback of our common stock. We paid Bank of America $100.0 million and Bank of America delivered to us common stock representing approximately 85% of the shareswhich are expected to ~~be purchased.~~close in the fourth quarter of 2023. All of these businesses are included in the Corporate and Other segment. We have reclassified the assets and liabilities associated with these businesses to assets and liabilities held for sale. The ~~ASR was completed in June 2022~~following table presents the assets and ~~Bank~~liabilities classified as held for sale as of ~~America delivered a total of 0.5 million shares of common stock repurchased under this ASR Agreement.~~September 30, 2023 (in millions).

~~We also repurchased shares~~



Assets held for sale
Cash and cash equivalents	$	7.6
Accounts and notes receivable, net of allowances	51.8
Inventories, net	49.8
Other assets	16.4
Property, plant, and equipment, net of accumulated depreciation	3.2
Goodwill	2.3

Valuation allowance	(38.3)
Total assets held for sale as of September 30, 2023	$	92.8

Liabilities held for sale
Current liabilities	$	61.0
Non-current liabilities	8.7






Total liabilities held for sale as of September 30, 2023	$	69.7

Based on the expected fair value of the consideration to be received for ~~$5.5~~these businesses, net of our costs to sell, we recorded an impairment on assets held for sale of $63.2 million ~~during~~related to the ~~nine months ended September 30, 2022~~sale of our European commercial HVAC and refrigeration businesses. The consideration will be a combination of cash, a note receivable, and contingent consideration. The impairment consists of a $38.3 million valuation allowance for the difference between the consideration, net of our cost to sell and the carrying value of the net assets, including related amounts in Accumulated Other Comprehensive Loss, $22.6 million impairment of Property, plant, and equipment, and a $2.3 million impairment of goodwill. The operating profits and losses generated from ~~employees who tendered their shares to satisfy minimum tax withholding obligations upon the vesting and exercise of stock-based compensation awards.~~these businesses are not material for any period presented.

6.7. Revenue Recognition:

The following table disaggregates our revenue by business segment by geography which provides information as to the major source of revenue. See Note 2 for additional information on our reportable business segments and the products and services sold in each segment. All amount presented reflect the revised segment presentation.


		For the Three Months Ended September 30, 2022									For the Three Months Ended September 30, 2023
Primary Geographic Markets	Primary Geographic Markets	Residential Heating & Cooling		Commercial Heating & Cooling		Refrigeration		Consolidated		Primary Geographic Markets	Residential		Commercial		Corporate and Other		Consolidated
United States	United States	$	779.8	$	232.5	$	99.4	$	1,111.7	United States	$	842.1	$	376.8	$	—	$	1,218.9
Canada	Canada	55.5		20.3		—		75.8		Canada	54.2		28.7		—		82.9
Other international	Other international	—		0.1		57.3		57.4		Other international	—		—		64.5		64.5
Total	Total	$	835.3	$	252.9	$	156.7	$	1,244.9	Total	$	896.3	$	405.5	$	64.5	$	1,366.3

For the Three Months Ended September 30, 2021
Primary Geographic Markets Residential Heating & Cooling Commercial Heating & Cooling Refrigeration Consolidated
United States $ 655.0 $ 194.0 $ 81.2 $ 930.2
Canada 56.0 16.8 — 72.8
Other international — 0.7 56.2 56.9
Total $ 711.0 $ 211.5 $ 137.4 $ 1,059.9

For the Nine Months Ended September 30, 2022
Primary Geographic Markets Residential Heating & Cooling Commercial Heating & Cooling Refrigeration Consolidated
United States $ 2,311.2 $ 616.4 $ 299.0 $ 3,226.6
Canada 183.7 43.2 — 226.9
Other international — 0.6 170.5 171.1
Total $ 2,494.9 $ 660.2 $ 469.5 $ 3,624.6


		For the Nine Months Ended September 30, 2021									For the Three Months Ended September 30, 2022(1)
Primary Geographic Markets	Primary Geographic Markets	Residential Heating & Cooling		Commercial Heating & Cooling		Refrigeration		Consolidated		Primary Geographic Markets	Residential		Commercial		Corporate and Other		Consolidated
United States	United States	$	1,976.8	$	605.0	$	239.1	$	2,820.9	United States	$	779.8	$	331.9	$	—	$	1,111.7
Canada	Canada	178.5		57.6		—		236.1		Canada	55.5		20.3		—		75.8
Other international	Other international	—		0.8		171.5		172.3		Other international	—		0.1		57.3		57.4
Total	Total	$	2,155.3	$	663.4	$	410.6	$	3,229.3	Total	$	835.3	$	352.3	$	57.3	$	1,244.9


	For the Nine Months Ended September 30, 2023
Primary Geographic Markets	Residential		Commercial		Corporate and Other		Consolidated
United States	$	2,350.0	$	1,053.5	$	—	$	3,403.5
Canada	163.6		68.0		—		231.6
Other international	—		—		192.0		192.0
Total	$	2,513.6	$	1,121.5	$	192.0	$	3,827.1



	For the Nine Months Ended September 30, 2022 (1)
Primary Geographic Markets	Residential		Commercial		Corporate and Other		Consolidated
United States	$	2,311.2	$	915.4	$	—	$	3,226.6
Canada	183.7		43.2		—		226.9
Other international	—		0.6		170.5		171.1
Total	$	2,494.9	$	959.2	$	170.5	$	3,624.6

(1) As discussed in Note 2, we adjusted our segment reporting to include the results of our Heatcraft businesses in Commercial and the results of our European portfolio in Corporate and Other. The amounts for the three and nine months ended September 30, 2022 have been recast to reflect the revised segment presentation.

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 three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, direct sales represented ~~72%~~77% and ~~73%~~72% of revenues, and sales to independent distributors represented the remainder. For the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, direct sales represented ~~70%~~75% and ~~72%~~70% of revenues, and sales to independent distributors represented the remainder.

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. Lennox National Account Services provides installation, service and preventive maintenance for HVAC national account customers in the United States and Canada. For the three months ended September 30, 2022 and 2021, equipment sales represented 83% and 81% of revenues and the remainder of our revenue was generated from our service business. For the nine months ended September 30, 2022 and 2021, equipment sales represented 82% and 83% of revenues 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 these products to distributors, installing contractors, engineering design firms, original equipment manufacturers and end-users. Lennox National Account Services provides installation, service and preventive maintenance for HVAC national account customers in the United States and Canada. For the three months ended September 30, 2023 and 2022, equipment sales represented 88% and 88% of revenues and the remainder of our revenue was generated from our service business. For the nine months ended September 30, 2023 and 2022, equipment sales represented 87% and 87% of revenues and the remainder of our revenue was generated from our service business.

Corporate and Other - In Europe, we manufacture and market equipment for the global commercial refrigeration markets. We also manufacture and sell unitary heating and cooling products and applied systems. ~~Less than 1%~~A de minimis amount of segment revenue relates to services for start-up and commissioning activities.

Contract Liabilities - Our contract liabilities consist of advance payments and deferred revenue. Net contract liabilities consisted of the ~~following:~~following (in millions) as of:


		September 30, 2022		December 31, 2021		$ Change		% Change			September 30, 2023		December 31, 2022

Contract liabilities - current	Contract liabilities - current	$	(11.8)	$	(10.2)	$	(1.6)	15.7	%	Contract liabilities - current	$	(4.9)	$	(9.6)
Contract liabilities - noncurrent	Contract liabilities - noncurrent	(6.0)		(5.5)		(0.5)		9.1	%	Contract liabilities - noncurrent	(7.2)		(6.4)
Total	Total	$	(17.8)	$	(15.7)	$	(2.1)			Total	$	(12.1)	$	(16.0)

For the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, we recognized revenue of ~~$3.6~~$2.8 million and ~~$0.6~~$3.6 million and for the nine months ended ~~September 30, 2022 and 2021~~ we recognized revenue of ~~$9.5~~$7.0 million and ~~$2.9~~$9.5 million related to our contract liabilities at January 1, ~~2022~~2023 and ~~2021,~~2022, respectively. Impairment losses recognized in our receivables and contract assets were de minimis in ~~2022~~2023 and ~~2021.~~2022.

7.8. Other Financial Statement Details:

Inventories:

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


		As of September 30, 2022		As of December 31, 2021			September 30, 2023		December 31, 2022
Finished goods	Finished goods	$	498.1	$	310.8	Finished goods	$	544.7	$	534.6
Work in process	Work in process	12.8		12.4		Work in process	8.6		8.9
Raw materials and parts	Raw materials and parts	332.1		262.1		Raw materials and parts	322.9		328.7
Subtotal	Subtotal	843.0		585.3		Subtotal	876.2		872.2
Excess of current cost over last-in, first-out cost	Excess of current cost over last-in, first-out cost	(99.6)		(74.4)		Excess of current cost over last-in, first-out cost	(128.3)		(119.2)
Total inventories, net	Total inventories, net	$	743.4	$	510.9	Total inventories, net	$	747.9	$	753.0

Goodwill:

The changes in the carrying amount of goodwill in ~~2022,~~2023, in total and by segment, are summarized in the table below (in millions):


		Balance at December 31, 2021		Changes in foreign currency translation rates		Balance at September 30, 2022			Balance as of December 31, 2022		Goodwill Reallocation (1)		Reallocation to Assets Held for Sale (2)		Balance as of September 30, 2023
Residential Heating & Cooling		$	26.1	$	—	$	26.1
Commercial Heating & Cooling		61.1		—		61.1
Residential								Residential	$	26.1	$	—	$	—	$	26.1
Commercial (1)								Commercial (1)	61.1		94.5		—		155.6
Refrigeration(1)	Refrigeration(1)	99.4		(0.7)		98.7		Refrigeration(1)	99.1		(99.1)		—		$	—
Corporate and Other (1)								Corporate and Other (1)	—		4.6		(4.6)		—
Total Goodwill	Total Goodwill	$	186.6	$	(0.7)	$	185.9	Total Goodwill	$	186.3	$	—	$	(4.6)	181.7

(1) As discussed in Note 2, we recast our segment presentation to present our Heatcraft Worldwide Refrigeration business as a component of our Commercial segment and our European portfolio as a component of Corporate & Other. Since there is no longer a Refrigeration segment, we allocated goodwill to each segment based upon the relative fair value of the business.

(2) As discussed in Note 6, we are presenting the assets and liabilities of our European businesses as Assets Held for Sale. There was $4.6 million of goodwill related to our European portfolio. As part of the loss on assets held for sale, we recorded an impairment of $2.3 million for a portion of the goodwill transferred.

We monitor our reporting units for indicators of impairment throughout the year to determine if a change in facts or circumstances warrants a re-evaluation of our goodwill. We have not recorded any goodwill impairments for the nine months ended September 30, ~~2022.~~2023 or in any periods presented for our continuing businesses.

Derivatives:

Objectives and Strategies for Using Derivative Instruments

Commodity Price Risk - We utilize a cash flow hedging program to mitigate our exposure to volatility in the prices of metal commodities used in our production processes. 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 and lower percentages are 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 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 foreign exchange forward contracts and commodity futures contracts designated as cash flow hedges that are scheduled to mature through ~~February~~August 2024. Unrealized gains or losses from our cash flow hedges are included in Accumulated other comprehensive loss (“AOCL”) and are expected to be reclassified into earnings within the next 1812 months

based on the prices of the commodities and foreign currencies at the settlement dates. We recorded the following amounts in AOCL related to our cash flow hedges (in millions): as of:


		As of September 30, 2022		As of December 31, 2021			September 30, 2023		December 31, 2022
Unrealized losses (gains), net on unsettled contracts	Unrealized losses (gains), net on unsettled contracts	$	18.7	$	(13.4)	Unrealized losses (gains), net on unsettled contracts	$	1.5	$	6.3
Income tax (benefit) expense	Income tax (benefit) expense	(4.5)		2.7		Income tax (benefit) expense	(0.2)		(1.4)
Unrealized losses (gains), net included in AOCL, net of tax (1)	Unrealized losses (gains), net included in AOCL, net of tax (1)	$	14.2	$	(10.7)	Unrealized losses (gains), net included in AOCL, net of tax (1)	$	1.3	$	4.9

(1) Assuming commodity prices and foreign currency exchange rates remain constant, we expect to reclassify ~~$13.6~~$1.2 million of derivative losses as of September 30, ~~2022~~2023 into earnings within the next 12 months.

Stock-Based Compensation:

We issue various long-term incentive awards, including performance share units, restricted stock units and stock appreciation rights under the Lennox International Inc. 2019 Equity and Incentive Plan, as it may be amended and ~~restated.~~restated from time to time. Stock-based compensation expense related to continuing operations is included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations as follows (in millions):

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Stock-based compensation expense (1)
$ 5.8 $ (0.6) $ 16.4 $ 16.8


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Stock-based compensation expense	$	9.7	$	5.8	$	23.5	$	16.4

~~(1)~~ ~~All expense was recorded in our Corporate and Other business segment.~~

8.9. Pension Benefit Plans:

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2021 2022 2021
Service cost $ 1.1 $ 1.5 $ 3.2 $ 4.6
Interest cost 1.5 1.0 4.5 4.1
Expected return on plan assets (2.3) (1.7) (7.0) (7.1)
Amortization of prior service cost — 0.1 — 0.1
Recognized actuarial loss 1.5 1.8 4.4 6.0
Other 0.2 — 0.2 (0.4)
Settlements and curtailments — 0.3 0.3 1.1
Net periodic benefit cost $ 2.0 $ 3.0 $ 5.6 $ 8.4


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Service cost	$	0.5	$	1.1	$	1.6	$	3.2
Interest cost	2.2		1.5		6.7		4.5
Expected return on plan assets	(2.4)		(2.3)		(7.1)		(7.0)

Recognized actuarial loss	—		1.5		0.6		4.4
Other	0.3		0.2		(0.1)		0.2
Settlements and curtailments	0.3		—		0.4		0.3
Net periodic benefit cost	$	0.9	$	2.0	$	2.1	$	5.6

9.10. Income Taxes:

As of September 30, ~~2022,~~2023, we had approximately ~~$3.7~~$4.0 million in total gross unrecognized tax ~~benefits which,~~benefits. All of this amount, if recognized, would be recorded through the Consolidated Statements of Operations. Our effective tax rate was 25.6% for the three months ended September 30, 2023 compared to 18.7% for the three months ended September 30, 2022, 21.0% for the nine months ended September 30, 2023 and 18.9% for the nine months ended September 30, 2022. The change in the rate is primarily due to the allocation of income to higher tax jurisdictions and a discrete adjustment related to the European divestiture.

We are currently ~~in the Bridge program for our~~under a U.S. federal income ~~taxes under~~tax audit by the Internal Revenue ~~Service's Compliance Assurance Program~~Service for ~~2022 and~~ 2021. ~~As a result, our returns for those years will not be examined. However, we~~We are also subject to examination by numerous other taxing authorities in the U.S. and in foreign jurisdictions. We are generally no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by taxing authorities for years prior to ~~2015.~~2016.

~~10.~~11. Lines of Credit and Financing Arrangements:

The following table summarizes our outstanding debt obligations and their classification in the accompanying Consolidated Balance Sheets (in millions): as of:
As of September 30, 2022 As of December 31, 2021
Current maturities of long-term debt:
Total current maturities of long-term debt
$ 11.1 $ 11.3
Long-Term Debt:
Asset securitization program $ 400.0 $ 250.0
Finance lease obligations 28.6 29.0
Credit agreement 222.0 6.5
Senior unsecured notes 950.0 950.0
Debt issuance costs (7.2) (9.0)
Total long-term debt $ 1,593.4 $ 1,226.5
Total debt $ 1,604.5 $ 1,237.8

~~Short-Term Debt~~



	September 30, 2023		December 31, 2022





Current maturities of long-term debt:
Asset securitization program	$	—	$	350.0
Finance lease obligations	11.6		11.2
Senior unsecured notes	350.0		350.0

Debt issuance costs	—		(0.6)
Total current maturities of long-term debt	$	361.6	$	710.6
Long-Term Debt:

Finance lease obligations	31.9		28.3
Credit agreement	—		192.0
Senior unsecured notes	1,100.0		600.0
Debt issuance costs	(10.3)		(6.1)
Total long-term debt	$	1,121.6	$	814.2
Total debt	$	1,483.2	$	1,524.8

Foreign Obligations

Through several of our foreign subsidiaries, we have facilities available to assist us in financing seasonal borrowing needs for our foreign locations. We had no outstanding foreign obligations as of September 30, ~~2022~~2023 or December 31, ~~2021~~2022 and there were no borrowings or repayments on these facilities during the nine months ended September 30, ~~2022.~~

2023.

~~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 Sheets 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): as of:


		As of September 30, 2022		As of December 31, 2021			September 30, 2023		December 31, 2022
Eligible amount available under the ASP on qualified accounts receivable	Eligible amount available under the ASP on qualified accounts receivable	$	443.3	$	335.6	Eligible amount available under the ASP on qualified accounts receivable	$	400.0	$	350.0
Less: Beneficial interest transferred	Less: Beneficial interest transferred	(400.0)		(250.0)		Less: Beneficial interest transferred	—		(350.0)
Remaining amount available	Remaining amount available	$	43.3	$	85.6	Remaining amount available	$	400.0	$	—

We pay certain discount fees to use the ASP and to have the facility available to us. These fees relate to both the used and unused portions of the securitization. The used fee is based on the beneficial interests 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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022 were ~~3.85%~~0.00% and ~~0.82%~~5.17%, respectively. The unused fee is based on 101% of the maximum available amount less the beneficial interest transferred and is calculated at a rate ranging between 0.25% and 0.35%, depending on the 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 (as defined below), 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 Credit Agreement, as defined below. The participating financial institutions have investment grade credit ratings. As of September 30, ~~2022, we believe~~2023, we were in compliance with all covenant requirements. The ASP will expire according to its terms in November 2023 and we do not intend to renew it.

Second Amendment to the Credit Agreement

In ~~July 2021,~~August 2023, we entered into ~~a new domestic credit facility~~the Second Amendment (the ~~“Credit Agreement”~~“Second Amendment”) to our existing Credit Agreement, dated as of July 14, 2021 (as amended, the "Credit Agreement"), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party ~~thereto, which refinanced~~thereto. Under the Second Amendment, the revolving commitments were increased by $350 million and ~~replaced the Seventh Amended and Restated Credit Facility.~~certain representations required to be made as conditions precedent to borrowing were revised to provide us greater flexibility to enter into additional future financing.

The Credit Agreement consists of a ~~$750.0 million~~$1.1 billion unsecured revolving credit facility. We had outstanding borrowings of ~~$222.0~~$0.0 million as well as ~~$2.0~~$1.7 million committed to standby letters of credit as of September 30, ~~2022.~~2023. Subject to covenant limitations, ~~$526.0~~$1,098.3 million was available for future borrowings. The Credit Agreement includes a subfacility for swingline loans up to $65.0 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.

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

As of September 30, 2022 As of December 31, 2021
Weighted average borrowing rate 4.21 % 1.38 %


	September 30, 2023		December 31, 2022
Weighted average borrowing rate	—	%	5.57	%

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 securitization (cross default), and bankruptcy. A cross default under our Credit Agreement 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 Credit Agreement, 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 Credit Agreement and accelerate amounts due under our Credit Agreement (except for a bankruptcy event of default, in which case such amounts will automatically become due and payable and the lenders’ commitments will automatically terminate). As of September 30, ~~2022, we believe~~2023, we were in compliance with all covenant requirements.

Senior Unsecured Notes

In September 2023, we issued $500.0 million of senior unsecured notes, which will mature in September 2028 (the "2028 Notes") with interest being paid semi-annually in March and September at 5.50%. 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 onin 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, 2027 Notes, and the ~~2027~~2028 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 Credit Agreement. 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 $75.0 million in principal which is then accelerated, and such acceleration is not rescinded within 30 days of the notice date. As of September 30, ~~2022,~~2023, we believe we were in compliance with all covenant requirements.

Commercial Paper Program

On October 25, 2023, we established a commercial paper program (the “Program”) pursuant to which we may issue short-term, unsecured commercial paper notes (the “CP Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes will have maturities of up to 397 days from the date of issue. The CP Notes will rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds of the issuances of the CP Notes are expected to be used for general corporate purposes. We plan to use our revolving credit facility as a liquidity backstop for the repayment of CP Notes outstanding under the Program. No CP Notes are currently outstanding under the Program.

~~11.~~12. Comprehensive Income (Loss):

The following table provides information on items reclassified from AOCL to Net income in the accompanying Consolidated Statements of Operations (in millions):


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Affected Line Item(s) in the Consolidated Statements of Operations		For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Affected Line Item(s) in the Consolidated Statements of Operations
		2022		2021		2022		2021				2023		2022		2023		2022
(Losses) Gains on Cash Flow Hedges:	(Losses) Gains on Cash Flow Hedges:										(Losses) Gains on Cash Flow Hedges:
Derivatives contracts	Derivatives contracts	$	(3.7)	$	7.8	$	12.5	$	21.3	Cost of goods sold; Losses (gains) and other expenses, net	Derivatives contracts	$	(0.8)	$	(3.7)	$	(1.2)	$	12.5	Cost of goods sold; Losses (gains) and other expenses, net
Income tax benefit (expense)		0.8		(1.8)		(2.9)		(4.9)		Provision for income taxes
Income tax (expense) benefit											Income tax (expense) benefit	0.2		0.8		0.3		(2.9)		Provision for income taxes
Net of tax	Net of tax	$	(2.9)	$	6.0	$	9.6	$	16.4		Net of tax	$	(0.6)	$	(2.9)	$	(0.9)	$	9.6

Defined Benefit Plan items:	Defined Benefit Plan items:										Defined Benefit Plan items:
Pension and post-retirement benefit costs	Pension and post-retirement benefit costs	$	(1.5)	$	(1.8)	$	(4.4)	$	(6.0)	Other expense (income), net	Pension and post-retirement benefit costs	$	—	$	(1.5)	$	(0.6)	$	(4.4)	Other expense (income), net
Pension settlements	Pension settlements	—		(0.3)		(0.3)		(1.1)		Pension settlements	Pension settlements	(0.3)		—		(0.4)		(0.3)		Pension settlements
Income tax benefit	Income tax benefit	0.4		0.6		1.2		1.8		Provision for income taxes	Income tax benefit	0.1		0.4		0.2		1.2		Provision for income taxes
Net of tax	Net of tax	$	(1.1)	$	(1.5)	$	(3.5)	$	(5.3)		Net of tax	$	(0.2)	$	(1.1)	$	(0.8)	$	(3.5)

Total reclassifications from AOCL	Total reclassifications from AOCL	$	(4.0)	$	4.5	$	6.1	$	11.1		Total reclassifications from AOCL	$	(0.8)	$	(4.0)	$	(1.7)	$	6.1

The following table provides information on changes in AOCL, by component (net of tax), for the nine months ended September 30, ~~2022~~2023 (in millions):

(Losses) Gains on Cash Flow Hedges Share of equity method investments other comprehensive income Defined Benefit Pension Plan Items Foreign Currency Translation Adjustments Total AOCL
Balance as of December 31, 2021 $ 10.7 $ (1.2) $ (68.8) $ (28.8) $ (88.1)
Other comprehensive (loss) income before reclassifications (15.3) 0.7 (3.0) (20.7) (38.3)
Amounts reclassified from AOCL (9.6) — 3.5 — (6.1)
Net other comprehensive (loss) income (24.9) 0.7 0.5 (20.7) (44.4)
Balance as of September 30, 2022 $ (14.2) $ (0.5) $ (68.3) $ (49.5) $ (132.5)


	(Losses) Gains on Cash Flow Hedges		Share of equity method investments other comprehensive income		Defined Benefit Pension Plan Items		Foreign Currency Translation Adjustments		Total AOCL
Balance as of December 31, 2022	$	(4.9)	$	(0.5)	$	(46.2)	$	(39.0)	$	(90.6)
Other comprehensive income (loss) before reclassifications	2.7		1.1		(0.6)		8.7		11.9
Amounts reclassified from AOCL	0.9		—		0.8		—		1.7
Net other comprehensive income	3.6		1.1		0.2		8.7		13.6
Balance as of September 30, 2023	$	(1.3)	$	0.6	$	(46.0)	$	(30.3)	$	(77.0)

~~12.~~13. Fair Value Measurements:

Fair Value Hierarchy

The methodologies used to determine the fair value of our financial assets and liabilities at September 30, ~~2022~~2023 were the same as those used at December 31, ~~2021.~~2022.

Assets and Liabilities Carried at Fair Value on a Recurring Basis

Derivatives were classified as Level 2 and 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, however, they were insignificant to the overall value of the derivatives. Refer to Note 78 for more information related to our derivative instruments.

Other Fair Value Disclosures

The carrying amounts of Cash and cash equivalents, Short-term investments, Accounts and notes receivable, net, Accounts payable, and Short-term debt approximate fair value due to the short maturities of these instruments. The carrying amount of our Credit Agreement 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, classified as Level 2, 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 their fair value (in millions): as of:

As of September 30, 2022 As of December 31, 2021
Senior unsecured notes $ 870.1 $ 959.2


	September 30, 2023		December 31, 2022
Senior unsecured notes	$	1,386.2	$	878.0

14. Subsequent Event:

On October 25, 2023, we announced the acquisition of AES, a company dedicated to service and sustainability in the light commercial markets. Across North America, AES provides installation services, adapter curbs, and recycling services. AES will become part of the Commercial segment. The final net purchase price is expected to be approximately $90 million in cash which will be funded by the available borrowing capacity on our outstanding debt.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q 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 as of the date such statements were made. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q constitute forward-looking statements, including but not limited to statements identified by forward-looking terminology, such as the words “may,” “will,” “should,” “plan,” “anticipate,” “believe,” “intend,” “estimate” and “expect” and similar expressions. Such statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions; however, such statements are subject to certain risks and uncertainties.

In addition to the specific uncertainties discussed elsewhere in this Quarterly Report on Form 10-Q, the risk factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and those set forth in Part II, “Item 1A. Risk Factors” of this report, if any, 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, except as required by law.

Business Overview

We operate in ~~three~~two 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.~~Commercial. For additional information regarding our reportable segments, see Note 2 in the Notes to the Consolidated Financial Statements.

Our fiscal quarterly periods are comprised of approximately 13 weeks, but the number of days per quarter may vary year-over-year. Our quarterly reporting periods usually end on the Saturday closest to the last day of March, June and September. Our fourth quarter and fiscal year ends on December 31, regardless of the day of the week on which December 31 falls. For convenience, throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the 13-week periods comprising each fiscal quarter are denoted by the last day of the respective calendar quarter.

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

The principal elements of cost of goods sold are components, raw materials, factory overhead, labor, estimated warranty costs, 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, including the impact of imposed tariffs on the import of certain of our raw materials and components, has impacted us and the HVACR industry in general. We seek to mitigate the impact of volatility in commodity prices through a combination of price increases, commodity contracts, improved production efficiency and cost reduction initiatives. We also partially mitigate volatility in the prices of these commodities by entering into futures contracts and fixed forward contracts.

~~Impact of COVID-19 Pandemic~~

A novel strain of coronavirus (“COVID-19”) has surfaced and spread around the world. The COVID-19 pandemic is creating supply chain disruptions and higher employee absenteeism in our factories and distribution locations. 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 new variants of the virus spread. If the pandemic worsens or continues longer than presently expected, COVID-19 could impact our results of operations, financial position and cash flows.

~~Executive Leadership Transition~~Change in Segment Reporting

~~On March 23,~~Prior to January 1, 2023, we operated in three reportable business segments. In November 2022, we announced the ~~Board of Directors appointed Alok Maskara as CEO effective May 9, 2022. Mr. Maskara succeeds Todd Bluedorn, who announced~~decision to explore strategic alternatives for our European commercial HVAC and refrigeration businesses. We continue to operate and invest in ~~July 2021 his plans to step down by mid-2022 as Chairman and CEO. Todd J. Teske was appointed Chairman~~our Heatcraft Worldwide Refrigeration business which became part of the ~~Board~~Commercial segment effective on January 1, 2023, while the European portfolio will be presented with Corporate and ~~served as interim CEO~~Other until ~~Mr. Maskara assumed~~disposition. The consolidation of our Heatcraft business within the ~~role as CEO on May 9, 2022.~~Commercial segment provides the opportunity to leverage synergies and create long-term growth opportunities by integrating entities with similar products, end consumers and financial performance metrics under the same management. The change in segment reporting better aligns with how the businesses are managed and evaluated given the change in portfolio. All amounts discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations reflect the revised segment presentation.

Financial Overview

Results for the third quarter of ~~2022~~2023 were driven by overall year-over-year sales and profit increases. Net sales increased ~~17%~~15% and segment profit increased ~~$10~~$45 million for the ~~Residential Heating & Cooling~~Commercial segment. Net sales increased ~~20%~~7% and segment profit increased $28 million for the Residential segment. Net sales increased 13% and segment loss decreased $7 million for the ~~Commercial Heating~~Corporate & ~~Cooling segment. Net sales increased 14% and segment profit increased $8 million for the Refrigeration~~Other segment.

Financial Highlights

•Net sales increased ~~$185~~$121 million to ~~$1,245~~$1,366 million in the third quarter of ~~2022~~2023 driven by favorable ~~price, volume,~~mix and ~~mix~~price partially offset by lower sales volumes and unfavorable foreign currency.

•Operating income in the third quarter of ~~2022~~2023 increased $231 million to $~~186~~187 million primarily driven by ~~higher net sales~~favorable mix and price partially offset by ~~rising costs.~~a $63 million loss on assets held for sale.

•Net income for the third quarter of ~~2022~~2023 was ~~$142~~$130 million.

•Diluted earnings per share was $3.65 per share in the third quarter of 2023 compared to $3.99 per share in the third quarter of ~~2022 compared to $3.41 per share in the~~ ~~third~~ ~~quarter of 2021.~~2022.

•For the nine months ended September 30, ~~2022,~~2023, we returned ~~$142~~$153 million to shareholders through dividend ~~payments and repurchased $300 million of common stock through our share repurchase program.~~payments.

Three Months Ended September 30, ~~2022~~2023 Compared to Three Months Ended September 30, ~~2021~~2022 - Consolidated Results

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


		For the Three Months Ended September 30,											For the Three Months Ended September 30,
		Dollars (in millions)				Percent Change Fav/(Unfav)		Percent of Sales					Dollars (in millions)				Percent Change Fav/(Unfav)		Percent of Sales
		2022		2021				2022		2021			2023		2022				2023		2022
Net sales	Net sales	$	1,244.9	$	1,059.9	17.5	%	100.0	%	100.0	%	Net sales	$	1,366.3	$	1,244.9	9.8	%	100.0	%	100.0	%
Cost of goods sold	Cost of goods sold	910.7		764.7		(19.1)		73.2		72.1		Cost of goods sold	937.8		910.7		(3.0)		68.6		73.2
Gross profit	Gross profit	334.2		295.2		13.2		26.8		27.9		Gross profit	428.5		334.2		28.2		31.4		26.8
Selling, general and administrative expenses	Selling, general and administrative expenses	147.3		134.2		(9.8)		11.8		12.7		Selling, general and administrative expenses	178.9		147.3		(21.5)		13.1		11.8
Losses (gains) and other expenses, net	Losses (gains) and other expenses, net	3.3		2.1		(57.1)		0.3		0.2		Losses (gains) and other expenses, net	3.5		3.3		(6.1)		0.3		0.3
Restructuring charges	Restructuring charges	0.2		0.3		33.3		—		—		Restructuring charges	0.3		0.2		(50.0)		—		—

Impairment on assets held for sale												Impairment on assets held for sale	63.2		—		(100.0)		4.6		—
Income from equity method investments	Income from equity method investments	(2.4)		(4.1)		(41.5)		(0.2)		(0.4)		Income from equity method investments	(4.2)		(2.4)		75.0		(0.3)		(0.2)
Operating income	Operating income	$	185.8	$	162.7	14.2	%	14.9	%	15.4	%	Operating income	$	186.8	$	185.8	0.5	%	13.7	%	14.9	%

Net Sales

Net sales for the third quarter of ~~2022~~2023 compared to the third quarter of ~~2021~~2022 increased 10% as a result of favorable ~~price~~mix of ~~11%, an increase in sales volume of 5%,~~6% and favorable product ~~mix~~price of 2%5% which was partially offset by ~~unfavorable foreign currency~~lower sales volumes of 1%.

Gross Profit

Gross profit margins in the third quarter of ~~2022~~2023 ~~decreased 110~~increased 460 basis points ("bps") to ~~26.8%~~31.4% compared to ~~27.9%~~26.8% in the third quarter of ~~2021.~~2022. Gross margins ~~decreased~~increased 280 bps from favorable price, 220 bps from ~~higher commodity costs, 200~~favorable product mix, and 70 bps from ~~other product~~favorable commodity costs. Partially offsetting these increases were 40 bps from higher warranty costs, ~~including adjustments for LIFO, 190~~30 bps from higher component costs, ~~120 bps from factory inefficiencies, 50~~20 bps from higher freight and distribution costs, 10 bps from lower sales volume, and 10 bps from ~~unfavorable mix. Partially offsetting these decreases was 680 bps from favorable price.~~higher other miscellaneous costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased $1332 million to $179 million in the third quarter of 2023 compared to $147 million in the third quarter of 2022 ~~compared to $134 million in the third quarter of~~ ~~2021~~primarily due to higher ~~employee related costs.~~employee-related costs including incentive compensation and wage inflation. As a percentage of net sales, SG&A ~~decreased 90~~increased 130 bps to ~~11.8%~~13.1%.

Losses (gains) and Other Expenses, Net

Losses (gains) and other expenses, net for the third quarter of ~~2022~~2023 and ~~2021~~2022 included the following (in millions):


		For the Three Months Ended September 30,					For the Three Months Ended September 30,
		2022		2021			2023		2022
Realized losses (gains) on settled future contracts		$	0.3	$	(0.2)
Foreign currency exchange losses		0.3		—
Realized losses on settled future contracts						Realized losses on settled future contracts	$	—	$	0.3
Foreign currency exchange (gains) losses						Foreign currency exchange (gains) losses	(1.2)		0.3
Gain on disposal of fixed assets	Gain on disposal of fixed assets	(0.4)		(0.1)		Gain on disposal of fixed assets	(0.2)		(0.4)
Other operating income	Other operating income	(0.2)		(0.5)		Other operating income	(0.1)		(0.2)
Net change in unrealized losses (gains) on unsettled futures contracts		—		0.2

Environmental liabilities and special litigation charges	Environmental liabilities and special litigation charges	3.1		2.2		Environmental liabilities and special litigation charges	3.9		3.1
Charges incurred related to COVID-19 pandemic		0.2		0.8

Other items, net	Other items, net	—		(0.3)		Other items, net	1.1		0.2
Losses (gains) and other expenses, net (pre-tax)	Losses (gains) and other expenses, net (pre-tax)	$	3.3	$	2.1	Losses (gains) and other expenses, net (pre-tax)	$	3.5	$	3.3

~~Restructuring Charges~~Impairment on Assets Held for Sale

~~Restructuring charges were immaterial~~We recorded a $63 million impairment on assets held for sale in the third quarter of ~~2022 and 2021. Restructuring charges~~2023 related to ~~ongoing cost reduction actions taken in prior periods.~~the sale of our European commercial HVAC and refrigeration businesses. The loss is the result of the difference between the expected fair value of the consideration received for these businesses, net of our costs to sell, and the carrying value of the net assets.

Income from Equity Method Investments

We participate in two joint ventures that are engaged in the manufacture and sale of compressors, unit coolers and condensing units. We exert significant influence over these affiliates based upon our 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. We recognized income from equity method investments of $2$4 million in the third quarter of ~~2022~~2023 and $4$2 million in the third quarter of ~~2021~~2022.~~The decline was due to lower operating results at the equity method investees due to higher material costs.~~

Interest Expense, net

Interest expense, net ~~increased to~~remained relatively unchanged at $11 million in the third quarter of ~~2022 from $7 million in~~2023 as compared to the third quarter of ~~2021 due to higher borrowings and higher borrowing costs during the period.~~2022.

Income Taxes

Our effective tax rate was 25.6% for the third quarter of 2023 compared to 18.7% for the third quarter of ~~2022 compared to 18.4% for the third quarter of 2021.~~2022. The ~~increase in~~ rate isincreased primarilydue to the allocation of income to higher tax jurisdictions and a ~~decrease in excess tax benefits.~~ discrete adjustment related to the European businesses.

We expect our annual effective tax rate ~~in 2022~~ to be ~~18-20%.~~

20-22%, excluding the impacts of excess tax benefits recorded as a reduction of income taxes under ASU No. 2016-09.

Third Quarter of ~~2022~~2023 Compared to Third Quarter of ~~2021~~2022 - Results by Segment

Residential ~~Heating & Cooling~~

The following table presents our Residential~~Heating & Cooling~~ segment's net sales and profit for the third quarter of ~~2022~~2023 and ~~2021~~2022 (dollars in millions):


		For the Three Months Ended September 30,											For the Three Months Ended September 30,
		2022			2021			Difference		% Change			2023			2022			Difference		% Change
Net sales	Net sales	$	835.3		$	711.0		$	124.3	17.5	%	Net sales	$	896.3		$	835.3		$	61.0	7	%
Profit	Profit	$	153.8		$	144.0		$	9.8	6.8	%	Profit	$	181.4		$	153.8		$	27.6	18	%
% of net sales	% of net sales	18.4		%	20.3		%					% of net sales	20.2		%	18.4		%

Net sales increased ~~17%~~7% in the third quarter of ~~2022~~2023 compared to ~~2021, as~~2022 due to favorable product mix of 7% and higher price ~~increased 10% and~~of 2%. Partially offsetting these increases were lower sales ~~volume increased by 7%~~volumes of 2%. ~~Product mix was neutral for the quarter.~~

Segment profit in the third quarter of ~~2022~~2023 compared to ~~2021~~2022 increased by ~~$10~~$28 million, ~~driven by $77~~primarily due to $37 million from favorable product mix, $14 million from higher price ~~$15 million from higher sales volume,~~ and $2$10 million from lower ~~product warranty~~commodity costs. Partially offsetting these increases were $21 million from higher other product costs including adjustments for LIFO, $20 million from higher commodity costs, $14 million from higher component costs, $11 million from unfavorable product mix, $7 million from higher distribution and freight charges, $6$16 million from higher SG&A costs, $3$7 million from higher factory inefficiencies, $1$6 million from ~~unfavorable foreign currency,~~miscellaneous other items and $1$4 million from lower ~~earnings from our equity method investments.~~sales volumes.

Commercial ~~Heating & Cooling~~

The following table presents our Commercial ~~Heating & Cooling~~ segment's net sales and profit for the third quarter of ~~2022~~2023 and ~~2021~~2022 (dollars in millions):


		For the Three Months Ended September 30,											For the Three Months Ended September 30,
		2022			2021			Difference		% Change			2023			2022 (1)			Difference		% Change
Net sales	Net sales	$	252.9		$	211.5		$	41.4	19.6	%	Net sales	$	405.5		$	352.3		$	53.2	15	%
Profit	Profit	$	29.6		$	22.6		$	7.0	31.0	%	Profit	$	97.3		$	52.4		$	44.9	86	%
% of net sales	% of net sales	11.7		%	10.7		%					% of net sales	24.0		%	14.9		%

(1) 2022 amounts have been recast to reflect the changes in segment reporting. Please see Note 2 in the Notes to the Consolidated Financial Statements for further detail.

Net sales increased ~~20%~~15% in the third quarter of ~~2022~~2023 compared to ~~2021~~2022 as ~~higher factory output enabled us to convert more order backlog into sales. Product mix was 11% favorable and~~ price increased ~~by 9%~~10%, product mix increased 3% and sales volumes increased 2%. ~~Sales volume was neutral for the quarter.~~

Segment profit in the third quarter of ~~2022~~2023 compared to ~~2021~~2022 increased $745 million primarily due to ~~$20~~$37 million from favorable price, ~~and $13~~$10 million from favorable product ~~mix.~~mix, and $1 million from higher sales volumes. Partially offsetting these increases ~~was $9 million from factory inefficiencies, $5 million from higher component costs, $4 million from higher commodity costs,~~were $3 million from higher ~~other product costs including adjustments for LIFO, $2 million from higher~~ SG&A ~~costs, $2 million from lower sales volume, and $1 million from lower miscellaneous other~~ costs.

~~Refrigeration~~Corporate and Other

The following table presents our ~~Refrigeration~~Corporate and Other segment's net sales and ~~profit~~loss for the third quarter of ~~2022~~2023 and ~~2021~~2022 (dollars in millions):

For the Three Months Ended September 30,
2022 2021 Difference % Change
Net sales $ 156.7 $ 137.4 $ 19.3 14.0 %
Profit $ 22.4 $ 14.5 $ 7.9 54.5 %
% of net sales 14.3 % 10.6 %


	For the Three Months Ended September 30,
	2023		2022 (1)		Difference		% Change
Net sales	$	64.5	$	57.3	$	7.2	13	%
Loss	$	(23.4)	$	(16.9)	$	(6.5)	(38)	%

(1) 2022 amounts have been recast to reflect the changes in segment reporting. Please see Note 2 in the Notes to the Consolidated Financial Statements for further detail.

Net sales increased ~~14%~~$7 million and segment loss increased $7 million in the third quarter of ~~2022~~2023 as compared to ~~2021, as price increased 16% and sales volume increased by 5%. Partially offsetting these increases were unfavorable foreign currency of 7%. Product mix was neutral for the quarter.~~

2022. Our

~~Segment~~ European businesses generated $4 million profit in the third quarter of ~~2022 compared to 2021 increased by $8 million driven by $22 million from higher price, $3 million from higher sales volume,~~2023 and a loss of less than $1 million from favorable product mix. Partially offsetting these increases were $5 million from higher SG&A, $4 million from commodity costs, $4 million from higher component costs, $3 million from factory inefficiencies, $1 million from freight and distribution costs, and $1 million from unfavorable foreign currency.

~~Corporate and Other~~

~~There were no material changes~~ in the third quarter of 2022. Excluding our European businesses, Corporate and Other costs ~~during~~increased to $11 million in the third quarter of ~~2022 as~~2023 compared to ~~the third quarter of 2021.~~2022 due primarily to higher incentive compensation and wage inflation.

Year-to-Date through September 30, ~~2022~~2023 Compared to Year-to-Date through September 30, ~~2021~~2022 - Consolidated Results

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


		For the Nine Months Ended September 30,											For the Nine Months Ended September 30,
		Dollars (in millions)				Percent Change Fav/(Unfav)		Percent of Sales					Dollars (in millions)				Percent Change Fav/(Unfav)		Percent of Sales
		2022		2021				2022		2021			2023		2022				2023		2022
Net sales	Net sales	$	3,624.6	$	3,229.3	12.2	%	100.0	%	100.0	%	Net sales	$	3,827.1	$	3,624.6	5.6	%	100.0	%	100.0	%
Cost of goods sold	Cost of goods sold	2,625.1		2,294.5		(14.4)		72.4		71.1		Cost of goods sold	2,634.1		2,625.1		(0.3)		68.8		72.4
Gross profit	Gross profit	999.5		934.8		6.9		27.6		28.9		Gross profit	1,193.0		999.5		19.4		31.2		27.6
Selling, general and administrative expenses	Selling, general and administrative expenses	472.2		447.4		(5.5)		13.0		13.9		Selling, general and administrative expenses	527.6		472.2		(11.7)		13.8		13.0
Losses (gains) and other expenses, net	Losses (gains) and other expenses, net	5.4		4.7		(14.9)		0.1		0.1		Losses (gains) and other expenses, net	5.2		5.4		3.7		0.1		0.1
Restructuring charges	Restructuring charges	1.2		1.6		25.0		—		—		Restructuring charges	0.2		1.2		83.3		—		—

Impairment on assets held for sale												Impairment on assets held for sale	63.2		—		(100.0)		1.7		—
Income from equity method investments	Income from equity method investments	(3.9)		(11.6)		(66.4)		(0.1)		(0.4)		Income from equity method investments	(8.0)		(3.9)		105.1		(0.2)		(0.1)
Operating income	Operating income	$	524.6	$	492.7	6.5	%	14.5	%	15.3	%	Operating income	$	604.8	$	524.6	15.3	%	15.8	%	14.5	%

Net Sales

Net sales increased ~~12%~~6% for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021~~2022 due to favorable product mix of 6% and higher price of ~~11%, higher sales volume of 1%, and favorable mix of 1%~~5%. Partially offsetting these increases ~~was unfavorable foreign currency~~were lower sales volumes of 1%5%.

Gross Profit

Gross profit margins for the nine months ended September 30, ~~2022 decreased 130~~2023 increased 360 bps to ~~27.6%~~31.2% compared to ~~28.9%~~27.6% for the nine months ended September 30, ~~2021.~~2022. Gross margins ~~decreased 250~~increased 350 bps from higher ~~commodity costs, 180~~price, 140 bps from ~~higher component costs, 150~~favorable mix and 90 bps from lower commodity costs. Partially offsetting these increases were 70 bps from higher other product costs, ~~including adjustments for LIFO, 100~~60 bps from ~~factory inefficiencies, 90~~higher component costs, 40 bps from lower sales volumes, 30 bps from higher freight and distribution costs and ~~50 bps from unfavorable mix. Partially offsetting these decreases were 670~~20 bps from higher ~~price and 20 bps from~~ miscellaneous other costs.

Selling, General and Administrative Expenses

SG&A increased ~~$25~~$55 million to ~~$472~~$528 million for the nine months ended September 30, ~~2022~~2023 compared to ~~$447~~$472 million for

the nine months ended September 30, ~~2021~~2022 primarily due to higher ~~employee related~~employee-related costs. As a percentage of net sales, SG&A ~~decreased 90~~increased 80 bps to ~~13.0%~~13.8% from ~~13.9%~~13.0%.

Losses (gains) and Other Expenses, Net

Losses (gains) and other expenses, net for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 included the following (in millions):


		For the Nine Months Ended September 30,					For the Nine Months Ended September 30,
		2022		2021			2023		2022
Realized gains on settled future contracts		$	(0.1)	$	(0.9)
Realized losses (gains) on settled future contracts						Realized losses (gains) on settled future contracts	$	0.1	$	(0.1)
Foreign currency exchange gains	Foreign currency exchange gains	(0.5)		(1.6)		Foreign currency exchange gains	(4.2)		(0.5)
Gain on disposal of fixed assets	Gain on disposal of fixed assets	(1.3)		(0.6)		Gain on disposal of fixed assets	(1.4)		(1.3)
Other operating income	Other operating income	(0.6)		(0.9)		Other operating income	(1.4)		(0.6)
Net change in unrealized losses (gains) on unsettled futures contracts		1.2		0.1
Net change in unrealized (gains) losses on unsettled futures contracts						Net change in unrealized (gains) losses on unsettled futures contracts	(0.1)		1.2
Environmental liabilities and special litigation charges	Environmental liabilities and special litigation charges	6.2		7.3		Environmental liabilities and special litigation charges	11.1		6.2
Charges incurred related to COVID-19 pandemic		0.8		1.9

Other items, net	Other items, net	(0.3)		(0.6)		Other items, net	1.1		0.5
Losses (gains) and other expenses, net (pre-tax)	Losses (gains) and other expenses, net (pre-tax)	$	5.4	$	4.7	Losses (gains) and other expenses, net (pre-tax)	$	5.2	$	5.4

~~Restructuring Charges~~Impairment on Assets Held for Sale

~~Restructuring charges were $1~~We recorded a $63 million impairment on assets held for sale in the ~~nine months ended September 30, 2022 and $2 million for the nine months ended September 30, 2021. Restructuring charges~~third quarter of 2023 related to ~~ongoing cost reduction actions taken in prior periods.~~the sale of our European commercial HVAC and refrigeration businesses. The loss is the result of the difference between the expected fair value of the consideration received for these businesses, net of our costs to sell, and the carrying value of the net assets.

Income from Equity Method Investments

Income from equity method investments ~~decreased~~increased to $8 million for the nine months ended September 30, 2023 as compared to $4 million for the nine months ended September 30, ~~2022 as compared to $12 million for the nine months ended September 30, 2021.~~2022. The ~~decline~~increase was due to lower operating ~~results~~costs at the ~~equity method investees due to higher material costs.~~investments.

Interest Expense, net

Interest expense, net increased $7$14 million for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021~~2022 primarily due to higher ~~borrowings and higher borrowing costs.~~interest rates.

Income Taxes

Our effective tax rate ~~decreased~~increased to 21.0% for the nine months ended September 30, 2023 compared to 18.9% for the nine months ended September 30, 2022 ~~compared to 19.0% for the nine months ended September 30, 2021~~ primarily due to ~~a favorable mix~~the allocation of income to ~~low~~higher tax ~~jurisdictions.~~

jurisdictions and a discrete adjustment related to the European divestiture.

Year-to-Date through September 30, ~~2022~~2023 Compared to Year-to-Date through September 30, ~~2021~~2022 - Results by Segment

Residential ~~Heating & Cooling~~

The following table presents our Residential~~Heating & Cooling~~ segment's net sales and profit for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (dollars in millions):


		For the Nine Months Ended September 30,											For the Nine Months Ended September 30,
		2022			2021			Difference		% Change			2023			2022			Difference		% Change
Net sales	Net sales	$	2,494.9		$	2,155.3		$	339.6	15.8	%	Net sales	$	2,513.6		$	2,494.9		$	18.7	1	%
Profit	Profit	$	477.7		$	430.1		$	47.6	11.1	%	Profit	$	495.2		$	477.7		$	17.5	4	%
% of net sales	% of net sales	19.1		%	20.0		%					% of net sales	19.7		%	19.1		%

Net sales increased ~~16%~~1% for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021 as~~2022 due to favorable product mix of 7% and higher price ~~increased by 12% and~~of 2%. Partially offsetting these increases was lower sales ~~volume increased by 4%~~volumes of 8%. ~~Product mix was neutral.~~

Segment profit for the first nine months of ~~2022~~2023 compared to ~~2021~~2022 increased ~~$48~~$17 million primarily due to ~~$256~~$65 million from favorable ~~price, $31~~product mix, $60 million from higher ~~sales volume,~~price, and $2$27 million from ~~miscellaneous income.~~lower commodity costs. Partially offsetting these increases ~~were $70~~was $62 million from lower sales volumes, $34 million from higher ~~commodity~~SG&A costs, ~~$40 million from increased component costs, $40 million from higher other product costs including adjustments for LIFO, $30 million from unfavorable mix, $24~~$17 million from higher freight and distribution costs, ~~$12 million from factory inefficiencies, $12~~$13 million from higher ~~SG&A~~component costs, $7and $9 million from ~~lower income from equity method investments, and $6 million from unfavorable foreign currency.~~miscellaneous other items.

Commercial ~~Heating & Cooling~~

The following table presents our Commercial ~~Heating & Cooling~~ segment's net sales and profit for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (dollars in millions):


		For the Nine Months Ended September 30,											For the Nine Months Ended September 30,
		2022			2021			Difference		% Change			2023			2022 (1)			Difference		% Change
Net sales	Net sales	$	660.2		$	663.4		$	(3.2)	(0.5)	%	Net sales	$	1,121.5		$	959.2		$	162.3	17	%
Profit	Profit	$	53.1		$	95.3		$	(42.2)	(44.3)	%	Profit	$	250.3		$	117.4		$	132.9	113	%
% of net sales	% of net sales	8.0		%	14.4		%					% of net sales	22.3		%	12.2		%

(1) 2022 amounts have been recast to reflect the changes in segment reporting. Please see Note 2 in the Notes to the Consolidated Financial Statements for further detail.

Net sales ~~decreased 0.5%~~increased 17% for the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021 as sales volume decreased by 13%. Partially offsetting the decrease was favorable mix of 7% and favorable price of 6%.~~

~~Segment profit for the first nine months of~~ 2022 ~~compared to 2021 decreased $42 million primarily due to $34 million from lower sales volume primarily due to~~ ~~supply chain constraints~~, $20 million from factory inefficiencies, $17 million from higher component costs, $12 million from higher other product costs including adjustments for LIFO, $9 million from increased SG&A costs, $9 million from higher commodity costs, and $5 million from higher freight and distribution costs. Partially offsetting these decreases were $37 million from higher price, $25 million from favorable product mix, $1 million from foreign currency, and $1 million from lower product warranty costs.

~~Refrigeration~~

~~The following table presents our Refrigeration segment's net sales and profit for the nine months ended September 30, 2022 and 2021 (dollars in millions):~~

For the Nine Months Ended September 30,
2022 2021 Difference % Change
Net sales $ 469.5 $ 410.6 $ 58.9 14.3 %
Profit $ 60.0 $ 35.8 $ 24.2 67.6 %
% of net sales 12.8 % 8.7 %

~~Net sales increased 14% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021~~ as price increased ~~by 12%~~11% and ~~sales volume increased by 8%. Partially offsetting these increases~~product mix was ~~unfavorable foreign currency of 5% and unfavorable mix of 1%.~~6% favorable.

Segment profit for the first nine months of ~~2022~~2023 compared to ~~2021~~2022 increased ~~$24~~$133 million primarily due to ~~$50~~$112 million from higher price, $43 million from favorable ~~price, $13 million from higher sales volume, $1 million from favorable~~product mix, ~~and $1~~$6 million from lower ~~tariff~~commodity costs, and $6 million from lower freight and distribution costs. Partially offsetting these increases were ~~$14~~$16 million from higher ~~commodity~~other product costs ~~$10 million from higher SG&A~~including warranty costs, $8$9 million from higher component costs, ~~$4 million from factory inefficiencies, $3~~and $9 million from higher ~~freight and distribution costs, and $2 million from higher other product~~SG&A costs.

Corporate and Other

The following table presents our Corporate and ~~other expenses decreased $2 million in~~Other segment's net sales and loss for the nine months ended September 30, 2023 and 2022 ~~compared~~(dollars in millions):


	For the Nine Months Ended September 30,
	2023		2022 (1)		Difference		% Change
Net sales	$	192.0	$	170.5	$	21.5	13	%
Loss	$	(65.2)	$	(61.4)	$	(3.8)	(6)	%

(1) 2022 amounts have been recast to reflect the changes in segment reporting. Please see Note 2 in the Notes to the Consolidated Financial Statements for further detail.

Net sales increased $21 million and segment loss increased $4 million during the nine months ended September 30, ~~2021~~2023 as compared to 2022. Our European businesses generated a profit of $6 million in the nine months ended September 30, 2023 and a loss of $4 million in the nine months ended September 30, 2022. Excluding our European businesses, Corporate and Other costs increased $14 million due primarily ~~due~~ to ~~lower employee related costs.~~higher incentive compensation costs and wage inflation.

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. Upon expiration of the asset securitization arrangement, our new commercial

paper program (described below) will serve as an additional source of liquidity. 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 nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 (in millions):


		For the Nine Months Ended September 30,					For the Nine Months Ended September 30,
		2022		2021			2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	170.1	$	396.3	Net cash provided by operating activities	$	429.9	$	170.1
Net cash used in investing activities	Net cash used in investing activities	(68.2)		(67.6)		Net cash used in investing activities	(124.5)		(68.2)
Net cash used in financing activities	Net cash used in financing activities	(89.1)		(410.5)		Net cash used in financing activities	(215.6)		(89.1)

Net Cash Provided By Operating Activities - The change in net cash provided by operating activities for the nine months ended September 30, ~~2022~~2023 compared to the net cash provided by operating activities for the same period in ~~2021~~2022 reflects ~~less favorable~~ changes in working ~~capital.~~capital and an increase in net income.

Net Cash Used In Investing Activities - Capital expenditures were ~~$67~~$125 million for the nine months ended September 30, ~~2022~~2023 compared to ~~$69~~$67 million in the same period of ~~2021.~~2022. Capital expenditures in ~~2022~~2023 were ~~primarily~~ related to our Commercial factory in Mexico, the general expansion of 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 for the nine months ended September 30, ~~2022 decreased~~2023 increased to $216 million compared to $89 million ~~compared to $411 million~~ used in financing activities in the same period of ~~2021.~~2022. The change was primarily due to ~~increased~~changes net borrowings ~~in the current year as compared to the prior year~~ and repayments of long-term debt partially offset by less ~~spent on~~ share repurchases. We ~~repurchased $300 million of~~did not repurchase any shares for the nine months ended September 30, ~~2022~~2023 and we repurchased $300 million in shares in the same period of 2022. We returned ~~$142~~$153 million to shareholders through

dividend ~~payments.~~payments for the nine months ended September 30, 2023 and $142 million in the same period of 2022. For additional information on share repurchases, refer to Note 5 in the Notes to the Consolidated Financial Statements.

Debt Position

The following table details our lines of credit and financing arrangements as of September 30, ~~2022~~2023 (in millions):


	Outstanding Borrowings





Current maturities of long-term debt:
Asset securitization program (1)	$	—
Finance lease obligations	$11.6
Senior unsecured notes	~~11.1~~350.0

Debt issuance costs
—
Total current maturities of long-term debt	$	~~11.1~~361.6
Long-term debt:
~~Asset Securitization Program~~ ~~(2)~~	~~400.0~~
Finance lease obligations	~~28.6~~31.9
Credit agreement ~~(1)~~(2)	~~222.0~~—
Senior unsecured notes	~~950.0~~1,100.0
Debt issuance costs	~~(7.2)~~(10.3)
Total long-term debt	~~1,593.4~~1,121.6
Total debt	$	~~1,604.5~~1,483.2

~~(1)~~ The available future borrowings on our Credit Agreement (as defined below) are $526.0 million, after being reduced by the outstanding borrowings and $2.0 million in outstanding standby letters of credit. Refer to Note 10 in the Notes to the Consolidated Financial Statements for more information.

~~(2)~~(1) The maximum securitization amount ranges from $300.0 million to $450.0 million, depending on the period. The maximum capacity of the ASP is the lesser of the maximum securitization amount or 100% of the net pool balance less reserves, as defined under the ASP. Refer to Note 1011 in the Notes to the Consolidated Financial Statements for more information.

(2) The available future borrowings on our Credit Agreement (as defined below) are $1,098.3 million, after being reduced by the outstanding borrowings and $1.7 million in outstanding standby letters of credit. Refer to Note 11 in the Notes to the Consolidated Financial Statements for more information.

~~Both our Asset Securitization Program as well as our $350.0 million 2023 Notes will mature in 2023. We are currently evaluating our options related~~Second Amendment to ~~these obligations including refinancing and other alternatives. We do not believe that our options or alternatives will have any material impact on our results of operations or liquidity.~~

~~July 2021~~the Credit Agreement

In ~~July 2021,~~August 2023, we entered into ~~a domestic credit facility~~the Second Amendment (the ~~“Credit Agreement”~~“Second Amendment”) to the Credit Agreement, dated as of July 14, 2021 (as amended, the "Credit Agreement"), with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party ~~thereto, which refinanced~~thereto. Under the Second Amendment, the revolving commitments were increased by $350 million and ~~replaced the Seventh Amended and Restated Credit Facility.~~certain representations required to be made as conditions precedent to borrowing were revised to provide us greater flexibility to enter into additional future financing.

The Credit Agreement provides for revolving credit commitments of ~~$750 million~~$1.1 billion 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 our subsidiaries including limitations on indebtedness, liens, dividends, stock repurchases, mergers and sales of all or substantially all of our 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, including non-payment of principal or other amounts under the Credit Agreement, material 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 September 30, ~~2022,~~2023, we believe we were in compliance with all covenant requirements.

Senior Unsecured Notes

In September 2023, we issued $500.0 million of senior unsecured notes, which will mature in September 2028 (the "2028 Notes") with interest being paid semi-annually in March and September at 5.50%. 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 in 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, 2027 Notes, and the 2028 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 Credit Agreement. 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 $75.0 million in principal which is then accelerated, and such acceleration is not rescinded within 30 days of the notice date. As of September 30, 2023, we believe we were in compliance with all covenant requirements.

Financial Leverage

We periodically review our capital structure to ensure the appropriate levels of leverage and liquidity. We may access the capital markets, as necessary, based on business needs and to take advantage of favorable interest rate environments or other market conditions. 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 programs. Our debt-to-total-capital ratio ~~increased~~decreased to ~~123%~~90% at September 30, ~~2022~~2023 from ~~128%~~115% at December 31, ~~2021.~~2022.

As of September 30, ~~2022,~~2023, 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 ~~$41~~$132 million, future cash generated from operations and available borrowing capacity are sufficient to fund operations, planned capital expenditures, future contractual obligations, potential share repurchases and dividends and other needs in the foreseeable future. Included in our cash and cash equivalents of ~~$41~~$132 million as of September 30, ~~2022~~2023 was ~~$19~~$18 million of cash held in foreign locations. Our cash held in foreign locations is used for investing and operating activities in those locations, and we generally do not have the need or intent to repatriate those funds to the United States. An actual repatriation in the future from our non-U.S. subsidiaries could be subject to foreign withholding taxes and U.S. state taxes.

Both our ASP as well as our $350.0 million 2023 Notes will mature during the fourth quarter. We pre-funded the 2023 notes maturity through the issuance of the 2028 Notes. We are replacing the expiring ASP with a $500.0 million commercial paper program, as described below. We do not believe that these changes will have any material impact on our results of operation or liquidity.

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"). The Guarantor Subsidiaries are 100% owned and consolidated, all guarantees are full and unconditional, and all guarantees are joint and several.

The following combined Parent and Guarantor Subsidiaries financial information is presented as of September 30, 2023 and December 31, 2022 and for the three and nine months ended September 30, 2023 (in millions):


	September 30, 2023	December 31, 2022
Current assets	933.7	772.1
Non-current assets	6,086.7	4,844.4
Current liabilities	1,004.9	1,023.2
Non-current liabilities	1,456.2	1,149.0
Amounts due to non-guarantor subsidiaries	(725.4)	(537.7)


	For the Three Months Ended September 30, 2023	For the Nine Months Ended, September 30, 2023
Net Sales	1,289.0	3,559.3
Gross Profit	339.5	888.4
Net Income	372.2	1,072.6

Off Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which the company has: (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us. 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.

Commitments, Contingencies and Guarantees

For information regarding our commitments, contingencies and guarantees, see Note 4 in the Notes to the Consolidated Financial Statements.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that are expected to have a material impact on our financial statements and disclosures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting LII, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022. Our exposure to market risk has not changed materially since December 31, ~~2021.~~2022.

Item 4. 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, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, ~~2022,~~2023, 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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

We are involved in a number of claims and lawsuits ~~incident~~incidental to the operation of our businesses. ~~Insurance~~Where appropriate, insurance coverages are maintained and estimated costs are recorded for such claims and lawsuits. It is management's opinion that none of these claims or lawsuits will have a material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which could materially affect our business, financial condition or results of operations. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities

~~In the third quarter of 2022, we purchased~~We did not repurchase any shares of our common stock ~~as follows:~~

Total Number of Shares Purchased (1)
Average Price Paid per Share (including fees) Total Number of Shares Purchased As Part of Publicly Announced Plans
Approximate Dollar Value of Shares that may yet be Purchased under our Share Repurchase Plans
(in millions) (2)
July 1 through July 31 3 214.00 — $ 546.0
August 1 through August 31 1,587 244.15 — $ 546.0
September 1 through September 30 153 257.62 — $ 546.0
1,743 —

~~(1)~~ ~~Represents~~in the third quarter of 2023. For additional information on our share~~s of common stock we repurchased in July, August and September of 2022~~ repurchase program, refer to ~~satisfy employee tax-withholding obligations in connection with the exercise of long-term incentive awards.~~

~~(2)~~ ~~After $100.0 million related to the repurchase under the ASR agreement executed in May 2022. The stock repurchase was executed pursuant to a previously announced repurchase plan. See~~ Note 5 in the Notes to the Consolidated Financial ~~Statement for further details.~~Statements.

Item 5. Other Information

Rule 10b5-1 Plan Elections

During the quarter ended September 30, 2023, none of our directors or officers adopted, modified, or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as such terms are defined in Item 408(a) of Regulation S-K.

Commercial Paper Program

The information set forth below in this Item 5 is included herein in lieu of reporting on a Current Report on Form 8-K under Item 2.03. Creation of a Direct Financial Obligation of a Registrant.

On October 25, 2023, we established a commercial paper program (the “Program”) pursuant to which we may issue short-term, unsecured commercial paper notes (the “CP Notes”) under the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate face or principal amount of the CP Notes outstanding under the Program at any time not to exceed $500.0 million. The CP Notes will have maturities of up to 397 days from the date of issue. The CP Notes will rank pari passu with all of our other unsecured and unsubordinated indebtedness. The net proceeds of the issuances of the CP Notes are expected to be used for general corporate purposes. We plan to use our revolving credit facility as a liquidity backstop for the repayment of CP Notes outstanding under the Program. No CP Notes are currently outstanding under the Program.

One or more commercial paper dealers will each act as a dealer under the Program (each, a “Dealer,” and collectively, the “Dealers”) pursuant to the terms and conditions of the respective commercial paper dealer agreement entered into between us and each Dealer (each, a “Dealer Agreement,” and collectively, the “Dealer Agreements”). We may engage additional commercial paper dealers to act as dealers under the Program. A national bank will act as the issuing and paying agent under the Program pursuant to the terms of an issuing and paying agent agreement.

The Dealer Agreements provide the terms under which the Dealers will either purchase from us or arrange for the sale of the CP Notes by us. The Dealer Agreements contain customary representations, warranties, covenants, and indemnification provisions.

From time to time, the Dealers and certain of their respective affiliates have provided, and may in the future provide, lending, commercial banking, investment banking and other financial advisory services to us and our affiliates for which such Dealers have received or will receive customary fees and expenses.

The CP Notes have not been and will not be registered under the Securities Act or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. The information contained in this Quarterly Report on Form 10-Q is neither an offer to sell nor a solicitation of an offer to buy any CP Notes.

Item 6. Exhibits


3.1			Restated Certificate of Incorporation of Lennox International Inc. (“LII”) (filed as Exhibit 3.1 to LII's Annual Report on Form 10-K filed on February 15, 2022 and incorporated herein by reference).
3.2			Amended and Restated Bylaws of LII (filed as Exhibit 3.2 to LII's Annual Report on Form 10-K filed on February 15, 2022 and incorporated herein by reference).
4.1			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).
4.2			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).
4.3			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).
4.4			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).
4.5			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).
4.6			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).
4.7			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 as Exhibit 4.7 to LII's Annual Report on Form 10-K filed on February 15, 2022 and incorporated herein by reference).
4.8			Eleventh Supplemental Indenture, dated as of September 15, 2023, among LII , the guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee (filed as Exhibit 4.2 to LII's Current Report on Form 8-K filed on September 15, 2023 and incorporated herein by reference).
4.9			F orm of 5.500% Notes due 2028 (filed as Exhibit A in Exhibit 4.2 to LII's Current Report on Form 8-K filed on Sep tember 15, 2023 and incorporated herei n by reference).
10.22			Second Amendment to the Credit Agr eement , dated as of August 25, 2023, among LII as borrower, certain of its subsidiaries, as guarantors, the lenders 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 August 28, 2023 and incorporated herein by reference).
22.1			List of Guarantor Subsidiaries (filed ~~as Exhibit 22.1 to LII's Annual Report on Form 10-K filed on February 15, 2022 and incorporated herein by reference)~~herewith).
31.1			Certification of the principal executive officer (filed herewith).
31.2			Certification of the principal financial officer (filed herewith).
32.1			Certification of the principal executive officer and the principal financial officer pursuant to 18 U.S.C. Section 1350 (furnished herewith).
101			INS Inline XBRL Instance Document
101			SCH Inline XBRL Taxonomy Extension Schema Document
101			CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101			LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101			PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101			DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

3233

SIGNATURE

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/ Joseph W. Reitmeier

Joseph W. Reitmeier

Chief Financial Officer

(on behalf of registrant and as principal financial officer)

Date: October ~~27, 2022~~26, 2023

3334


	Total Number of Shares Purchased (1)	Average Price Paid per Share (including fees)	Total Number of Shares Purchased As Part of Publicly Announced Plans	Approximate Dollar Value of Shares that may yet be Purchased under our Share Repurchase Plans (in millions) (2)



July 1 through July 31	3	214.00	—	$	546.0
August 1 through August 31	1,587	244.15	—	$	546.0
September 1 through September 30	153	257.62	—	$	546.0
	1,743		—