On July 8, 2021, Todd M. Bluedorn, our Chairman of the Board and Chief Executive Officer advised our Board of Directors that he intended to resign as Chief Executive Officer and as Chairman and a member of our Board of Directors in mid-2022.

The Board of Directors has commenced a search for our next chief executive officer.

Washington, D. C. 20549
For the quarterly period ended September 30, 2021
For the transition period from _____to ______

Commission file number 001-15149
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
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 October 15, 2021, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 36,596,665.

For the three and nine months ended September 30, 2021

Part I
Consolidated Balance Sheets - September 30, 2021 (Unaudited) and December 31, 2020
Consolidated Statements of Operations (Unaudited) - Three Months and Nine Months Months Ended September 30, 2021 and 2020
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months and Nine Months Months Ended September 30, 2021 and 2020
Consolidated Statements of Stockholders' Deficit (Unaudited) - Three Months and Nine Months Months Ended September 30, 2021 and 2020
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended September 30, 2021 and 2020
Part II


Part I - Financial Information
Item 1. Financial Statements

Consolidated Balance Sheets
(Amounts in millions, except shares and par values)As of September 30, 2021As of December 31, 2020
Current Assets:
Cash and cash equivalents$39.4 $123.9 
Short-term investments4.9 5.1 
Accounts and notes receivable, net of allowances of $10.6 and $9.6 in 2021 and 2020, respectively
580.6 448.3 
Inventories, net461.0 439.4 
Other assets99.0 70.9 
Total current assets1,184.9 1,087.6 
Property, plant and equipment, net of accumulated depreciation of $918.2 and $880.6 in 2021 and 2020, respectively
480.3 464.3 
Right-of-use assets from operating leases177.1 194.4 
Goodwill186.7 186.9 
Deferred income taxes10.3 13.2 
Other assets, net84.2 86.1 
Total assets$2,123.5 $2,032.5 
Current Liabilities:
Current maturities of long-term debt$300.6 $9.9 
Current operating lease liabilities
54.2 55.0 
Accounts payable401.6 340.3 
Accrued expenses344.0 296.1 
Total current liabilities1,100.4 701.3 
Long-term debt977.6 970.7 
Long-term operating lease liabilities126.2 142.8 
Pensions99.3 92.5 
Other liabilities154.8 142.3 
Total liabilities2,458.3 2,049.6 
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 capital1,127.5 1,113.2 
Retained earnings2,669.1 2,385.8 
Accumulated other comprehensive loss(101.4)(97.2)
Treasury stock, at cost, 50,581,517 shares and 48,820,969 shares for 2021 and 2020, respectively
Total stockholders' deficit(334.8)(17.1)
Total liabilities and stockholders' deficit$2,123.5 $2,032.5 
The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Operations
(Amounts in millions, except per share data)For the Three Months Ended September 30,For the Nine Months Ended September 30,
Net sales$1,059.9 $1,055.0 $3,229.3 $2,720.1 
Cost of goods sold764.7 731.7 2,294.5 1,955.3 
Gross profit295.2 323.3 934.8 764.8 
Operating Expenses:
Selling, general and administrative expenses134.2 151.8 447.4 412.7 
Losses (gains) and other expenses, net2.1 3.4 4.7 5.6 
Restructuring charges0.3 0.1 1.6 10.6 
Loss from natural disasters, net of insurance recoveries 4.9  7.6 
Income from equity method investments(4.1)(4.0)(11.6)(11.2)
Operating income162.7 167.1 492.7 339.5 
Pension settlements0.3 0.3 1.1 0.3 
Interest expense, net6.5 6.5 18.8 22.2 
Other expense (income), net1.1 1.1 2.9 3.3 
Income from continuing operations before income taxes154.8 159.2 469.9 313.7 
Provision for income taxes28.5 27.5 89.4 68.8 
Income from continuing operations126.3 131.7 380.5 244.9 
Discontinued Operations:
Loss from discontinued operations before income taxes  (0.1)(0.9)
Income tax benefit   (0.6)
Loss from discontinued operations  (0.1)(0.3)
Net income$126.3 $131.7 $380.4 $244.6 
Earnings per share – Basic:
Income from continuing operations$3.43 $3.44 $10.17 $6.39 
Loss from discontinued operations   (0.01)
Net income$3.43 $3.44 $10.17 $6.38 
Earnings per share – Diluted:
Income from continuing operations$3.41 $3.42 $10.10 $6.35 
Loss from discontinued operations   (0.01)
Net income$3.41 $3.42 $10.10 $6.34 
Weighted Average Number of Shares Outstanding - Basic36.8 38.3 37.4 38.3 
Weighted Average Number of Shares Outstanding - Diluted37.0 38.6 37.7 38.6 

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

Consolidated Statements of Comprehensive Income
(Amounts in millions)For the Three Months Ended September 30,For the Nine Months Ended September 30,
Net income$126.3 $131.7 $380.4 $244.6 
Other comprehensive (loss) income:
Foreign currency translation adjustments(6.7)6.0 (5.1)(11.8)
Net change in pension and post-retirement liabilities(1.8)(2.1)(7.1)(4.5)
Reclassification of pension and post-retirement benefit losses into earnings1.8 1.4 6.0 4.4 
Pension settlements0.3 0.3 1.1 0.3 
Share of equity method investments other comprehensive income (1.2) (1.2)
Net change in fair value of cash flow hedges6.3 3.2 26.9 (3.2)
Reclassification of cash flow hedge (gains) losses into earnings(7.8)0.4 (21.3)5.5 
Other comprehensive (loss) income before taxes(7.9)8.0 0.5 (10.5)
Tax expense (0.4)(1.2)(4.7)(0.6)
Other comprehensive (loss) income, net of tax(8.3)6.8 (4.2)(11.1)
Comprehensive income $118.0 $138.5 $376.2 $233.5 
The accompanying notes are an integral part of these consolidated financial statements.

For the three and nine months ended September 30, 2021 and 2020 (Unaudited)
(In millions, except per share data)
Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal 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 expense of $0.6
— — — (0.4)— — (0.4)
Stock-based compensation expense— (0.6)— — — — (0.6)
Change in cash flow hedges, net of tax benefit 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 IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' Deficit
(For the three months ended September 30, 2020)
Shares Amount
Balance as of June 30, 2020$0.9 $1,102.4 $2,201.5 $(121.7)48.9 $(3,412.0)$(228.9)
Net income— — 131.7 — — — 131.7 
Dividends, $0.77 per share
— — (29.5)— — — (29.5)
Foreign currency translation adjustments— — — 6.0 — — 6.0 
Pension and post-retirement liability changes, net of tax benefit of $0.1
— — — (0.3)— — (0.3)
Share of equity method investments other comprehensive income— — — (1.2)— — (1.2)
Stock-based compensation expense— 8.0 — — — — 8.0 
Change in cash flow hedges, net of tax expense of $1.3
— — — 2.3 — — 2.3 
Treasury shares reissued for common stock— (1.0)— — (0.1)1.7 0.7 
Treasury stock purchases—  — — 0.1 (4.5)(4.5)
Balance as of September 30, 2020
$0.9 $1,109.4 $2,303.7 $(114.9)48.9 $(3,414.8)$(115.7)

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


For the three and nine months ended September 30, 2021 and 2020 (Unaudited)
(In millions, except per share data)
Common Stock IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' Deficit
(For the nine months ended September 30, 2021)
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 IssuedAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTreasury Stock at CostTotal Stockholders' Deficit
(For the nine months ended September 30, 2020)
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 (ASC 2016-13)— — (1.3)— — — (1.3)
Net income— — 244.6 — — — 244.6 
Dividends, $2.31 per share
— — (88.3)— — — (88.3)
Foreign currency translation adjustments— — — (11.8)— — (11.8)
Pension and post-retirement liability changes, net of tax — — — 0.2 — — 0.2 
Share of equity method investments other comprehensive income(1.2)(1.2)
Stock-based compensation expense— 18.4 — — — — 18.4 
Change in cash flow hedges, net of tax benefit of $0.5
— — — 1.7 — — 1.7 
Treasury shares reissued for common stock— (2.5)— — (0.2)4.8 2.3 
Treasury stock purchases—  — — 0.5 (110.1)(110.1)
Balance as of September 30, 2020
$0.9 $1,109.4 $2,303.7 $(114.9)48.9 $(3,414.8)$(115.7)

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

Consolidated Statements of Cash Flows
(Amounts in millions)For the Nine Months Ended September 30,
Cash flows from operating activities:
Net income$380.4 $244.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Income from equity method investments(11.6)(11.2)
Dividends from affiliates9.1 9.3 
Restructuring charges, net of cash paid1.1 3.5 
Provision for credit losses4.3 5.0 
Unrealized losses on derivative contracts(0.2)0.5 
Stock-based compensation expense16.8 18.4 
Depreciation and amortization53.3 55.4 
Deferred income taxes(2.2)5.6 
Pension expense8.4 7.7 
Pension contributions(1.1)(2.8)
Other items, net0.1 2.0 
Changes in assets and liabilities:
Accounts and notes receivable(139.5)(69.3)
Other current assets(13.1)2.0 
Accounts payable65.0 (2.4)
Accrued expenses49.4 29.6 
Income taxes payable / (receivable), net(10.3)6.8 
Other, net7.5 3.9 
Net cash provided by operating activities396.3 446.2 
Cash flows from investing activities:
Proceeds from the disposal of property, plant and equipment0.7 0.7 
Purchases of property, plant and equipment(68.5)(55.9)
Proceeds from (purchases of) short-term investments0.2 (1.3)
Net cash used in investing activities(67.6)(56.5)
Cash flows from financing activities:
Short-term debt payments (4.6)
Short-term debt borrowings 4.6 
Asset securitization borrowings504.0 91.0 
Asset securitization payments(214.0)(376.0)
Long-term debt payments(3.0)(5.4)
Long-term debt borrowings 600.0 
Borrowings from credit facility1,021.4 1,509.5 
Payments on credit facility(1,012.5)(1,980.5)
Payments of deferred financing costs (7.1)
Proceeds from employee stock purchases2.5 2.2 
Repurchases of common stock(600.0)(100.0)
Repurchases of common stock to satisfy employee withholding tax obligations(16.1)(10.1)
Cash dividends paid(92.8)(88.6)
Net cash used in financing activities(410.5)(365.0)
(Decrease) increase in cash and cash equivalents(81.8)24.7 
Effect of exchange rates on cash and cash equivalents(2.7)(7.0)
Cash and cash equivalents, beginning of period123.9 37.3 
Cash and cash equivalents, end of period$39.4 $55.0 
Supplemental disclosures of cash flow information:
Interest paid$17.7 $19.0 
Income taxes paid (net of refunds)$101.6 $55.1 
The accompanying notes are an integral part of these consolidated financial statements.

1. General:

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

Basis of Presentation

The accompanying unaudited Consolidated Balance Sheet as of September 30, 2021, the accompanying unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, the accompanying unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020, the accompanying unaudited Consolidated Statements of Stockholders' Deficit for the three and nine months ended September 30, 2021 and 2020, and the accompanying unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 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, 2020.

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, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. Currently the COVID-19 pandemic has disrupted our business operations and caused a significant unfavorable impact on our results of operations in 2020. The COVID-19 pandemic is creating supply chain disruptions and higher employee absenteeism in our factories and distribution locations.

As the COVID-19 pandemic continues, health concern risks remain. We cannot predict whether any of our manufacturing, operational or distribution facilities will experience any future disruptions, or how long such disruptions would last. It also

remains unclear how various national, state, and local governments will react if the distribution of vaccines is slower than expected or new variants of the virus become more dominant. If the COVID-19 pandemic worsens or the pandemic continues longer than presently expected, COVID 19 could impact our results of operations, financial position and cash flows.

Recently Adopted Accounting Guidance

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-02, in an effort to reduce complexity in accounting for income taxes, removes certain exceptions for measuring intraperiod tax allocations, foreign subsidiary equity method investments and interim period tax losses. ASU 2019-12 is effective for calendar year-end public business entities on January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our financial statements.

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
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
RefrigerationCondensing units, unit coolers, fluid coolers, air cooled condensers, air handlers, process chillers, controls, and compressorized racksLight Commercial;
Food Preservation;
United States
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 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 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,
Net sales
Residential Heating & Cooling$711.0 $722.0 $2,155.3 $1,808.8 
Commercial Heating & Cooling211.5 207.9 663.4 574.6 
Refrigeration137.4 125.1 410.6 336.7 
$1,059.9 $1,055.0 $3,229.3 $2,720.1 
Segment profit (loss) (1)
Residential Heating & Cooling$144.0 $153.0 $430.1 $312.8 
Commercial Heating & Cooling22.6 38.8 95.3 93.1 
Refrigeration14.5 13.0 35.8 22.6 
Corporate and other(16.3)(28.3)(59.2)(61.3)
Total segment profit164.8 176.5 502.0 367.2 
Reconciliation to Operating income:
Special product quality adjustments(1.1) (1.0)(1.0)
Loss from natural disasters, net of insurance recoveries 4.9  7.6 
Items in Losses (gains) and other expenses, net that are excluded from segment profit (loss) (1)
2.9 4.4 8.7 10.5 
Restructuring charges0.3 0.1 1.6 10.6 
Operating income$162.7 $167.1 $492.7 $339.5 
(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 losses (gains) on unsettled futures contracts,
Special legal contingency charges,
Asbestos-related litigation,
Environmental liabilities,
Charges incurred related to COVID-19 pandemic; and
Other items, net,
Special product quality adjustments
Loss from natural disasters, net of insurance recoveries; and
Restructuring charges.

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 September 30,For the Nine Months Ended September 30,
Net income $126.3 $131.7 $380.4 $244.6 
Exclude: Income from discontinued operations  0.1 0.3 
Income from continuing operations$126.3 $131.7 $380.5 $244.9 
Weighted-average shares outstanding – basic36.8 38.3 37.4 38.3 
Add: Potential effect of dilutive securities attributable to stock-based payments0.2 0.3 0.3 0.3 
Weighted-average shares outstanding – diluted37.0 38.6 37.7 38.6 
Earnings per share – Basic:
Income from continuing operations$3.43 $3.44 $10.17 $6.39 
Income from discontinued operations   (0.01)
Net income $3.43 $3.44 $10.17 $6.38 
Earnings per share – Diluted:
Income from continuing operations$3.41 $3.42 $10.10 $6.35 
Income from discontinued operations   (0.01)
Net income $3.41 $3.42 $10.10 $6.34 

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,
Weighted-average number of shares 0.1  0.1 
Price per share
4. Commitments and Contingencies:

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 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 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 September 30, 2021As of December 31, 2020
Accrued expenses$38.4 $37.7 
Other liabilities94.7 82.1 
Total warranty liability$133.1 $119.8 
The changes in product warranty liabilities related to continuing operations for the nine months ended September 30, 2021 were as follows (in millions):
Total warranty liability as of December 31, 2020$119.8 
Warranty claims paid(28.1)
Changes resulting from issuance of new warranties37.2 
Changes in estimates associated with pre-existing liabilities4.2 
Changes in foreign currency translation rates and other 
Total warranty liability as of September 30, 2021