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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 March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to ______


Commission file number 001-15149
 _________________________________________________
LENNOX INTERNATIONAL INC.
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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareLIINew 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 FilerAccelerated Filer
Non-Accelerated FilerSmaller 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 April 13, 2020, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 38,247,210.



LENNOX INTERNATIONAL INC.
FORM 10-Q
For the three months ended March 31, 2020

INDEX
Page
Part I
Consolidated Balance Sheets - March 31, 2020 (Unaudited) and December 31, 2019
Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Comprehensive Income (Unaudited) -Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Stockholders' Deficit (Unaudited) - Three Months Ended March 31, 2020 and 2019
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2020 and 2019
Part II

i


Part I - Financial Information
Item 1. Financial Statements

LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions, except shares and par values)As of March 31, 2020As of December 31, 2019
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents$39.1  $37.3  
Short-term investments3.7  2.9  
Accounts and notes receivable, net of allowances of $7.0 and $6.1 in 2020 and 2019, respectively
492.7  477.8  
Inventories, net611.8  544.1  
Other assets77.8  58.8  
Total current assets1,225.1  1,120.9  
Property, plant and equipment, net of accumulated depreciation of $836.5 and $824.3 in 2020 and 2019, respectively
442.1  445.4  
Right-of-use assets from operating leases
183.2  181.6  
Goodwill186.5  186.5  
Deferred income taxes16.3  21.5  
Other assets, net75.2  79.0  
Total assets$2,128.4  $2,034.9  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Current maturities of long-term debt$252.3  $321.9  
Current operating lease liabilities
52.2  52.7  
Accounts payable355.0  372.4  
Accrued expenses235.1  255.7  
Total current liabilities894.6  1,002.7  
Long-term debt1,189.9  849.3  
Long-term operating lease liabilities
133.2  131.0  
Pensions89.8  87.4  
Other liabilities139.2  134.7  
Total liabilities2,446.7  2,205.1  
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, no shares issued or outstanding
    
Common stock, $0.01 par value, 200,000,000 shares authorized, 87,170,197 shares issued
0.9  0.9  
Additional paid-in capital1,095.2  1,093.5  
Retained earnings2,130.9  2,148.7  
Accumulated other comprehensive loss(133.1) (103.8) 
Treasury stock, at cost, 48,918,495 shares and 48,575,901 shares for 2020 and 2019, respectively
(3,412.2) (3,309.5) 
Total stockholders' deficit(318.3) (170.2) 
Total liabilities and stockholders' deficit$2,128.4  $2,034.9  
The accompanying notes are an integral part of these consolidated financial statements.

1


LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

(Amounts in millions, except per share data)For the Three Months Ended March 31,
 20202019
Net sales$723.8  $790.3  
Cost of goods sold558.1  588.7  
Gross profit165.7  201.6  
Operating Expenses:
Selling, general and administrative expenses131.1  145.8  
(Gains) losses and other expenses, net(1.0) 1.1  
Restructuring charges0.5  0.5  
Loss on sale of business  8.5  
Insurance proceeds for lost profits  (39.5) 
Loss (gain) from natural disaster, net of insurance recoveries1.6  (6.9) 
Income from equity method investments(2.9) (2.6) 
Operating income36.4  94.7  
Interest expense, net8.7  10.9  
Other expense (income), net1.2  0.8  
Income from continuing operations before income taxes26.5  83.0  
Provision for income taxes14.0  13.6  
Income from continuing operations12.5  69.4  
Discontinued Operations:
Loss from discontinued operations before income taxes  (0.1) 
Income tax benefit(0.4)   
Income (loss) from discontinued operations0.4  (0.1) 
Net income$12.9  $69.3  
Earnings per share – Basic:
Income from continuing operations$0.33  $1.75  
Income from discontinued operations0.01    
Net income$0.34  $1.75  
Earnings per share – Diluted:
Income from continuing operations$0.32  $1.73  
Income from discontinued operations0.01    
Net income$0.33  $1.73  
Weighted Average Number of Shares Outstanding - Basic38.4  39.7  
Weighted Average Number of Shares Outstanding - Diluted38.7  40.1  

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

2


LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)

(Amounts in millions)For the Three Months Ended March 31,
 20202019
Net income$12.9  $69.3  
Other comprehensive income:
Foreign currency translation adjustments(20.3) 0.5  
Reclassification of foreign currency translation adjustments into earnings  2.1  
Net change in pension and post-retirement liabilities(0.8) (2.3) 
Reclassification of pension and post-retirement benefit losses into earnings1.5  2.0  
Net change in fair value of cash flow hedges(14.6) 6.2  
Reclassification of cash flow hedge losses into earnings1.2  2.4  
Other comprehensive (loss) income before income taxes(33.0) 10.9  
Income tax expense (benefit) 3.7  (2.3) 
Other comprehensive (loss) income, net of tax(29.3) 8.6  
Comprehensive (loss) income $(16.4) $77.9  
The accompanying notes are an integral part of these consolidated financial statements.
3


LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Three months ended March 31, 2020 and 2019 (Unaudited)
(In millions, except per share data)

Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' (Deficit) Equity
(For the three months ended March 31, 2020)Shares Amount
Balance as of December 31, 2019$0.9  $1,093.5  $2,148.7  $(103.8) $48.6  $(3,309.5) $(170.2) 
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2016-13)—  —  (1.3) —  —  —  (1.3) 
Net income—  —  12.9  —  —  —  12.9  
Dividends, $0.77 per share—  —  (29.4) —  —  —  (29.4) 
Foreign currency translation adjustments—  —  —  (20.3) —  —  (20.3) 
Pension and post-retirement liability changes, net of tax expense of $0.2—  —  —  0.6  —  —  0.6  
Stock-based compensation expense—  3.7  —  —  —  —  3.7  
Change in cash flow hedges, net of tax benefit of $3.9—  —  —  (9.6) —  —  (9.6) 
Treasury shares reissued for common stock—  (2.0) —  —  (0.1) 2.8  0.8  
Treasury stock purchases—  —  —  —  0.4  (105.5) (105.5) 
Balance as of March 31, 2020$0.9  $1,095.2  $2,130.9  $(133.1) 48.9  $(3,412.2) $(318.3) 

Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' (Deficit) Equity
(For the three months ended March 31, 2019)Shares Amount
Balance as of December 31, 2018$0.9  $1,078.8  $1,855.0  $(188.8) $47.3  $(2,895.5) $(149.6) 
Cumulative effect adjustment upon adoption of new accounting standard (ASC 842)—  —  (0.3) —  —  —  (0.3) 
Net income—  —  69.3  —  —  —  69.3  
Dividends, $0.64 per share—  —  (25.3) —  —  —  (25.3) 
Foreign currency translation adjustments—  —  —  2.6  —  —  2.6  
Pension and post-retirement liability changes—  —  —  (0.2) —  —  (0.2) 
Stock-based compensation expense—  5.2  —  —  —  —  5.2  
Change in cash flow hedges, net of tax expense of $2.3—  —  —  6.2  —  —  6.2  
Treasury shares reissued for common stock—  (4.6) —  —  (0.2) 5.4  0.8  
Treasury stock purchases—    —  —  0.5  (113.5) (113.5) 
Balance as of March 31, 2019$0.9  $1,079.4  $1,898.7  $(180.2) 47.6  $(3,003.6) $(204.8) 

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



4


LENNOX INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in millions)For the Three Months Ended March 31,
20202019
Cash flows from operating activities:
Net income$12.9  $69.3  
Adjustments to reconcile net income to net cash used in operating activities:
Loss on sale of business  8.5  
Insurance recoveries received for property damage incurred from natural disaster
  (6.9) 
Income from equity method investments(2.9) (2.6) 
Restructuring charges, net of cash paid0.1  0.3  
Provision for bad debts1.2  1.6  
Unrealized losses (gains) on derivative contracts1.5  (0.6) 
Stock-based compensation expense3.7  5.2  
Depreciation and amortization19.0  18.2  
Deferred income taxes8.8  15.5  
Pension expense2.7  2.0  
Pension contributions(0.6) (2.5) 
Other items, net0.2  0.2  
Changes in assets and liabilities, net of effects of divestitures:
Accounts and notes receivable(18.7) (62.7) 
Inventories(71.0) (120.9) 
Other current assets(0.7) 4.5  
Accounts payable(8.7) (1.7) 
Accrued expenses(33.0) (35.0) 
Income taxes payable / receivable(17.3) (34.1) 
   Leases, net0.1  0.5  
Other, net3.9  0.2  
Net cash used in operating activities(98.8) (141.0) 
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment0.1  0.3  
Purchases of property, plant and equipment(24.7) (37.2) 
Net proceeds from sale of business  43.6  
Purchases of short-term investments(1.1)   
Insurance recoveries received for property damage incurred from natural disaster  6.9  
Net cash (used in) provided by investing activities(25.7) 13.6  
Cash flows from financing activities:
Asset securitization payments(70.0) (43.5) 
Long-term debt borrowings  3.3  
Long-term debt payments(2.6) (31.7) 
Borrowings from credit facility682.5  844.5  
Payments on credit facility(342.5) (525.5) 
Proceeds from employee stock purchases0.8  0.8  
Repurchases of common stock(100.0) (100.0) 
Repurchases of common stock to satisfy employee withholding tax obligations(5.5) (13.5) 
Cash dividends paid(29.7) (25.5) 
Net cash provided by financing activities133.0  108.9  
Increase (decrease) in cash and cash equivalents8.5  (18.5) 
Effect of exchange rates on cash and cash equivalents(6.7) 3.9  
Cash and cash equivalents, beginning of period37.3  46.3  
Cash and cash equivalents, end of period$39.1  $31.7  
Supplemental disclosures of cash flow information:
Interest paid$6.8  $8.4  
Income taxes paid (net of refunds)$21.3  $32.0  
Insurance recoveries received $  $76.0  
The accompanying notes are an integral part of these consolidated financial statements.
5


LENNOX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:

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

Basis of Presentation

The accompanying unaudited Consolidated Balance Sheet as of March 31, 2020, the accompanying unaudited Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019, the accompanying unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019, the accompanying unaudited Consolidated Statements of Stockholders' Deficit for the three months ended March 31, 2020 and 2019, and the accompanying unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 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, 2019. 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.

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”) surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has disrupted our business operations and caused a significant unfavorable impact on our results of operations.

In response to the COVID-19 pandemic, various national, state, and local governments where we, our suppliers, and our customers operate have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. Those decrees have resulted in supply chain disruption and higher employee absenteeism in our factories. Additionally, certain of our manufacturing facilities have experienced a short-term suspension of operations for COVID-19 employee health concerns.

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We anticipate potential supply chain disruptions, employee absenteeism and short-term suspensions of manufacturing facilities related to the COVID-19 pandemic that could unfavorably impact our business. Although these disruptions are expected to be temporary, there is significant uncertainty around the duration and overall impact to our business operations. We believe it is possible that the impact of the COVID-19 pandemic could have a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ended December 31, 2020.

Recently Adopted Accounting Guidance

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 is effective for SEC filers for interim and annual periods beginning after December 15, 2019. We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under previously applicable accounting standards. We recorded a $1.3 million net decrease to retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.

In January 2017, the FASB issued ASU No. 2017-04, Intangible - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 did not have a material impact on our consolidated results of operations, cash flow, and statement of financial position.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 provides guidance to determine how implementation costs associated with cloud computing arrangements that are incurred to develop or obtain internal-use software should be capitalized or expensed as incurred. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-15 did not have a material impact on our consolidated results of operations, cash flow, and statement of financial position.

2. Reportable Business Segments:

We operate in three reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”) industry. Our segments are organized primarily by the nature of the products and services we provide. The following table describes each segment:
 
SegmentProduct or ServicesMarkets ServedGeographic Areas
Residential Heating & CoolingFurnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment, comfort control products, replacement parts and suppliesResidential Replacement;
Residential New Construction
United States
Canada
Commercial Heating & CoolingUnitary heating and air conditioning equipment, applied systems, controls, installation and service of commercial heating and cooling equipment, and variable refrigerant flow commercial productsLight CommercialUnited States
Canada
RefrigerationCondensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, process chillers, controls, and compressorized racksLight Commercial;
Food Preservation;
Non-Food/Industrial
United States
Canada
Europe
We use segment profit or loss as the primary measure of profitability to evaluate operating performance and to allocate capital resources. We define segment profit or loss as a segment’s income or loss from continuing operations before income taxes included in the accompanying Consolidated Statements of Operations, excluding certain items. The reconciliation in the table below details the items excluded.

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

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

Segment Data

Net sales and segment profit (loss) for each segment, along with a reconciliation of segment profit (loss) to Operating income, are shown below (in millions):
 For the Three Months Ended March 31,  
 20202019
Net sales
Residential Heating & Cooling$442.1  $465.6  
Commercial Heating & Cooling178.4  173.3  
Refrigeration103.3  151.4  
$723.8  $790.3  
Segment profit (loss) (1)
Residential Heating & Cooling$32.5  $86.7  
Commercial Heating & Cooling18.7  15.1  
Refrigeration0.7  8.4  
Corporate and other(14.3) (12.1) 
Total segment profit37.6  98.1  
Reconciliation to Operating income:
Loss on sale of business  8.5  
Loss (gain) from natural disaster, net of insurance recoveries1.6  (6.9) 
Items in (Gains) losses and other expenses, net that are excluded from segment profit (loss) (1)
(0.9) 1.3  
Restructuring charges0.5  0.5  
Operating income$36.4  $94.7  
(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 (Gains) losses and other expenses, net:
Net change in unrealized losses (gains) on unsettled futures contracts,
Special legal contingency charges,
Asbestos-related litigation,
Environmental liabilities,
Other items, net,
Loss on sale of business,
Loss (gain) from natural disaster, net of insurance recoveries; and,
Restructuring charges.


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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 for Income from continuing operations were as follows (in millions, except per share data):
 For the Three Months Ended March 31,  
 20202019
Net income $12.9  $69.3  
Exclude: (Income) loss from discontinued operations(0.4) 0.1  
Income from continuing operations$12.5  $69.4  
Weighted-average shares outstanding – basic38.4  39.7  
Add: Potential effect of dilutive securities attributable to stock-based payments0.3  0.4  
Weighted-average shares outstanding – diluted38.7  40.1  
Earnings per share – Basic:
Income from continuing operations$0.33  $1.75  
Income from discontinued operations0.01    
Net income $0.34  $1.75  
Earnings per share – Diluted:
Income from continuing operations$0.32  $1.73  
Income from discontinued operations0.01    
Net income $0.33  $1.73  

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 March 31,  
 20202019
Weighted-average number of shares0.3  0.1  
Price per share
$214.63 - $270.83
$214.63  
        
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
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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, which is the date we enter the leased space and begin to make improvements in preparation for its intended use. 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 tenors (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 75% of our right-of-use assets and lease liabilities relate to our leases of real estate with the remaining amounts relating to our leases of IT equipment, fleet vehicles and manufacturing and distribution equipment.

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 assumptions, 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 March 31, 2020As of December 31, 2019
Accrued expenses$37.8  $38.2  
Other liabilities76.3  74.6  
Total warranty liability$114.1  $112.8  
The changes in product warranty liabilities related to continuing operations for the three months ended March 31, 2020 were as follows (in millions):
Total warranty liability as of December 31, 2019$112.8  
Warranty claims paid(5.9) 
Changes resulting from issuance of new warranties8.4  
Changes in estimates associated with pre-existing liabilities(0.7) 
Changes in foreign currency translation rates and other(0.5) 
Total warranty liability as of March 31, 2020$114.1  
We have incurred, and will likely continue to incur, product costs not covered by insurance or our suppliers’ warranties, which are not included in the tables immediately above. Also, to satisfy our customers and protect our brands, we have repaired or replaced installed products experiencing quality-related issues, and will likely continue such repairs and replacements. Liabilities for such quality related issues are not material.

Litigation

We are involved in a number of claims and lawsuits incident to the operation of our businesses. Insurance coverages are maintained and estimated costs are recorded for such claims and lawsuits, including costs to settle claims and lawsuits, based on experience involving similar matters and specific facts known.

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Some of these claims and lawsuits allege personal injury or health problems resulting from exposure to asbestos that was integrated into certain of our products. We have never manufactured asbestos and have not incorporated asbestos-containing components into our products for several decades. A substantial majority of these asbestos-related claims have been covered by insurance or other forms of indemnity or have been dismissed without payment. The remainder of our closed cases have been resolved for amounts that are not material, individually or in the aggregate. Our defense costs for asbestos-related claims are generally covered by insurance. However, our insurance coverage for settlements and judgments for asbestos-related claims varies depending on several factors and are subject to policy limits. We may have greater financial exposure for future settlements and judgments. The following table summarizes the expenses, net of probable insurance recoveries, for known and future asbestos-related litigation recorded in (Gains) losses and other expenses, net in the Consolidated Statements of Operations.
For the Three Months Ended March 31,
20202019
(Gain) expense for asbestos-related litigation, net$(1.7) $1.4  

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.

Marshalltown Tornado and Recovery

On July 19, 2018, our manufacturing facility in Marshalltown, Iowa was severely damaged by a tornado. Insurance covered the repair or replacement of our assets that suffered damage or loss, and business interruption costs, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. These costs and insurance recoveries are shown in Insurance proceeds for lost profits and Loss (gain) from natural disaster, net of insurance recoveries in the Consolidated Statements of Operations.

In December 2019, we reached a final settlement with our insurance carriers for a total cumulative insurance recovery of $367.5 million for the losses we incurred and will incur from the tornado. All recoveries related to the final settlement were received in 2018 and 2019.

The following table summarizes the Gain from insurance recoveries, net of losses incurred:

(Amounts in millions)For the Three months Ended March 31,
20202019
Insurance recoveries received$  $76.0  
Less losses and expenses incurred:
Site clean-up and remediation  17.1  
Factory inefficiencies due to lower productivity  4.0  
Other 1.6  8.5  
Total losses and expenses$1.6  $29.6  
Presentation in the Consolidated Statements of Operations:
Loss (gain) from natural disaster, net of insurance recoveries1.6  (6.9) 
Insurance proceeds for lost profits  (39.5) 

5. Stock Repurchases:

Our Board of Directors have authorized a total of $3 billion to repurchase shares of our common stock (collectively referred to as the "Share Repurchase Plans"), including a $500 million share repurchase authorization in December 2019. Under this program, we may 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 not require the repurchase of a specific number of shares and may be terminated at any time. As of March 31, 2020, $446 million of shares may be repurchased under the Share Repurchase Plans.

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On February 13, 2020, we entered into a Fixed Dollar Accelerated Share Repurchase Transaction (the "ASR Agreement") with Bank of America, to effect an accelerated stock buyback of the Company's common stock. Under the ASR Agreement, we paid Bank of America $100.0 million and Bank of America delivered to us common stock representing approximately 85% of the shares expected to be purchased under the ASR Agreement. The ASR was completed in March 2020 and Bank of America delivered a total of 0.4 million shares of common stock repurchased under this ASR Agreement.

We also repurchased shares for $5.5 million during the three months ended March 31, 2020 from employees who tendered their shares to satisfy minimum tax withholding obligations upon the vesting and exercise of stock-based compensation awards.

6. Divestitures:

During the first quarter of 2019, we obtained Board of Directors' approval and signed an agreement with EPTA S.p.A., a private Italian company, for the sale of our Kysor Warren business. The sale was completed on March 29, 2019 and the following table summarizes the net loss recognized in connection with this divestiture. There were no gains or losses on the sale of this business for the three months ended March 31, 2020.
(Amounts in millions)For the Year Ended December 31, 2019
Cash received from the buyer$49.0  
Net assets sold (52.0) 
AOCI reclassification adjustments, primarily foreign currency translation(2.1) 
Direct costs to sell(5.5) 
Loss on sale of business$(10.6) 

7. Restructuring Charges:

We record restructuring charges associated with management-approved restructuring plans when we reorganize or remove duplicative headcount or infrastructure within our businesses. Restructuring charges include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, contract cancellation costs, accelerated depreciation for impaired assets and other related activities. The timing of associated cash payments is dependent upon the type of restructuring charge and can extend over a multi-year period. Restructuring charges are not included in our calculation of segment profit (loss), as more fully explained in Note 2.

Restructuring Activities in 2020

Information regarding the restructuring charges for all ongoing activities is presented in the following table (in millions):
Incurred in 2020Incurred to DateTotal Expected to be Incurred
Severance and related expense$0.1  $1.4  $1.4  
Asset write-offs and accelerated depreciation0.1  1.7  1.7  
Lease termination  1.1  1.1  
Other0.3  0.9  1.6  
Total restructuring charges$0.5  $5.1  $5.8  
While restructuring charges are excluded from our calculation of segment profit (loss), the table below presents the restructuring charges associated with each segment (in millions):
Incurred in 2020Incurred to DateTotal Expected to be Incurred
Residential Heating & Cooling$0.2  $3.1  $3.1  
Commercial Heating & Cooling0.3  2.0  2.7  
Total restructuring charges$0.5  $5.1  $5.8  

8. Revenue Recognition:

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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.
For the Three Months March 31, 2020
Primary Geographic MarketsResidential Heating & CoolingCommercial Heating & CoolingRefrigerationConsolidated
United States$412.4  $161.1  $59.5  $633.0  
Canada29.7  17.1