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, 2020, 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 reportable business segments of the heating, ventilation, air conditioning and refrigeration (“HVACR”) industry. Our reportable segments are Residential Heating & Cooling, Commercial Heating & Cooling, and Refrigeration. For 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, 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.

Financial Overview

Results for the third quarter of 2021 were driven by overall year over year sales increases while profit decreased. Net sales decreased 2% and segment profit decreased $9 million for the Residential Heating & Cooling segment. Net sales increased 2% and segment profit decreased $16 million for the Commercial Heating & Cooling segment. Net sales increased 10% and segment profit increased $2 million for the Refrigeration segment.

Financial Highlights

• Net sales increased $5 million to $1,060 million in the third quarter of 2021 driven by favorable price and mix partially offset by lower sales volume.

• Operating income in the third quarter of 2021 decreased $4 million to $163 million primarily driven by rising costs partially offset by higher net sales.

• Net income for the third quarter of 2021 decreased $6 million to $126 million.

• Diluted earnings per share from continuing operations were $3.41 per share in the third quarter of 2021 compared to $3.42 per share in the third quarter of 2020.

• For the nine months ended September 30, 2021, we returned $93 million to shareholders through dividend payments and repurchased $600 million of common stock through our share repurchase program.

Third Quarter of 2021 Compared to Third Quarter of 2020 - 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,
			Dollars (in millions)												Percent Change Fav/(Unfav)						Percent of Sales
			2021						2020						2021						2020
Net sales			$	1,059.9					$	1,055.0					0.5		%				100.0		%				100.0		%
Cost of goods sold			764.7						731.7						(4.5)						72.1						69.4
Gross profit			295.2						323.3						(8.7)						27.9						30.6
Selling, general and administrative expenses			134.2						151.8						11.6						12.7						14.4
Losses (gains) and other expenses, net			2.1						3.4						38.2						0.2						0.3
Restructuring charges			0.3						0.1						(200.0)						—						—
Loss from natural disasters, net of insurance recoveries			—						4.9						100.0						—						0.5
Income from equity method investments			(4.1)						(4.0)						2.5						(0.4)						(0.4)
Operating income			$	162.7					$	167.1					(2.6)		%				15.4		%				15.8		%

Net Sales

Net sales for the third quarter of 2021 compared to the third quarter of 2020 were impacted by favorable combined price and mix of 4%, which was partially offset by lower sales volume of 4%.

Gross Profit

Gross profit margins in the third quarter of 2021 decreased 270 basis points ("bps") to 27.9% compared to 30.6% in the third quarter of 2020. Gross margin decreased 220 bps from higher commodity costs, 90 bps from higher freight and distribution costs, 90 bps from factory inefficiencies, 90 bps from higher other product costs, 40 bps from sourcing and engineering-led cost increases, and 20 bps from unfavorable mix. Partially offsetting these decreases was 280 bps from favorable price.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased $18 million to $134 million in the third quarter of 2021 compared to $152 million in the third quarter of 2020 due to lower incentive compensation and other employee costs. As a percentage of net sales, SG&A decreased 170 bps to 12.7%.

Losses (gains) and Other Expenses, Net

Losses (gains) losses and other expenses, net for the third quarter of 2021 and 2020 included the following (in millions):

			For the Three Months Ended September 30,
			2021						2020
Realized (gains) losses on settled futures contracts			$	(0.2)					$	—
Foreign currency exchange gains			—						(0.4)
Gain on disposal of fixed assets			(0.1)						(0.2)
Other operating income			(0.5)						(0.4)
Net change in unrealized losses (gains) on unsettled futures contracts			0.2						(1.4)
Special legal contingency charges			0.1						0.2
Asbestos-related litigation			1.8						2.4
Environmental liabilities			0.3						0.3
Charges incurred related to COVID-19 pandemic			0.8						3.0
Other items, net			(0.3)						(0.1)
Losses (gains) and other expenses, net (pre-tax)			$	2.1					$	3.4

The net change in unrealized (gains) losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our futures contracts, see Note 7 in the Notes to the Consolidated Financial Statements. For more information on special legal contingency charges and asbestos-related litigation, see Note 4 in the Notes to the Consolidated Financial Statements. The environmental liabilities related to estimated remediation costs for contamination at some of our facilities.

Restructuring Charges

Restructuring charges were immaterial in the third quarter of 2021 and 2020. Restructuring charges related to ongoing cost reduction actions taken in prior periods.

Gains and Losses related to Natural Disasters

The charges recorded during 2020 were for costs incurred related to natural disasters that occurred in prior years.

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. Income from equity method investments of $4 million in the third quarter of 2021 was up slightly compared to the third quarter of 2020.

Interest Expense, net

Interest expense, net was $7 million in the third quarter of 2021 and 2020, respectively.

Income Taxes

Our effective tax rate was 18.4% for the third quarter of 2021 compared to 17.3% for the third quarter of 2020. The rate increased primarily due to the tax impact of discrete losses recorded in the third quarter of 2020.

We expect our annual effective tax rate in 2021 to be approximately 20%, after excluding the impact of excess tax benefits recorded under ASU No. 2016-09.

Third Quarter of 2021 Compared to Third Quarter of 2020 - 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 2021 and 2020 (dollars in millions):

			For the Three Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	711.0					$	722.0					$	(11.0)					(1.5)		%
Profit			$	144.0					$	153.0					$	(9.0)					(5.9)		%
% of net sales			20.3		%				21.2		%

Net sales decreased 2% in the third quarter of 2021 compared to 2020. Sales volume decreased 6%, which was partially offset by favorable price and mix combined of 4%.

Segment profit in the third quarter of 2021 compared to 2020 decreased $9 million due to $18 million from higher commodity costs, $14 million from lower sales volume, $6 million from unfavorable freight and distribution costs, $4 million from factory inefficiencies, $3 million from sourcing and engineering-led cost increases, and $3 million from higher other product costs. Partially offsetting these declines were $33 million from higher combined price and mix, $5 million from lower SG&A, and $1 million from favorable foreign currency.

Commercial Heating & Cooling

The following table presents our Commercial Heating & Cooling segment's net sales and profit for the third quarter of 2021 and 2020 (dollars in millions):

			For the Three Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	211.5					$	207.9					$	3.6					1.7		%
Profit			$	22.6					$	38.8					$	(16.2)					(41.8)		%
% of net sales			10.7		%				18.7		%

Net sales increased 2% in the third quarter of 2021 compared to the third quarter of 2020. Price and mix combine increased 7% and foreign currency improved 1%, which was partially offset by 6% lower sales volume.

Segment profit in the third quarter of 2021 compared to 2020 decreased $16 million due to $7 million from higher other product costs, $5 million from higher factory inefficiencies, $3 million from lower sales volume, $3 million from higher freight and distribution costs, $2 million from higher commodity costs, $1 million from sourcing and engineering-led cost increases, and $1 million from unfavorable foreign currency. Partially offsetting these declines were $6 million from higher combined price and mix.

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for the third quarter of 2021 and 2020 (dollars in millions):

			For the Three Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	137.4					$	125.1					$	12.3					9.8		%
Profit			$	14.5					$	13.0					$	1.5					11.5		%
% of net sales			10.6		%				10.4		%

Net sales increased 10% in the third quarter of 2021 compared to the third quarter of 2020. Sales volume was 9% higher and combined price and mix improved 1%.

Segment profit in the third quarter of 2021 compared to 2020 increased $2 million compared to 2020 due to $5 million from higher sales volume, $3 million from favorable price and mix combined, and $1 million from higher income from equity method investments. Partially offsetting these increases was $4 million from higher commodity costs, $2 million from higher SG&A, and $1 million from higher freight and distribution costs.

Corporate and Other

Corporate and other expenses decreased $12 million to $16 million in the third quarter of 2021 compared to 2020 primarily due to the timing of variable incentive compensation costs.

Year-to-Date through September 30, 2021 Compared to Year-to-Date through September 30, 2020 - 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,
			Dollars (in millions)												Percent Change Fav/(Unfav)						Percent of Sales
			2021						2020						2021						2020
Net sales			$	3,229.3					$	2,720.1					18.7						100.0		%				100.0		%
Cost of goods sold			2,294.5						1,955.3						(17.3)						71.1						71.9
Gross profit			934.8						764.8						22.2						28.9						28.1
Selling, general and administrative expenses			447.4						412.7						(8.4)						13.9						15.2
Losses (gains) and other expenses, net			4.7						5.6						16.1						0.1						0.2
Restructuring charges			1.6						10.6						84.9						—						0.4
Loss (gain) from natural disasters, net of insurance recoveries			—						7.6						(100.0)						—						0.3
Income from equity method investments			(11.6)						(11.2)						3.6						(0.4)						(0.4)
Operating income			$	492.7					$	339.5					45.1						15.3		%				12.5		%

Net Sales

Net sales increased 19% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to higher sales volumes of 15%, favorable combined price and mix of 3%, and a 1% increase from to foreign currency.

Gross Profit

Gross profit margins for the nine months ended September 30, 2021 increased 80 bps to 28.9% compared to 28.1% for the nine months ended September 30, 2020. Gross margin increased 160 bps from favorable price, 90 bps from favorable mix, and

40 bps from factory productivity which were partially offset by 130 bps from higher commodity costs, 50 bps from higher other product costs, 20 bps from higher freight and distribution costs, and 10 bps from higher warranty costs.

Selling, General and Administrative Expenses

SG&A increased $34 million to $447 million for the nine months ended September 30, 2021 compared to $413 million for the nine months ended September 30, 2020 primarily due to higher incentive compensation costs and higher other employee related costs. As a percentage of net sales, SG&A decreased 130 bps to 13.9% from 15.2%.

Losses (gains) and Other Expenses, Net

Losses (gains) and other expenses, net for the nine months ended September 30, 2021 and 2020 included the following (in millions):

			Nine Months Ended September 30,
			2021						2020
Realized (gains) losses on settled futures contracts			$	(0.9)					$	0.2
Foreign currency exchange gains			(1.6)						(3.0)
Gain on disposal of fixed assets			(0.6)						(0.4)
Other operating income			(0.9)						(1.7)
Net change in unrealized (gains) losses on unsettled futures contracts			0.1						—
Special legal contingency charges			1.0						0.9
Asbestos-related litigation			4.5						1.9
Environmental liabilities			1.8						1.5
Charges incurred related to COVID-19 pandemic			1.9						6.4
Other items, net			(0.6)						(0.2)
Losses (gains) and other expenses, net (pre-tax)			$	4.7					$	5.6

The net change in unrealized losses on unsettled futures contracts was due to changes in commodity prices relative to the unsettled futures contract prices. For more information on our futures contracts, see Note 7 in the Notes to the Consolidated Financial Statements. For more information on special legal contingency charges and asbestos-related litigation, see Note 4 in the Notes to the Consolidated Financial Statements. The environmental liabilities related to estimated remediation costs for contamination at some of our facilities.

Restructuring Charges

Restructuring charges were $2 million for the first nine months of 2021 and $11 million for the nine months ended September 30, 2020. Charges primarily relate to several cost reduction actions taken in response to the economic impact of the COVID-19 pandemic on our business.

Gains and Losses related to Natural Disasters

The activity in this account for 2020 related to costs occured for natural disasters in our manufacturing facility in Iowa. There was no activity in 2021.

Income from Equity Method Investments

Income from equity method investments of $12 million for the nine months ended September 30, 2021 was materially consistent with the amount for the nine months ended September 30, 2020.

Interest Expense, net

Interest expense, net was down $3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to lower borrowing costs.

Income Taxes

Our effective tax rate decreased to 19.0% for the nine months ended September 30, 2021 compared to 22.0% for the nine months ended September 30, 2020 primarily due to higher excess tax benefits from stock-based compensation and the recording of a valuation allowance on certain foreign deferred tax assets recorded in the first quarter of 2020.

Year-to-Date through September 30, 2021 Compared to Year-to-Date through September 30, 2020 - 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, 2021 and 2020 (dollars in millions):

			Nine Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	2,155.3					$	1,808.8					$	346.5					19.2		%
Profit			$	430.1					$	312.8					$	117.3					37.5		%
% of net sales			20.0		%				17.3		%

Net sales increased 19% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Sales volume was 15% higher, price and mix combined improved 3%, and foreign currency improved 1%.

Segment profit for the first nine months of 2021 compared to 2020 increased $117 million primarily due to $86 million from higher sales volume, $62 million from favorable price, $19 million from higher factory productivity, $6 million from favorable currency exchange, and $5 million from sourcing and engineering-led cost reductions. Partially offsetting these increases were $35 million from higher commodity costs and tariffs, $11 million from higher SG&A, $9 million from higher warranty and other product costs, $4 million from unfavorable mix, and $2 million from freight and distribution.

Commercial Heating & Cooling

The following table presents our Commercial Heating & Cooling segment's net sales and profit for the nine months ended September 30, 2021 and 2020 (dollars in millions):

			Nine Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	663.4					$	574.6					$	88.8					15.5		%
Profit			$	95.3					$	93.1					$	2.2					2.4		%
% of net sales			14.4		%				16.2		%

Net sales increased 16% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Sales volume was 12% higher, price and mix combined improved 3%, and foreign currency improved 1%.

Segment profit for the first nine months of 2021 compared to 2020 increased $2 million primarily due to $24 million from higher sales volume and $9 million from favorable price and mix. Partially offsetting these improvements were $11 million from higher other product costs, $8 million from factory inefficiencies, $4 million from higher freight and distribution costs, $3 million of higher SG&A costs, $3 million from higher commodity costs and tariffs, and $2 million from sourcing and engineering-led cost increases.

Refrigeration

The following table presents our Refrigeration segment's net sales and profit for the nine months ended September 30, 2021 and 2020 (dollars in millions):

			Nine Months Ended September 30,
			2021						2020						Difference						% Change
Net sales			$	410.6					$	336.7					$	73.9					21.9		%
Profit			$	35.8					$	22.6					$	13.2					58.4		%
% of net sales			8.7		%				6.7		%

Net sales increased 22% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Sales volume was 17% higher, foreign currency improved 3% and combined price and mix was 2% higher.

Segment profit for the first nine months of 2021 compared to 2020 increased $13 million primarily due to $21 million from higher volume, $7 million from favorable price and mix combined, $2 million from sourcing and engineering-led cost reductions, and $1 million from favorable foreign currency exchange. Partially offsetting these increases were $10 million from higher SG&A, $5 million from higher commodity costs, $2 million from higher other product costs, and $1 million from higher freight and distribution expense.

Corporate and Other

Corporate and other expenses decreased $2 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 primarily due to changes in incentive compensation costs.

Liquidity and Capital Resources

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

Statement of Cash Flows

The following table summarizes our cash flow activity for the nine months ended September 30, 2021 and 2020 (in millions):

			For the Nine Months Ended September 30,
			2021						2020
Net cash provided by operating activities			$	396.3					$	446.2
Net cash used in investing activities			(67.6)						(56.5)
Net cash used in financing activities			(410.5)						(365.0)

Net Cash Provided by Operating Activities - The change in net cash provided by operating activities for the nine months ended September, 30 2021 compared to the same period in 2020 reflects less favorable changes in working capital partially offset by an increase in operating income.

Net Cash Used in Investing Activities - Capital expenditures were $69 million for the nine months ended September 30, 2021 compared to $56 million in the same period of 2020. Capital expenditures in 2021 were primarily related to the 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, 2021 increased to $411 million compared to $365 million in the same period of 2020. The change was primarily due to increased share repurchases in the current year compared to the prior year, which was partially offset by increased net borrowings. We repurchased $600 million of shares for the nine months ended September 30, 2021 and returned $93 million to shareholders through dividend payments. 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, 2021 (in millions):

			Outstanding Borrowings
Current maturities of long-term debt:
Asset securitization program (2)			$	290.0
Finance lease obligations			10.6
Debt issuance costs			—
Total current maturities of long-term debt			$	300.6
Long-term debt:
Finance lease obligations			27.8
Domestic credit facility (1)			9.0
Senior unsecured notes			950.0
Debt issuance costs			(9.2)
Total long-term debt			977.6
Total debt			$	1,278.2

(1) The available future borrowings on our domestic credit facility are $739.0 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 related to the terms of the Domestic Credit Facility.

(2) The maximum securitization amount ranges from $250.0 million to $400.0 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 10 in the Notes to the Consolidated Financial Statements for more information.

July 2021 Credit Agreement

In July 2021, we entered into the Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto, which refinanced and replaced the Prior Credit Agreement, among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders party thereto.

The Credit Agreement provides for revolving credit commitments of $750 million with sublimits for swingline loans of up to $65 million, letters of credit up to $100 million and revolving loans in certain non-U.S. currencies up to the U.S. dollar equivalent of $40 million. The Credit Agreement will expire and outstanding loans will be required to be repaid in July 2026, unless maturity is extended by the lenders pursuant to two one-year extension options that we may request under the Credit Agreement. At our request and subject to certain conditions, the revolving credit commitments under the Credit Agreement may be increased by up to a total of $350 million to the extent that existing or new lenders agree to provide additional commitments.

The Credit Agreement is guaranteed by certain of our subsidiaries and contains customary covenants applicable to us and its subsidiaries including limitations on indebtedness, liens, dividends, stock repurchases, mergers and sales of all or substantially all of its assets. In addition, the Credit Agreement contains a financial covenant requiring us to maintain, as of the last day of each fiscal quarter for the four prior fiscal quarters, a Total Net Leverage Ratio of no more than 3.50 to 1.00 (or, at our election, on up to two occasions following a material acquisition, 4.00 to 1.00). The Credit Agreement is subject to customary events of default, 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.

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 decreased to 135% at September 30, 2021 from 102% at December 31, 2020.

As of September 30, 2021, our senior credit ratings were Baa2 with a stable outlook, and BBB with a stable outlook, by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Group ("S&P"), respectively. The security ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. Our goal is to maintain investment grade ratings from Moody's and S&P to help ensure the capital markets remain available to us.

Liquidity

We believe our cash and cash equivalents of $39 million, future cash generated from operations and available future borrowings 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 $39 million as of September 30, 2021 was $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.

Guarantees related to our Debt Obligations

Our senior unsecured notes were issued by Lennox International Inc. (the "Parent") and are unconditionally guaranteed by certain of our subsidiaries (the "Guarantor Subsidiaries") and are not secured by our other subsidiaries. The Guarantor Subsidiaries are 100% owned and consolidated, all guarantees are full and unconditional, and all guarantees are joint and several.

In connection with the Credit Agreement we entered into in July 2021, Heatcraft Technologies Inc., Lennox National Account Services Inc., Lennox Procurement Company Inc. and Lennox Services LLC became additional guarantors of our debt obligations, guaranteeing the payment when due of all monetary obligations under the Credit Agreement and the Notes. In addition, Lennox Switzerland GmbH was released as a guarantor of all monetary obligations under the Credit Agreement and the Notes. These changes did not result in a material change to the Parent and Guarantor Subsidiaries financial information.

Off Balance Sheet Arrangements

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

See Note 1 in the Notes to the Consolidated Financial Statements for disclosure of recent accounting pronouncements and the potential impact on our financial statements and disclosures.