~~Restricted Cash~~

~~The following table provides a reconciliation of cash and cash equivalents and restricted cash~~Southwire Company, LLC (the “buyer”) for $87.5 million, subject to customary adjustments. Genesis is reported within the Products and Solutions Segment. The divestiture does not represent a strategic shift, nor will it have a significant impact on our Unaudited Consolidated Statements of Operations. As such, we have reclassified the related assets and liabilities to held for sale within other current assets and accrued liabilities, respectively, on the Unaudited Consolidated Balance Sheets. The estimated fair value less costs exceeds the carrying amount for Genesis, therefore no impairment was recognized for the three and nine months ended September 30, 2023. The transaction closed in October 2023.

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

The following is a summary of the major categories of assets and liabilities that have been classified as held for sale within other current assets and accrued liabilities on the Unaudited Consolidated Balance Sheets ~~that total the amounts shown in the Consolidated Statements of Cash Flows:~~at September 30, 2023:


(in millions)	September 30, 2023
Accounts receivables, net	$	20
Inventories, net	14
Property, plant and equipment, net	7
Goodwill	40
Other assets	5
Total assets held for sale	$	86

Accounts payable	$	18
Accrued liabilities	8
Other liabilities	5
Total liabilities held for sale	$	31

October 1, 2022

December 31, 2021

Cash and cash equivalents

$
252

$
775

Restricted cash included in Other current assets (1)

3

4

Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows

$
255

$
779

~~(1) Primarily collateral to support certain bank guarantees.~~

Note 2. Summary of Significant Accounting Policies

~~The Company’s~~Our significant accounting policies are detailed in Note 2. Summary of Significant Accounting Policies of the Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes to these policies that have had a material impact on the Unaudited Consolidated Financial Statements and accompanying notes for the three and nine months ended September 30, 2023.

~~Recent Accounting Pronouncements~~

We consider the applicability and impact of all recent accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”)~~. ASUs not listed below were assessed~~ and ~~determined to be either not applicable or are expected to have an immaterial impact on our Financial Statements.~~

~~In September 2022, the FASB issued ASU No. 2022-04,~~ ~~Liabilities-Supplier Finance Programs (Topic 405): Disclosure of Supplier Finance Program Obligations,~~ ~~which provides guidance for a buyer in a supplier finance program to~~ disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The standard is effective for interim annual periods beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the potential impact of adopting this standard but do not expect it toonly those that may have a material ~~impact on our Financial Statements.~~impact.

~~In October 2021, the FASB issued ASU No. 2021-08,~~ ~~Business Combinations (Topic 805):~~

Adopted Accounting ~~for Contract Assets and Contract Liabilities from Contracts with Customers~~Pronouncements

~~. Under this standard, an acquirer must recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. The standard is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 effective April 1, 2022, on a prospective basis. The impact of adoption of this standard on our Financial Statements, including accounting policies, processes, and systems, was not material.

In March 2020, the FASB issued ASU ~~No.~~ 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, ~~which is~~and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional ~~guidance related~~expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform ~~that provides practical expedients for contract modifications and~~if certain criteria are met. The amendments apply only to contracts, hedging relationships, ~~associated with the transition from~~and other transactions that reference ~~rates that are~~London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be ~~discontinued. This standard, along with its subsequent clarifications, is effective~~discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from ~~March 12, 2020 through~~ December 31, 2022 to December 31, 2024. This guidance may be applied prospectively to contract modifications made and ~~is applicable to our A&R Senior Credit Facilities and Swap Agreements, which use LIBOR as a reference rate.~~hedging relationships entered into or evaluated on or before December 31, 2024. The A&R Senior Credit Facilities include a transition clause to a new reference rate in the event LIBOR is discontinued and Swap Agreements will be amended to match the new reference rate. We have evaluated the potential impact of ~~adopting~~the adoption of this standard ~~and do not expect it to have a material impact~~ on our ~~Financial Statements.~~financial statements and related disclosures, including accounting policies, processes, and systems, was not material. Refer to Note ~~17. Long-term~~12. Long-Term Debt and ~~Credit Agreement~~Note 13. Derivative Financial Instruments to the Unaudited Consolidated Financial Statements for further ~~details.~~discussion.

Note 3. Acquisitions

Pro forma results of operations for the following acquisitions have not been presented, as the impacts on our consolidated financial results were not material.

2023 Acquisitions

Sfty SA—On August 9, 2023, we acquired 100% of the outstanding equity of Sfty SA, a developer of cloud-based services providing alerts to multifamily homes and property managers with smoke, carbon monoxide and water leak detection

9Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

products. We report Sfty SA’s results within the Products and Solutions segment. We have made a preliminary purchase price allocation that is subject to change as additional information is obtained.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~BTX Technologies, Inc.

~~October 1,~~ —On January 23, 2023, we acquired 100% of the outstanding equity of BTX Technologies, Inc., (“BTX”) a leading distributor of professional audio, video, data communications, and broadcast equipment. We report BTX’s results within the ADI Global Distribution segment. We have made a preliminary purchase price allocation that is subject to change as additional information is obtained.

2022 Acquisitions

~~(In millions, unless otherwise noted)~~Teknique Limited

~~(Unaudited)~~—On December 23, 2022, we acquired 100% of the outstanding equity of Teknique Limited, a developer and producer of edge-based, artificial intelligence-enabled video camera solutions. We report Teknique Limited’s results within the Products and Solutions segment. Purchase consideration included cash and a note payable with the former owner. We have made a preliminary purchase price allocation that is subject to change as additional information is obtained.

Electronic Custom Distributors, Inc.—On July 5, 2022, we acquired 100% of the outstanding equity of Electronic Custom Distributors, Inc., a regional distributor of residential audio, video, automation, security, wire and telecommunication products. We report Electronic Customer Distributors, Inc.’s results within the ADI Global Distribution segment. We completed the accounting for the acquisition during the first quarter of 2023, which did not result in any adjustments.

First Alert, Inc.—On March 31, 2022, we acquired 100% of the outstanding equity of First Alert, Inc., a leading provider of home safety products. We report First Alert, Inc.’s results within the Products and Solutions segment. We completed the accounting for the acquisition during the first quarter of 2023, which did not result in any adjustments.

Note 3.4. Segment Financial Data

We monitor our business operations through our two operating segments: Products &and Solutions and ADI Global Distribution.

These operating segments follow the same accounting policies used for the ~~Financial Statements.~~financial statements. We evaluate a segment’s performance on a ~~U.S.~~ GAAP basis, primarily operating income before corporate expenses.

Corporate expenses ~~primarily include unallocated share-based compensation expenses, unallocated pension expense, restructuring charges,~~relate to functions within the corporate office that support the operating segments such as acquisition-related costs, ~~and other expenses related to executive,~~ legal, ~~finance,~~ tax, treasury, human resources, ~~information technology,~~IT, strategy, accounting, communications, ~~and~~innovation, business development, facilities management, corporate travel ~~expenses. Additional~~expenses and other executive costs. Additionally, included within Corporate are unallocated ~~amounts primarily include~~ non-operating items such as pension expense, Reimbursement Agreement expense, interest income, interest expense, and other income (expense).

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions, and assesses operating performance.

The following table represents summary financial data attributable to the segments:


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net revenue
Products and Solutions	$	654	$	707	$	1,989	$	2,090
ADI Global Distribution	900		911		2,716		2,720
Total net revenue	$	1,554	$	1,618	$	4,705	$	4,810

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net revenue:

Products & Solutions

$
707

$
631

$
2,090

$
1,835

ADI Global Distribution

911

865

2,720

2,557

Total Net revenue

$
1,618

$
1,496

$
4,810

$
4,392

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Income from operations
Products and Solutions	$	107	$	124	$	352	$	431
ADI Global Distribution	60		78		211		244
Corporate	(58)		(47)		(163)		(162)
Total income from operations	$	109	$	155	$	400	$	513

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Income from operations:

Products & Solutions

$
124

$
157

$
431

$
416

ADI Global Distribution

78

73

244

198

Corporate

(47
)

(63
)

(162
)

(196
)
Total Income from operations

$
155

$
167

$
513

$
418

The Company’s Chief Executive Officer, its Chief Operating Decision Maker, does not use segment assets information to allocate resources or to assess performance of the segments and therefore, total segment assets have not been reported.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

Note 4.5. Revenue Recognition

~~Disaggregated Revenue~~

~~The Company has~~

We have two operating segments, Products &and Solutions and ADI Global Distribution. Disaggregated revenue information for Products &and Solutions is presented by product grouping, while ADI Global Distribution is presented by region. ~~Beginning January 1, 2022,~~

The following table presents revenue by business line and geographic location, as we believe this presentation best depicts how the ~~Products & Solutions operating segment further disaggregated the Comfort product grouping into Air~~nature, amount, timing, and ~~Water,~~uncertainty of net revenue and ~~Residential Thermal Solutions is now referenced as Energy. As of April 1, 2022, the First Alert business is included in the Security and Safety grouping.~~

~~Revenues~~cash flows are affected by ~~product grouping and region are as follows:~~economic factors:

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Products & Solutions:

Security and Safety

$
248

$
172

$
670

$
512

Air

245

215

721

612

Energy

142

156

455

446

Water

72

88

244

265

Total Products & Solutions

$
707

$
631

$
2,090

$
1,835

ADI Global Distribution:

U.S. and Canada

$
792

$
727

$
2,335

$
2,125

EMEA (1)

111

128

360

402

APAC (2)

8

10

25

30

Total ADI Global Distribution

911

865

2,720

2,557

Total Net revenue

$
1,618

$
1,496

$
4,810

$
4,392


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Products and Solutions
Air	$	211	$	245	$	640	$	721
Safety and Security	245		248		721		670
Energy	123		142		391		455
Water	75		72		237		244
Total Products and Solutions	654		707		1,989		2,090

ADI Global Distribution
U.S. and Canada	780		792		2,354		2,335
EMEA (1)	120		111		362		360
APAC (2)	—		8		—		25
Total ADI Global Distribution	900		911		2,716		2,720

Total net revenue	$	1,554	$	1,618	$	4,705	$	4,810

(1)EMEA represents Europe, the Middle East and Africa.

(2)APAC represents Asia and Pacific countries.

Note 6. Restructuring

~~We recognize~~

During the ~~majority~~third quarter of 2023, we initiated additional restructuring programs (“2023 Plan”) in order to align our cost structure with market conditions. For the three and nine months ended September 30, 2023, we recognized restructuring and impairment expenses of $38 million and $42 million, respectively. These expenses primarily related to workforce reductions.

Restructuring and impairment expenses recognized were $25 million in the Product and Solutions segment, $10 million in the ADI Global Distribution segment and $3 million in the Corporate segment, respectively, for the three months ended September 30, 2023, and $27 million in the Product and Solutions segment, $12 million in the ADI Global Distribution

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

segment and $3 million in the Corporate segment, respectively, for the nine months ended September 30, 2023. No restructuring and impairment expenses were recognized for the three and nine months ended October 1, 2022.

In 2022, we initiated certain restructuring programs to lower costs, increase gross and operating margins and position us for growth. Refer to Note 6. Restructuring Expenses in our 2022 Annual Report on Form 10-K for further discussion of our ~~revenue from performance obligations outlined~~2022 restructuring programs.

We expect to fully execute our restructuring initiatives and programs over the next 12 to 24 months, and we may incur future additional restructuring expenses associated with these plans. We are unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, associated with future phases of the plans or the total costs we may incur in ~~contracts~~connection with ~~our customers that are satisfied at a point in time. Less than~~ these plans.

The following table summarizes the status of our ~~revenue is satisfied over time.~~ restructuring expenses included within accrued liabilities on the Unaudited Consolidated Balance Sheets.


	Nine Months Ended		Twelve Months Ended
(in millions)	September 30, 2023		December 31, 2022
Beginning of period	$	27	$	9
Charges	36		26
Usage (1)	(22)		(5)
Other	—		(3)
End of period	$	41	$	27

(1) Usage primarily relates to cash payments associated with employee termination costs.

Note 7. Pension Plans

As a result of ~~October 1, 2022~~a voluntary lump sum window offering and ~~October 2, 2021,~~the purchase of a group annuity contract that transferred a portion of the assets and liabilities ~~were not material.~~

to an insurance company during the first quarter of 2023, we triggered settlement accounting and performed a remeasurement of our U.S. qualified defined benefit pension plan. As a result, we recognized non-cash pension settlement losses within other expense, net in the Unaudited Consolidated Statements of Operations of $3 million and $6 million for the three and nine months ended September 30, 2023, respectively. The loss for the three months ended September 30, 2023 is mainly related to an adjustment to our estimate of the losses from settlements that occurred during the first quarter of 2023. The corresponding remeasurement of our U.S. qualified defined benefit pension plan resulted in decreases of $80 million in plan assets and $75 million in liabilities for the nine months ended September 30, 2023.

Note 5.8. Stock-Based Compensation Plans

~~Restricted~~

The Stock ~~Units (“RSUs”)~~Incentive Plans, which consists of the Amended and ~~Performance Stock Unit (“PSUs”)~~

~~During the three and nine months ended October 1, 2022, we recorded share-based compensation expense for all awards of~~ $13~~million and~~ $36 ~~million, respectively. During the three and nine months ended October 2, 2021, we recorded share-based compensation expense for all awards of~~ $10~~million and~~ $29~~million, respectively.~~

~~Employee awards~~

~~During the nine months ended October 1, 2022, as part of our annual long-term compensation under the~~Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates ~~as may be amended from time to time, we granted~~ ~~669,551~~ ~~market-based PSUs~~ and~~1,711,282~~ ~~service-based RSUs to eligible employees. The weighted average grant date fair value per share for market-based PSUs and service-based RSUs was $36.11~~ ~~and $22.68, respectively. During the nine months ended October 2, 2021, we granted~~ ~~497,645~~ ~~market-based PSUs and~~ ~~1,075,887~~ ~~service-based RSUs to eligible employees. The weighted average grant date fair value per share for market-based PSUs and service-based RSUs was $42.98~~ ~~and $27.26, respectively.~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

~~Non-employee Director awards~~

~~During the nine months ended October 1, 2022, as part of our annual long-term compensation under~~ the 2018 Stock Incentive Plan for Non-Employee Directors of Resideo Technologies, Inc., ~~as may be amended from time to time, we granted~~ ~~66,580~~ ~~service-based RSUs to eligible non-employee directors. The weighted average~~provide for the grant ~~date fair value per share for service-based RSUs was $~~of stock options, stock appreciation rights, restricted stock units, restricted stock, and other stock-based awards.

~~23.62~~.

During the ~~nine months ended October 1, 2022, we did not~~second quarter of 2023, the Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates was further amended to increase the number of shares of our common stock available for issuance by 3.5 million shares for an aggregate of 19.5 million shares with no more than 7.5 million shares being available for grant ~~any PSUs~~in the form of stock options.

A summary of awards granted as part of our annual long-term compensation follows:

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Resideo Technologies, Inc.

Notes to ~~eligible non-employee directors. During the nine months ended October 2, 2021, we granted~~ Consolidated Financial Statements

(Unaudited)


	Nine Months Ended September 30, 2023			Nine Months Ended October 1, 2022
	Number of Stock Units Granted	Weighted average grant date fair value per share		Number of Stock Units Granted	Weighted average grant date fair value per share
Performance Stock Units (“PSUs”)	553,071	$	29.89	669,551	$	36.11
Restricted Stock Units (“RSUs”)	2,232,465	$	18.85	1,711,282	$	22.68

~~39,891~~ ~~service-based RSUs to eligible non-employee directors. The weighted average grant date fair value per share for service-based RSUs was $31.75~~.

Annual RSU awards to our key employees generally have a ~~three- or four-year~~three-year service or performance period. RSU awards to our non-employee directors have a one-year service period. The fair value is determined at the ~~date of grant.~~

~~Note 6. Leases~~

~~We are party to operating leases for~~grant date. PSUs granted in 2023 were issued with the ~~majority~~shares awarded per unit being based on the difference in performance between the total stockholders’ return of our ~~manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment.Certain real estate leases include variable rental payments which adjust periodically~~common stock against that of the S&P 600 Industrials Index. PSUs granted prior to 2023 were issued with the shares awarded per unit being based on ~~inflation. Many leases contain options to renew and extend lease terms and options to terminate leases early. Reflected~~the difference in performance between the ~~right-of-use asset and lease liability on the Consolidated Balance Sheets are the periods provided by renewal and extension options~~total stockholders’ return of our common stock against that we are reasonably certain to exercise, as well as the periods provided by termination options that we are reasonably certain not to exercise. Generally, the lease agreements do not contain any material residual value guarantees or material restrictive covenants.

~~The operating lease expense for the three and nine months ended October 1, 2022 and October 2, 2021 consisted~~ of the ~~following:~~S&P 400 Industrials Index.

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Cost of goods sold

$
3

$
5

$
13

$
13

Selling, general and administrative expenses

13

12

38

34

Total operating lease expense

$
16

$
17

$
51

$
47

~~Total operating lease~~

Stock-based compensation expense, ~~includes variable lease expense~~net of $6tax was $11 million and $15$36 million for the three and nine months ended ~~October 1, 2022,~~September 30, 2023, respectively. ~~For the three and nine months ended October 2, 2021, total operating lease expense includes variable lease expenses of $~~5 ~~million and $~~13 ~~million, respectively.~~

In addition to the monthly base rent, we are often charged separately for common area maintenance which is considered a non-lease component. These non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities.

A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. We have elected to adopt the short-term lease exemption in ASC 842 and, as such have not recognized a right-of-use asset or lease liability for these short-term leases which are immaterial for the three and nine months ended October 1, 2022 and October 2, 2021.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

We ~~recognized the following related to our operating leases:~~

Financial
Statement
Line Item

As of October 1,
2022

As of December 31,
2021

Operating right-of-use assets

Other assets

$
187

$
141

Operating lease liabilities - current

Accrued liabilities

$
37

$
32

Operating lease liabilities - noncurrent

Other long-term liabilities

$
161

$
120

~~Future minimum lease payments under non-cancelable leases are as follows:~~

As of October 1,
2022

2022

$
11

2023

45

2024

37

2025

31

2026

28

Thereafter

91

Total future minimum lease payments

243

Less: Imputed interest

45

Present value of future minimum lease payments

$
198

Weighted-average remaining lease term (years)

6.96

Weighted-average incremental borrowing rate

5.74
%

~~Supplemental cash flow information related to operating leases is as follows:~~

Nine Months Ended

October 1, 2022

October 2, 2021

Cash paid for amounts included in the measurement of lease liabilities: Cash outflows for operating leases

$
25

$
25

Non-cash activities: Right-of-use assets obtained in exchange for new operating lease liabilities

$
84

$
31

~~Note 7. Other Expense, Net~~

~~Other expense, net consists of the following:~~

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Reimbursement Agreement

$
30

$
39

$
116

$
111

Loss on extinguishment of debt

-

18

-

41

Settlement of pre-Spin-Off litigation

13

-

13

-

Other, net

1

1

(4
)

(22
)
Total Other expenses, net

$
44

$
58

$
125

$
130

~~The settlement liability related to pre-Spin-Off litigation is included in the Other current liabilities of the Financial Statements as of October 1, 2022.~~

~~Refer to~~ ~~Note 16. Commitments and Contingencies~~ ~~for further details on the Reimbursement Agreement.~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

~~Note 8. Income Taxes~~

For interim periods, income tax is equal to the total of (1) year-to-date pretax income multiplied by the forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where we expect to report losses where we do not expect to receive tax benefits, we apply separate forecast effective tax rates to those jurisdictions rather than including them in the consolidated forecast effective tax rate.

For the three and nine months ended October 1, 2022, stock-based compensation expense, net of tax was $13 million and $36 million, respectively.

Note 9. Inventories, net

The following table summarizes the details of our inventories, net:


(in millions)	September 30, 2023		December 31, 2022
Raw materials	$	229	$	251
Work in process	21		25
Finished products	720		699


Total inventories, net	$	970	$	975

Note 10. Goodwill and Intangible Assets, net

Our goodwill balance and changes in carrying value by segment are as follows:


(in millions)	Products and Solutions		ADI Global Distribution		Total
Balance at December 31, 2022	$	2,072	$	652	$	2,724
Acquisitions	10		3		13
Adjustments(1)	(42)		—		(42)


Impact of foreign currency translation	(6)		(2)		(8)
Balance at September 30, 2023	$	2,034	$	653	$	2,687

(1) Primarily relates to the divestiture of our Genesis business as discussed in Note 1. Nature of Operations and Basis of Presentation.

The following table summarizes the net ~~tax~~carrying amount of intangible assets:


(in millions)	September 30, 2023		December 31, 2022
Intangible assets subject to amortization	$	276	$	295
Indefinite-lived intangible assets	180		180
Total intangible assets	$	456	$	475

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Intangible assets subject to amortization consisted of the following:


	September 30, 2023						December 31, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and technology	$	57	$	(23)	$	34	$	65	$	(28)	$	37
Customer relationships	311		(129)		182		313		(117)		196
Trademarks	8		(8)		—		14		(8)		6
Software	187		(127)		60		175		(119)		56
Intangible assets subject to amortization	$	563	$	(287)	$	276	$	567	$	(272)	$	295

Intangible assets amortization expense was $33$9 million and $~~104~~ million, respectively, and consists primarily of interim period tax expense based on year-to-date pretax income multiplied by our forecast effective tax rate. In addition to items specific to the period, the Company’s income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings. Tax expense was $29 ~~million and $~~76$28 million for the three and nine months ended ~~October 2, 2021,~~September 30, 2023, respectively.

~~Note 9. Earnings Per Share~~

~~The following table sets forth the computation of basic and diluted earnings per share (in millions, except shares in thousands, and per share data):~~

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Numerator for Basic and Diluted Earnings Per Share

Net income

$
63

$
68

$
244

$
175

Denominator for Basic and Diluted Earnings Per Share

Weighted average basic number of shares outstanding

145,755

144,284

145,442

143,865

Add: dilutive effect of share equivalents

3,403

4,275

3,530

4,395

Weighted average diluted number of shares outstanding

149,158

148,559

148,972

148,260

Earnings per share:

Basic

$
0.43

$
0.47

$
1.68

$
1.22

Diluted

$
0.42

$
0.46

$
1.64

$
1.18

Note 11. Leases

Total operating lease costs are as follows:


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Operating lease costs
Cost of goods sold	$	5	$	3	$	15	$	13
Selling, general and administrative expenses	14		13		43		38
Total operating lease costs	$	19	$	16	$	58	$	51

Total operating lease costs include variable lease costs of ~~common stock, respectively, were outstanding and anti-dilutive, and therefore excluded from the computation of diluted earnings per share. In addition, an average of~~ ~~1.5~~$6 million and ~~0.8~~$18 million ~~shares of performance-based unit awards are excluded from~~for the ~~computation of diluted earnings per share for~~three and nine months ended September 30, 2023, respectively. For the three and nine months ended October 1, 2022, ~~respectively, as the contingency had not been satisfied. For the three and nine months ended October 2, 2021, average options and other rights to purchase approximately~~ ~~0.2~~ ~~million shares~~total operating lease costs include variable lease costs of ~~common stock were outstanding and anti-dilutive, and therefore excluded from the computation of diluted income per common share. An average of approximately~~ ~~0.8~~$6 million and $15 million, respectively.

The following table summarizes the carrying amounts of our operating lease assets and liabilities:


(in millions)	Financial Statement Line Item	September 30, 2023		December 31, 2022
Operating lease assets	Other assets	$	197	$	191
Operating lease liabilities - current	Accrued liabilities	$	36	$	37
Operating lease liabilities - non-current	Other liabilities	$	174	$	166

Supplemental cash flow information related to operating leases was as follows:


	Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022
Cash paid for operating lease liabilities	$	27	$	25
Non-cash activities: operating lease assets obtained in exchange for new operating lease liabilities	$	37	$	84

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 12. Long-Term Debt

Long-term debt is comprised of the following:



(in millions)	September 30, 2023		December 31, 2022

4.000% Senior Notes due 2029	$	300	$	300


Variable rate A&R Term B Facility	1,123		1,131

Gross debt	1,423		1,431
Less: current portion of long-term debt	(12)		(12)
Less: unamortized deferred financing costs	(14)		(15)
Total long-term debt	$	1,397	$	1,404

A&R Senior Credit Facilities

On February 12, 2021, we entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). The A&R Credit Agreement provides for (i) an initial seven~~0.7~~-year senior secured Term B loan facility in an aggregate principal amount of $950 million, ~~shares~~which was later amended to add $200 million in additional term loans (the “A&R Term B Facility”) and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of ~~performance-based unit awards are excluded~~$500 million (the “A&R Revolving Credit Facility” and, together with the A&R Term B Facility, the “A&R Senior Credit Facilities”).

The A&R Senior Credit Facilities contain customary LIBOR replacement language, including, but not limited to, the use of rates based on secured overnight financing rate (“SOFR”), which is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement market and is administered by the Federal Reserve Bank of New York. On June 30, 2023, we modified the calculation of interest under the A&R Senior Credit Facilities from being calculated based on LIBOR to being calculated based on SOFR. Therefore, the ~~computation~~A&R Senior Credit Facilities bears interest at a rate per annum of ~~diluted earnings per share~~Term SOFR plus a credit spread adjustment of 10 basis points for the ~~three~~A&R Revolving Credit Facility and ~~nine months ended October 2, 2021, respectively, as~~varying credit spread adjustments for the ~~contingency had not been satisfied.~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

~~Note 10. Accounts Receivable, Net~~

~~Accounts receivable, net consists~~A&R Term B Facility, based on the tenor of each individual borrowing. No other material terms of the ~~following:~~A&R Senior Credit Facilities were amended.

At September 30, 2023 and December 31, 2022, the weighted average interest rate for the A&R Term B Facility, excluding the effect of the interest rate swaps, was 7.69% and 6.78%, respectively, and there were no borrowings and no letters of credit issued under the A&R Revolving Credit Facility. As of September 30, 2023, we were in compliance with all covenants related to the A&R Senior Credit Facilities.

October 1, 2022

December 31, 2021

Accounts receivable

$
1,052

$
885

Allowance for doubtful accounts

(9
)

(9
)
Accounts receivable, net

$
1,043

$
876

We entered into certain interest rate swap agreements in March 2021, which were amended in June 2023, to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. These interest rate swap agreements effectively convert a portion of our variable-rate debt to fixed rate debt. Refer to Note 13.Derivative Financial Instruments for further discussion.

Refer to Note 11. Long-Term Debt in our 2022 Annual Report on Form 10-K for further discussion.

Note ~~11. Inventories, Net~~13. Derivative Financial Instruments

In March 2021, we entered into eight interest rate swap agreements (“Swap Agreements”) with several financial institutions for a combined notional value of $560 million. The ~~components~~Swap Agreements were entered into to reduce the consolidated interest rate risk associated with variable rate, long-term debt.

Table of ~~inventories were~~Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

In March and April 2023, we modified two of the eight Swap Agreements, each with a notional value of $70 million that matures in May 2024 as follows: (i) the original interest rate swap agreements were cancelled for no termination payment and (ii) we simultaneously entered into new pay-fixed interest rate swap agreements with a notional amount of $70 million each, effectively blending the asset positions of the original interest rate swap agreements into new interest swap agreements and extending the term of our hedged positions to February 2027. In connection with these transactions, no cash was exchanged between us and the counterparty. The new pay-fixed interest rate swap agreements qualify as a hybrid instrument in accordance with Accounting Standards Codification 815,

Derivatives and Hedging, consisting of financing components and embedded at-market derivatives that were designated as cash flow hedges. The amounts remaining in accumulated other comprehensive loss for the modified interest rate swap agreements as of September 30, 2023 were approximately $4 million in aggregate and are being amortized as a reduction to interest expense over the effective period of the original interest rate swap agreements, or May 2024. The financing components are accounted for at amortized cost over the life of the swap while the embedded at-market derivatives are accounted for at fair value.

On June 23, 2023, we amended the Swap Agreements to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. Under the amended Swap Agreements, we convert a portion of our variable interest rate obligations based on Term SOFR with a minimum rate of 0.39% per annum to a base fixed weighted average rate of 1.13% over the remaining terms. We designated the Swap Agreements as cash flow hedges of the variability in expected cash outflows for interest payments.

The Swap Agreements are adjusted to fair value on a quarterly basis. The fair value of each swap is presented within the Unaudited Consolidated Balance Sheets, and we recognize any changes in the fair value as an adjustment of accumulated other comprehensive loss within equity to the extent the swap is effective. As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive loss related to the Swap Agreements are reclassified into income resulting in a net interest expense on the hedged amount of the underlying debt obligation equal to the effective yield of the fixed rate of the swap.

The following table summarizes the fair value and presentation of derivative instruments in the Unaudited Consolidated Balance Sheets as well as the changes in fair value recorded in accumulated other comprehensive loss:


	Fair Value of Derivative Assets
(in millions)	Financial Statement Line Item	September 30, 2023		December 31, 2022





Derivatives designated as hedging instruments
Interest rate swaps	Other current assets	$	23	$	23
Interest rate swaps	Other assets	18		22
Total derivative assets designated as hedging instruments		$	41	$	45








Unrealized gain	Accumulated other comprehensive loss	$	38	$	42

The following table summarizes the effect of derivative instruments designated as cash flow hedges in other comprehensive income and the Unaudited Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Gains recorded in accumulated other comprehensive loss, beginning of period	$	40	$	30	$	42	$	6
Current period (loss) gain recognized in/reclassified from other comprehensive income	(2)		14		(4)		38
Gains recorded in accumulated other comprehensive loss, end of period	$	38	$	44	$	38	$	44

Unrealized gains expected to be reclassified from accumulated other comprehensive loss in the next 12 months are estimated to be $27 million as of September 30, 2023.

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

October 1, 2022

December 31, 2021

Raw materials

$
256

$
174

Work in process

25

17

Finished products

676

549

Total Inventories, net

$
957

$
740

Note ~~12. Property, Plant,~~14. Fair Value

The estimated fair value of our financial instruments held, and ~~Equipment, Net~~

~~Property, plant~~when applicable, issued to finance our operations, is summarized below. Certain estimates and ~~equipment,~~judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that we would realize upon disposition, nor do they indicate our intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at ~~cost, consists~~fair value are required to be classified and disclosed in one of the following ~~major asset classes:~~three categories:

October 1, 2022

December 31, 2021

Machinery and equipment

$
625

$
602

Buildings and improvements

292

292

Construction in progress

64

35

Other

7

4

Total Property, plant, and equipment, at cost

988

933

Less: Accumulated depreciation

(637
)

(646
)
Property, plant, and equipment, net

$
351

$
287

~~Depreciation expense~~

Level 1—quoted market prices in active markets for ~~both the three months ended October 1, 2022~~identical assets and ~~October 2, 2021 was $~~liabilities

Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3—unobservable inputs that are not corroborated by market data

15 ~~million, respectively. Depreciation expense for both the nine months ended October 1, 2022~~

Financial and ~~October 2, 2021 was $~~44 ~~million, respectively.~~

~~Note 13. Acquisitions~~

On ~~July 5, 2022, we acquired~~ ~~100% of the outstanding equity of Electronic Custom Distributors Inc., a regional distributor of residential audio, video, automation, security, wire~~non-financial assets and ~~telecommunication products and is included within the ADI Global Distribution operating segment. We have made a preliminary purchase price allocation~~liabilities are classified in their entirety based on ~~information~~the lowest level of input that is significant to the fair value measurement. There were no changes in the methodologies used in our valuation practices as of ~~October 1, 2022 that is subject to change~~September 30, 2023.

The fair values of long-term debt instruments were determined using quoted market prices in inactive markets or discounted cash flows based upon current observable market interest rates and therefore were classified as ~~additional information is obtained.~~

On ~~March 31, 2022, we acquired~~ ~~100% of the issued and outstanding capital stock of First Alert, a leading provider of home safety products for an aggregate cash purchase price of $613~~ ~~million, net of cash acquired of $~~Level 2 ~~million. First Alert expands and leverages our footprint~~ measurements in the ~~home with complementary smoke and carbon monoxide detection home safety products and fire suppression products. The business is included within the Products & Solutions operating segment.~~fair value hierarchy.

The following table ~~presents the preliminary purchase price allocation, for First Alert, at estimated fair value as~~provides a summary of ~~October 1, 2022:~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

Cash

$
2

Accounts receivable, net

72

Inventories, net

117

Other current assets

2

Property, plant and equipment

82

Goodwill (1)

86

Other intangible assets

349

Other assets (non-current)

31

Total assets

741

Accounts payable

57

Accrued liabilities

33

Other liabilities

36

Total liabilities

126

Net assets acquired

$
615

~~(1) The $~~86 ~~million of preliminary goodwill was allocated to the Products & Solutions operating segment. Goodwill from this acquisition is partially deductible for tax purposes.~~

On ~~February 14, 2022, we acquired~~ ~~100~~% of the outstanding equity of Arrow Wire and Cable Inc., a leading regional distributor of data communications, connectivity and security products. The business is included within the ADI Global Distribution operating segment and is expected to strengthen our global distribution portfolio in the data communications category with an assortment of copper and fiber cabling and connectivity, connectors, racking solutions, and network equipment.

~~Note 14. Goodwill and Other Intangible Assets, Net~~

~~The changes in~~ the carrying amount and fair value of ~~goodwill~~outstanding debt:


	September 30, 2023				December 31, 2022
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt
4.000% Senior Notes due 2029	$	300	$	246	$	300	$	242
Variable rate A&R Term B Facility	1,123		1,127		1,131		1,125
Total debt	$	1,423	$	1,373	$	1,431	$	1,367

Refer to Note 12. Long-Term Debt to the Unaudited Consolidated Financial Statements for further discussion.

Interest Rate Risk—We have exposure to movements in interest rates associated with cash and borrowings. We have entered, and in the ~~nine months ended October 1, 2022~~future may enter, into various interest rate protection agreements in order to limit the impact of movements in interest rates. The fair values of interest rate swaps have been determined based on market value equivalents at the balance sheet date, taking into account the current interest rate environment and therefore, were classified as ~~follows:~~Level 2 measurements in the fair value hierarchy.

Products & Solutions

ADI Global Distribution

Total

Balance as of December 31, 2021

$
2,010

$
651

$
2,661

Acquisitions and divestitures

86

24

110

Foreign currency translation adjustments and other changes

(70
)

(23
)

(93
)
Balance as of October 1, 2022

$
2,026

$
652

$
2,678

The following table ~~presents~~provides a summary of the ~~major components~~carrying amount and fair value of ~~Other intangible~~our interest rate swaps:


	September 30, 2023		December 31, 2022
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Interest rate swaps	$	41	$	41	$	45	$	45

Refer to Note 13. Derivative Financial Instruments to the Unaudited Consolidated Financial Statements for further discussion.

There are no Level 1 or Level 3 assets ~~net as~~or liabilities for the periods presented. The carrying amounts of ~~October 1, 2022~~cash and ~~December 31, 2021. Other intangible~~cash equivalents, accounts receivable, other current assets, ~~that are fully amortized have been omitted.~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

Range of Life (Years)

Weighted Average Amortization Period (Years)

Gross Carrying Amount

Accumulated
Amortization

Net
Carrying
Amount

As of October 1, 2022

Other intangible assets, net:

Patents and technology

3-10

10

$
62

$
(24
)

$
38

Customer relationships

7-15

14

289

(104
)

185

Trademarks (1)

10-Indefinite

10

193

(8
)

185

Software

2-7

6

167

(115
)

52

Total intangible assets

$
711

$
(251
)

$
460

As of December 31, 2021

Other intangible assets, net:

Patents and technology

3-10

9

$
31

$
(23
)

$
8

Customer relationships

7-15

14

162

(106
)

56

Trademarks

10

10

14

(8
)

6

Software

2-7

6

162

(112
)

50

Total intangible assets

$
369

$
(249
)

$
120

accounts payable, accrued and other liabilities approximate fair value because of the short-term maturity of these amounts.

~~(1)~~

~~Includes trademarks of $180~~ ~~million that have been assigned an indefinite life.~~

We ~~use the straight-line method~~Table of ~~amortization and expects~~Contents

Resideo Technologies, Inc.

Notes to ~~recognize amortization expense over the next five fiscal years as follows:~~

Consolidated Financial Statements

Amortization Expense

2022

$
9

2023

33

2024

31

2025

30

2026

25

(Unaudited)

Note 15. Accrued Liabilities

Accrued liabilities consist of the following:

October 1, 2022

December 31, 2021

Obligations payable under Indemnification Agreements

$
140

$
140

Compensation, benefit and other employee-related

101

114

Customer rebate reserve

84

94

Current operating lease liability

37

32

Taxes payable

33

54

Other (1)

199

167

Total Accrued liabilities

$
594

$
601



(in millions)	September 30, 2023		December 31, 2022
Obligations payable under Indemnification Agreements	$	140	$	140
Compensation, benefit and other employee-related	100		108
Customer rebate reserve	92		98
Restructuring	41		27
Current operating lease liability	36		37
Held for sale (1)	31		—
Product warranties	24		40
Taxes payable	17		38
Other (2)	111		152
Total accrued liabilities	$	592	$	640

(1) Relates to the divestiture of our Genesis business as discussed in Note 1. Nature of Operations and Basis of Presentation.

(2) Other includes ~~accrued~~accruals for advertising, legal and professional reserves, freight, ~~accrued advertising, accrued legal reserves. accrued~~royalties, interest, ~~accrued restructuring,~~ and other miscellaneous ~~accruals.~~items.

~~Refer to~~The Indemnification Agreements are further described in Note 16. Commitments and Contingencies ~~for further details on Obligations payable under Indemnification Agreements.~~to the Unaudited Consolidated Financial Statements

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

Note 16. Commitments and Contingencies

Environmental Matters

We are subject to various federal, state, local, and foreign government requirements relating to the protection of the environment and accrue costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site and the amount can be reasonably estimated. We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and regulations. We have incurred remedial response and voluntary cleanup costs for site contamination and are a party to claims associated with environmental and safety matters, including products containing hazardous substances. Additional claims and costs involving environmental matters are likely to continue to arise in the future.

Environment-related expenses for sites owned and operated by us are presented within ~~Cost~~cost of goods sold for operating sites. For the three and nine months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $22$22 million ~~for both October 1, 2022~~at September 30, 2023 and December 31, ~~2021.~~2022.

Obligations Payable Under Indemnification Agreements

The ~~indemnification and reimbursement agreement (the “Reimbursement Agreement”)~~Reimbursement Agreement and the ~~tax matters agreement (the “Tax~~Tax Matters ~~Agreement”)~~Agreement (collectively, the “Indemnification Agreements”) are further described below.

Reimbursement Agreement

We separated from Honeywell International Inc. (“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result of a pro rata distribution of our common stock to shareholders of Honeywell (the “Spin-off”). In connection with the Spin-Off, we entered into the Reimbursement Agreement, ~~with Honeywell that obligates us~~pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90%90% of payments for certain Honeywell environmental-liability payments, which include amounts billed ~~(“payments”)~~(payments), less 90%90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90%90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales (the ~~“recoveries”)~~recoveries). ~~The~~While the amount payable by us in respect of such liabilities arising in ~~respect of~~ any given year is subject to a cap of $$140 million

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

~~140~~ ~~million.~~under the Reimbursement Agreement, the estimated liability for resolution of pending and future environmental-related liabilities recorded on our balance sheets are calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites. Refer toNote ~~17.~~15. Commitments and Contingencies in ~~the Company’s 2021~~our 2022 Annual Report on Form 10-K for further discussion.

Tax Matters Agreement

In connection with the Spin-Off, we entered into the Tax Matters Agreement with Honeywell, ~~that obligates us~~pursuant to which we are responsible and will indemnify Honeywell for certain taxes, including certain income taxes, sales taxes, VAT and payroll taxes, relating to the business for all periods, including periods prior to the consummation of the Spin-Off. In addition, the Tax Matters Agreement addresses the allocation of liability for taxes that are incurred as a result of restructuring activities undertaken to effectuate the Spin-Off.

We are required to indemnify Honeywell for any taxes resulting from the failure of the Spin-Off and related internal transactions to qualify for their intended tax treatment under U.S. federal, state and local income tax law, as well as foreign tax law, where such taxes result from our action or omission not permitted by the Separation and Distribution Agreement between Honeywell and Resideo dated as of October 19, 2018 or the Tax Matters Agreement.

The following table summarizes information concerning the ~~Indemnification~~Reimbursement and Tax Matter Agreements’ liabilities:

Reimbursement

Tax Matters

Agreement

Agreement

Total

Beginning Balance, December 31, 2021
$
597

$
128

$
725

Accruals for liabilities deemed probable and reasonably estimable (1)

116

(2
)

114

Payments to Honeywell

(105
)

(19
)

(124
)
Balance as of October 1, 2022
$
608

$
107

$
715


(in millions)	Reimbursement Agreement		Tax Matters Agreement		Total
Balance as of December 31, 2022	$	614	$	106	$	720
Accruals for liabilities deemed probable and reasonably estimable (1)	128		(4)		124
Payments to Honeywell	(105)		—		(105)
Balance as of September 30, 2023	$	637	$	102	$	739

(1)

Reimbursement Agreement liabilities deemed probable and reasonably ~~estimable,~~estimable; however, it is possible we could pay $~~140~~$140 million per year (exclusive of any late payment fees up to 5%5% per annum) until the earlier of (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25$25 million.

The liabilities related to the ~~Indemnification~~Reimbursement and Tax Matters Agreements are included in the following balance sheet accounts:


(in millions)	September 30, 2023		December 31, 2022
Accrued liabilities	$	140	$	140
Obligations payable under Indemnification Agreements	599		580
Total indemnification liabilities	$	739	$	720

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

October 1, 2022

December 31, 2021

Accrued liabilities

$
140

$
140

Obligations payable under Indemnification Agreements

575

585

$
715

$
725

For the three and nine months ended September 30, 2023, net expenses related to the Reimbursement Agreement were $43 million and $128 million, respectively, and for the three and nine months ended October 1, 2022, net expenses related to the Reimbursement Agreement were $30$30 million and $~~116~~ ~~million, respectively, and for the three and nine months ended October 2, 2021, net expenses related to the Reimbursement Agreement were $~~39 ~~million and $111~~$116 million, respectively, and are recorded in ~~Other~~other expense, net.

We do not currently possess sufficient information to reasonably estimate the amounts of indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with such indemnification liability payments can be determined although they could be material to our ~~unaudited~~ consolidated results of operations and operating cash flows in the periods recognized or paid.

Independent of our payments under the Reimbursement Agreement, we will have ongoing liability for certain environmental claims, which are part of our ongoing business.

Trademark Agreement

We entered into a 40-year Trademark Agreement with Honeywell that authorizes our use of the Honeywell Home trademark in the operation of our business for the advertising, sale and distribution of certain licensed products. In

Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

exchange, we pay Honeywell a royalty fee based on net revenue related to such licensed products, which is recorded in selling, general and administrative expense in the Unaudited Consolidated Statements of Operations. For the three and nine months ended September 30, 2023, royalty fees were $4 million and $13 million, respectively. For the three and nine months ended October 1, 2022, royalty fees were $7 million and $16 million, respectively.

Other Matters

~~The Company is~~We are subject to lawsuits, investigations and disputes arising out of the conduct of ~~its~~our business, including matters relating to commercial transactions, government contracts, product liability, ~~prior~~ acquisitions and divestitures, employee matters, intellectual property, and environmental, health, and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, ~~(taking into consideration any insurance recoveries),~~ based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. No such matters are material to ~~the Company’s Financial Statements.~~our financial statements. Refer to

Note 15. Commitments and Contingencies

in our 2022 Annual Report on Form 10-K for further discussion of these matters.

Certain current or former directors and officers ~~of the Company~~ were defendants in a consolidated derivative action, In re Resideo Technologies, Inc. Derivative Litigation (the “Consolidated Federal Derivative Action”) ~~and~~, which was stayed pending entry of final ~~judgement~~judgment in the ~~Securities Litigation~~related securities litigation and ~~the~~ Delaware Chancery ~~Derivative Action.~~derivative action. An additional suit was filed in the Court of Chancery of the State of Delaware in 2021 and not consolidated with the Consolidated Federal Derivative ~~Suits.~~Action. On ~~October 4,~~November 17, 2022, ~~we reached an agreement in principle~~the parties executed a Confidential Term Sheet summarizing the agreed terms of a global settlement to resolve all of the pending ~~lawsuits.~~lawsuits and derivative claims. Under the terms of the settlement, we ~~have~~ agreed to implement or codify certain corporate governance reforms and reimburse the plaintiffs’ attorneys’ fees of $~~1.6~~up to $1.6 million. On February 3, 2023, the parties executed a definitive stipulation of settlement. The ~~proposed~~U.S. District Court for the District of Minnesota preliminarily approved the settlement, isand a fairness hearing was held on June 22, 2023. The final settlement remains subject to, among other things, ~~the execution of definitive settlement documentation and~~ court approval. The settlement liability is included in the ~~Accrued~~other accrued liabilities in the Unaudited Consolidated Balance Sheets, and the expected insurance recovery of approximately $~~0.6~~$0.6 million is included in ~~Accounts~~accounts receivable, net.

On September 16, 2022, Salvatore Badalamenti (“Plaintiff”) filed a putative class action lawsuit (the “Badalamenti Lawsuit”) in the ~~United States~~U.S. District Court for the District of New Jersey against Honeywell International Inc. and the Company. Plaintiff alleges, among other things, that the Company violated certain consumer protection laws by falsely advertising the Company’s combination-listed single data-bus burglar and fire alarms system control units (the “Products”) as conforming to Underwriters Laboratories, Inc. (the “UL”) or the National Fire Protection Association (“NFPA”) standards and/or failing to disclose such ~~non-nonconformance.~~nonconformance. Plaintiff further alleges that the ~~Company’s~~ Products are defective because they do not conform to the UL and NFPA industry standards. Plaintiff does not allege that he, or anyone else, has experienced any adverse event due to the alleged product defect or that the Products did not work. Plaintiff alleges causes of action for violation of the New Jersey Consumer Fraud Act, fraud, negligent misrepresentation, breach of express and implied warranties, violation of the Magnuson-Moss Warranty Act, unjust enrichment, and violation of the Truth-in-Consumer Contract, Warranty, and Notice Act.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

Plaintiff seeks to represent a putative class of other persons in the ~~United States~~U.S. who purchased the Products. Plaintiff, on behalf of himself and the putative class, seeks damages in an unknown amount, which he describes as the cost to repair and/or replace the Products and/or the diminution in value of the ~~Products~~Products.

We believe we have strong defenses against the allegations and claims asserted in the Badalamenti ~~Lawsuit.~~Lawsuit and our motion to dismiss Plaintiff's complaint was fully briefed on March 3, 2023. We ~~intend~~continue to defend the matter vigorously; however, there can be no assurance that we will be successful in such defense. In light of the early stage of the Badalamenti Lawsuit, we are unable to estimate the total costs to defend the matter or the potential liability to us in the event that we are not successful in our defense.

On June 28, 2023, Lisset Tredo, a Company employee, filed a putative class action complaint in the San Diego County Superior Court on behalf of all non-exempt employees in California, in which she alleges violations by the Company of the California Labor Code related to sick leave pay, accurate wage statements, recordkeeping, and pay timing, and on August 28, 2023 she filed a first amended complaint adding a claim under the California Private Attorneys General Act (the “Tredo Lawsuit”). In the Tredo Lawsuit, Tredo seeks alleged unpaid wages, restitution, interest, statutory penalties, attorneys’ fees

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

and costs in an unknown amount. The Company answered the Tredo lawsuit in which it asserted a general denial of plaintiff’s allegations and asserted various defenses.

We are investigating the allegations and defenses. The parties have agreed to attend mediation in January 2024 and to stay formal discovery pending the outcome of the mediation. If the case is not resolved at mediation, we intend to defend the matter vigorously; however, there can be no assurance that we will be successful in such defense. In light of the early stage of the Tredo Lawsuit, we are unable to estimate the total costs to defend the matter or the potential liability to us in the event that we are not successful in our defense.

Warranties and Guarantees

In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and product performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in ~~Accrued~~accrued and other liabilities.

The following table summarizes information concerning recorded obligations for product warranties and product performance guarantees:


(in millions)	September 30, 2023		December 31, 2022
Beginning balance	$	48	$	23
Accruals for warranties/guarantees issued during the year	19		30
Adjustment of pre-existing warranties/guarantees	(2)		(2)
Settlement of warranty/guarantee claims	(32)		(17)
Reserve of acquired company at date of acquisition	—		14
Ending balance	$	33	$	48

Nine Months Ended

October 1, 2022

October 2, 2021

Beginning of period

$
23

$
22

Accruals for warranties/guarantees issued during the period

15

12

Additions from acquisitions

14

-

Settlements and adjustments

(17
)

(14
)
End of period

$
35

$
20

Note 17. ~~Long-term Debt and Credit Agreement~~Income Taxes

~~Our~~ ~~long-term debt as of October 1, 2022 and December 31, 2021~~

For interim periods, income tax is ~~as follows:~~

October 1, 2022

December 31, 2021

4.000% Senior Notes due 2029

$
300

$
300

Seven-year variable rate A&R Term B Facility

1,134

943

Unamortized deferred financing costs

(15
)

(13
)
Total outstanding indebtedness

1,419

1,230

Less: Amounts expected to be paid within one year

12

10

Total long-term debt due after one year

$
1,407

$
1,220

~~As of October 1, 2022 and October 2, 2021, the weighted average interest rate for the Amendment and Restatement Agreement (“A&R”) Term B Facility (defined below) was~~ ~~5.12% and~~ ~~2.75%, respectively, and there were~~ no ~~borrowings and~~ no ~~letters of credit issued under the A&R Revolving Credit Facility (as defined below). As of October 1, 2022, we were in compliance with all covenants related~~equal to the ~~A&R Credit Agreement and the Senior Notes due 2029 (as defined below).~~

~~Senior Notes due 2029~~

~~On August 26, 2021, we issued $300~~ ~~million in principal amount~~total of ~~4.00% senior unsecured notes due in~~ ~~2029~~ ~~(the “Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations guaranteed~~(1) year-to-date pretax income multiplied by the ~~Company’s existing~~forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where we expect to report losses and ~~future domestic subsidiaries and rank equally with all senior unsecured debt and senior~~where we do not expect to ~~all subordinated debt.~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

~~Credit Agreement~~

~~On February 12, 2021,~~receive tax benefits, we entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). This agreement effectively replaced the Company’s previous senior secured credit facilities.

~~The A&R Credit Agreement provides for a (i)~~ ~~seven-year~~ ~~variable rate senior secured Term B loan facility in an initial aggregate principal amount of $950~~ ~~million, which was further amended on March 28, 2022~~apply separate forecast effective tax rates to ~~include an additional aggregate principal amount of $200~~ ~~million in term loans (the “A&R Term B Facility”), (ii) a~~ ~~five-year~~ ~~senior secured revolving credit facility in an aggregate principal amount of $500~~ ~~million (the “A&R Revolving Credit Facility” together with the A&R Term B Facility, the “A&R Senior Credit Facilities”).~~

~~We entered into certain interest rate swap agreements in 2021 to effectively convert a portion of our variable rate debt to fixed rate debt. Refer to~~ ~~Note 18. - Derivatives Financial Instruments~~ ~~for further discussion.~~

~~Refer to~~ ~~Note 18. Long-Term Debt and Credit Agreement~~those jurisdictions rather than including them in the ~~Company’s 2021 Annual Report on Form 10-K for further discussion regarding~~consolidated forecast effective tax rate.

For the ~~Company’s long-term debt~~three and ~~credit agreement.~~

~~Note 18. Derivative Financial Instruments~~

We use derivative financial instruments to manage interest rate risk. Our policy is not to use derivative instruments for trading or speculative purposes. We have written policies and procedures that place all financial instruments undernine months ended September 30, 2023, the ~~direction of corporate treasury and restrict all derivative transactions to those intended for hedge accounting.~~

All derivatives are recorded at fair value in the Consolidated Balance Sheets. Our derivatives are designated as cash flow hedges and the effective changes in fair values are recorded in Accumulated other comprehensive loss and are included in unrealized gains (losses) until the underlying hedged item is recognized in earnings.

We use interest rate swap agreements to manage exposure to interest rate risks. We do not use interest rate swap agreements for speculative or trading purposes. The gain or loss on the interest rate swaps that qualify as derivatives is recorded in Accumulated other comprehensive loss and is subsequently recognized as Interestnet tax expense net in the Consolidated Statements of Operations when the hedged exposure affects earnings. If the related debt or the interest rate swap is terminated prior to maturity, the fair value of the interest rate swap recorded in Accumulated other comprehensive loss may be recognized in the Consolidated Statements of Operations based on an assessment of the agreements at the time of termination.

~~On March 31, 2021, we entered into~~ ~~eight~~ ~~interest rate swap agreements (the “Swap Agreements”) with several financial institutions for a combined notional value of $560~~ ~~million.~~ ~~The effect of the Swap Agreements is to convert a portion of the variable interest rate obligations based on three-month LIBOR with a minimum rate of~~ ~~0.50% per annum to a base fixed weighted average rate of~~ ~~0.9289% over terms ranging from~~ ~~two~~ to ~~four~~ ~~years remaining. The Swap Agreements are adjusted to fair value on a quarterly basis.~~ ~~The estimated fair value is based on Level 2 inputs primarily including the forward LIBOR curve available to swap dealers. Contract gains recognized in other comprehensive income (loss) totaled $~~14was $16 million and $38$84 million, respectively, and for the three and nine months ended October 1, 2022, ~~respectively. Contract gains or losses recognized~~net tax expense was $33 million and $104 million, respectively, and consists primarily of interim period tax expense based on year-to-date pretax income multiplied by our forecasted effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 18. Earnings Per Share

The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per share follows:


	Three Months Ended				Nine Months Ended
(in millions, except per share data)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Numerator for basic and diluted earnings per share:


Net income	$	21	$	63	$	128	$	244

Denominator for basic and diluted earnings per share:
Weighted average basic number of common shares outstanding	147		146		147		145
Plus: dilutive effect of common stock equivalents	1		3		2		4
Weighted average diluted number of common shares outstanding	148		149		149		149

Earnings per share:



Basic	$	0.14	$	0.43	$	0.87	$	1.68




Diluted	$	0.14	$	0.42	$	0.86	$	1.64

Diluted earnings per share is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period. For the three and nine months ended September 30, 2023, average options and other ~~comprehensive~~rights to purchase approximately 1.0 million and 1.5 million shares of common stock, respectively, were outstanding and anti-dilutive, and therefore excluded from the computation of diluted earnings per share. In addition, an average of 1.6 million and 1.1 million shares of PSU awards are excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2023, respectively, as the contingency had not been satisfied. For the three and nine months ended October 1, 2022, average options and other rights to purchase approximately 0.8 million and 0.4 million shares of common stock, respectively, were outstanding and anti-dilutive, and therefore excluded from the computation of diluted income ~~(loss) were immaterial~~per share. In addition, an average of 1.5 million and 0.8 million shares of PSU awards are excluded from the computation of diluted earnings per share for the three and nine months ended October ~~2, 2021. Amounts reclassified~~1, 2022, respectively, as the contingency had not been satisfied.

Note 19. Shareholders’ Equity

On August 3, 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period (the “Share Repurchase Program”). Under the Share Repurchase Program, we may repurchase common stock from ~~Accumulated other comprehensive loss into earnings were not material for~~time-to-time through various methods, including in open market transactions, block trades, accelerated share repurchases, privately negotiated transactions, derivative transactions or otherwise, certain of which may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in compliance with applicable state and federal securities laws. The Share Repurchase Program can be modified or terminated by our Board of Directors at any time.

The timing, as well as the number and value of common stock repurchased under the Share Repurchase Program, will be determined at our discretion and will depend on a variety of factors, including our assessment of the ~~periods presented. The fair~~intrinsic value and market price of our common stock, general market and economic conditions, available liquidity, compliance with our debt and other agreements, applicable legal requirements, the ~~Swap Agreements as~~nature of ~~October 1, 2022 was $~~other investment opportunities available to us and other considerations.

46Table of Contents

Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

During the three months ended September 30, 2023, we repurchased 1.8 million shares of common stock in the open market at a total cost of $30 million. As of September 30, 2023, the Company had approximately $120 million of ~~which $~~18 ~~million was recognized in Other current assets and $~~28 million was recognized in Other assets. The fair value of the Swap Agreements as of October 2, 2021 was immaterial. Unrealized gains expected to be reclassified from Accumulated other comprehensive loss into earnings in the next 12 months are estimated to be $17 ~~million as of October 1, 2022.~~

~~Note 19. Fair Value~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

~~Fair Value Measurements~~

~~ASC 820,~~ ~~Fair Value Measurements and Disclosures,~~ ~~requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:~~

~~Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.~~

~~Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs.~~

~~Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities.~~

~~Fair Value of Financial Instruments~~

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable and accounts payable approximate fair value as of October 1, 2022 and December 31, 2021 because of their relatively short maturities. As of October 1, 2022, there were no ~~borrowings and~~ no ~~letters of credit issued~~authorized repurchases remaining under the ~~A&R Revolving Credit Facility.~~ ~~The fair values of the remaining financial instruments not currently recognized~~Share Repurchase Program. Common stock repurchases are recorded at ~~fair value on our Consolidated Balance Sheets at the respective period ends were:~~

October 1, 2022

December 31, 2021

Carrying Amount

Fair Value

Carrying Amount

Fair Value

4.000% Senior Notes due 2029
$
300

$
241

$
300

$
294

Seven-year variable rate term loan due 2028
$
1,134

$
1,103

$
943

$
943

~~The fair value of the A&R Term B Facility~~cost and ~~the~~ 4~~% Senior notes due~~ ~~2029~~ ~~was based on the quoted inactive prices and are therefore classified~~presented as ~~Level 2 within the valuation hierarchy.~~

~~Fair Value Measurements~~

~~The following is~~ a ~~description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used as of October 1, 2022 and December 31, 2021.~~

~~Credit and Market Risk~~—Wecontinually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer.

~~Foreign Currency Risk Management~~—~~We conduct business on a multinational basis in a wide variety of foreign currencies. We are exposed to market risks~~deduction from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. The exposure to market risk for changes in foreign currency exchange rates arises from transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. We rely primarily on natural offsets to address the exposures and may supplement this approach from time to time by entering into forward and option hedging contracts. As of October 1, 2022 and December 31, 2021, we had no forward or option hedging contracts.

~~Interest rate swaps~~—Interest rate swaps are based on cash flow hedge contracts that have fixed rate structures and are measured against market-based LIBOR yield curves. These interest rate swaps are classified within Level 2 of the fair value hierarchy because they are valued using alternative pricing sources or models that utilized market observable inputs, including current and forward interest rates.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~October 1, 2022~~

~~(In millions, unless otherwise noted)~~

~~(Unaudited)~~

The following tables summarize information regarding our financial assets and liabilities that are measured at fair value on a recurring basis as of October 1, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

October 1, 2022

December 31, 2021

Level 1

Level 2

Total

Level 1

Level 2

Total

Assets:

Interest rate swap assets
$
-

$
46

$
46

$
-

$
7

$
7

Liabilities:

Interest rate swap liabilities

-

-

-

-

1

1

Total
$
-

$
46

$
46

$
-

$
6

$
6

~~There were no Level 3 assets or liabilities for the periods presented.~~

stockholders’ equity.

~~Note 20. Pension Plans~~

We sponsor multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of our U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. We also sponsor defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, France, India, Switzerland, and the Netherlands. Our pension obligations as of October 1, 2022 and December 31, 2021 were $~~101~~ ~~million and $115~~ ~~million, respectively, and are included in Other liabilities of the Financial Statements as of October 1, 2022.~~

~~The following table summarizes the components of the periodic benefit cost, before tax for the periods indicated:~~

U.S. Plans

Three months ended

Nine months ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Periodic benefit cost:

Service cost

$
2

$
2

$
5

$
6

Interest cost

3

5

8

7

Expected return on plan assets

(4
)

(8
)

(13
)

(12
)
Net periodic benefit cost

$
1

$
(1
)

$
0

$
1

Non-U.S. Plans

Three months ended

Nine months ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Periodic benefit cost:

Service cost

$
1

$
2

$
4

$
5

Interest cost

-

-

1

1

Expected return on plan assets

-

-

-

-

Net periodic benefit cost

$
1

$
2

$
5

$
6

~~The Company is not required to make contributions to the defined benefit plans in 2022.~~

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

Operations.

The following information should be read in conjunction with the Unaudited Consolidated Financial Statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the Audited Consolidated Financial Statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations is intended to help you understand the results of operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries~~Operations” (“~~Resideo” or “the Company”, “we”, “us” or “our”~~MD&A”) for the three and nine months ended October 1, 2022 and should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-Q. The financial information as of October 1, 2022 should be read in conjunction with the consolidated and combined financial statements for the year ended December 31, 2021 containedincluded in our ~~2021~~2022 Annual Report on Form ~~10-K (the “2021 Annual Report on Form 10-K”).~~10-K.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industries and our business and financial results. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and words and terms of similar substance in connection with discussions of future operating or financial performance. AsThis Quarterly Report includes industry and market data that we obtained from various third-party sources, including forecasts based upon such data; as with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this ~~Form 10-Q~~Quarterly Report are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

•

~~industry cyclicality;~~

•

competition from other companies in our markets and segments, as well as in new markets and emerging markets;

•

our ability to ~~successfully develop new technologies~~identify consumer preferences and ~~products and~~industry standards, develop and protect ~~the~~ intellectual property related thereto, and successfully market new technologies, products, and services to ~~the same and to defend against IP threats of others;~~

consumers;

•our reliance on certain suppliers;

•the impact of disruptions in our supply chain from third-party suppliers and manufacturers, including our inability to obtain necessary product components, production equipment or replacement parts;

•

~~the impact of pandemics, epidemics, natural disasters and other public health emergencies, such as COVID-19;~~

•

~~failure to achieve and maintain a high level of product and service quality;~~

•

~~inability to compete in the market for potential acquisitions;~~

•

inability to consummate acquisitions on satisfactory terms or to integrate such acquisitions effectively;

•the impact of earthquakes, hurricanes, fires, power outages, floods, pandemics, epidemics, natural disasters and other catastrophic events or other public health emergencies, such as COVID-19;

•the impact of potentially volatile global market and economic conditions and industry and end market cyclicality, including factors such as interest rates, inflation, availability of financing, consumer spending habits and preferences, housing market changes, and employment rates;

•failure to achieve and maintain a high level of product and service quality, including the impact of warranty claims, product recalls, and product liability actions that may be brought against us;

•our ability to retain or expand relationships with significant customers;

•

~~dependence upon information technology infrastructure having adequate cyber-security functionality;~~

the significant failure or inability to comply with specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements;

•inability to successfully execute transformation programs or to effectively manage our workforce;

•the failure to increase productivity through sustainable operational improvements;

•economic, political, regulatory, foreign exchange and other risks of international ~~operations, including~~ operations;

•the potential adverse ~~effects~~impacts of aenhanced tariff, import/export restrictions, or other trade barriers on global economic ~~slowdown or recession, geo-political instability~~conditions, financial markets and ~~recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions;~~

our business;

•

our ~~failure to execute on key business transformation programs~~dependence upon IT infrastructure and ~~activities;~~

network operations having adequate cyber-security functionality;

•

~~the failure to increase productivity through sustainable operational improvements;~~

•

~~the impact of inflation on employee expenses, shipping costs, raw material costs, energy and fuel costs and other production costs;~~

•

~~fluctuation in financial results due to the seasonal nature of portions of our business;~~

•

~~our ability to recruit and retain qualified personnel;~~

•

~~labor disputes, work stoppages, other disruptions, or the need to relocate any of our facilities;~~

•

~~changes in legislation or government regulations or policies;~~

•

~~the significant failure or inability to comply~~risks associated with the ~~specifications and manufacturing requirements of our original equipment manufacturers (“OEMs”) customers;~~

•

~~the operational constraints and financial distress of third parties;~~

•

~~our ability to borrow funds and access capital markets;~~

•

~~the amount of our obligations and nature of our contractual restrictions pursuant to, and disputes that have or may hereafter arise under, the~~ Reimbursement Agreement, ~~and~~ the other agreements we entered into with Honeywell in connection with the ~~Spin-Off;~~

•

Spin-Off, and our relationships with Honeywell, including our reliance on Honeywell for the Honeywell Home ~~trademark;~~

•

trademark and potential material environmental ~~liabilities;~~

liabilities;

•

~~our inability~~regulations and societal actions to ~~maintain intellectual property agreements necessary~~respond to ~~our business;~~

global climate change;

•

~~potential material costs as a result~~failure to comply with the broad range of ~~warranty rights or claims, including product recalls,~~current and ~~product liability actions that may be brought against us;~~

future standards, laws and regulations in the jurisdictions in which we operate;

•

the impact of potential material litigation ~~matters;~~

matters, government proceedings, and other contingencies and uncertainties;

•

~~unforeseen U.S. federal income tax~~our ability to borrow funds and ~~foreign tax liabilities; and~~

access capital markets in light of the terms of our debt documents or otherwise;

•our ability to recruit and retain qualified personnel;

~~certain factors discussed elsewhere~~•currency exchange rate fluctuations; and

•other risks detailed under the caption “Risk Factors” in this ~~Form 10-Q.~~

~~These and other factors are more fully discussed~~Quarterly Report, in Part I, Item 1A in our ~~filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our 2021~~2022 Annual Report on Form 10-K, and ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in this Form 10-Q.~~ other filings we make with the SEC.

There have been no material changes to the risk factors described in our ~~2021~~2022 Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this ~~Form 10-Q.~~Quarterly Report. Even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this ~~Form 10-Q,~~Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements made by us in this ~~Form 10-Q~~Quarterly Report speak only as of the date on which they are made. We are under no obligation to and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

Overview and Business Trends

We are a leading global manufacturer and distributor of technology-driven products and solutions that help homeowners and businesses stay connected and in control of their comfort, security and energy use. We are a leader in the home heating, ventilation and air conditioning controls markets, smoke and carbon monoxide detection home safety and fire suppression products, and security markets. We have a global footprint serving commercial and residential end-markets. We manage our business operations through two operating segments, Products &and Solutions and ADI Global Distribution. The Products and Solutions operating segment, consistent with our industry, has a higher gross and operating profit profile in comparison to the ADI Global Distribution operating segment.

Our Products &and Solutions operating segment offerings include temperature and humidity control, energy products and solutions, water and air solutions, smoke and carbon monoxide detection home safety products, security panels, sensors, peripherals, wire and cable, communications devices, video cameras, ~~awareness~~other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.

Our ADI Global Distribution business (“ADI”) is ~~the~~a leading wholesale distributor of low-voltage ~~security~~ products including access control, fire detection, ~~intrusion,~~security, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. ~~The Products & Solutions operating segment, consistent with~~Our ADI strategy is focused on growth in our ~~industry, has a higher gross~~omni-channel presence, expansion into adjacent markets, and ~~operating profit margin profile in comparison~~continued enhancements to ~~the ADI Global Distribution segment.~~

In March 2022, we completed the acquisition of First Alert, Inc. (“First Alert”), a leading provider of home safety products. This acquisition was integrated into the Products & Solutions portfolioour value-add services to support our professional installers’ efficiency and ~~expands our footprint in the home with complementary smoke and carbon monoxide detection home safety and fire suppression products.~~profitability.

~~COVID-19 and Recent Macroeconomic Environment~~

Our financial performance is influenced by macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates ~~the COVID-19 pandemic~~and bank lending standards, supply chain dynamics, and the overall macroeconomic environment. Our visibility toward future performance is more limited ~~than is typical~~ due to ~~the uncertainty surrounding the ultimate impact of COVID-19 and its variants and~~ uncertainty surrounding the prevailing macroeconomic environment. ~~For example, recent business conditions have been impacted by~~While we believe supply chain ~~disruptions~~ and ~~global shortages~~logistics will continue to normalize over the remainder of 2023, customer demand continues to moderate as inventories rebalance over the period and uncertainties remain including the potential for changes in ~~key materials~~inflation and ~~components, which have impacted our ability to supply certain products. We have also experienced various inflationary impacts, such as~~interest rates, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, ~~materials price inflation, and increased freight and other costs, and~~the resumption of student loan repayments, unfavorable foreign currency impacts from a stronger U.S. ~~dollar. In response to these challenges, we have, among~~Dollar, and potential market and other measures, aggressively managed supplier relationships to mitigate some of these shortages, developed contingency plans for future supply, aligned our production schedules with demand in a proactive manner, and pursued further improvements indisruption from the ~~productivity and effectiveness of our manufacturing, selling, and administrative activities.~~

~~In February 2022, Russian military forces launched a military action~~ongoing conflicts in Ukraine and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military action in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in government agency budgets and funding preferences as well as increases in cyberattacks and cyber and corporate espionage. To date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations. We are actively monitoringIsrael.

Recent Developments

~~the situation in Ukraine and assessing its impact on our business. Any of the above-mentioned factors could affect our business, financial condition and results of operations.~~

~~Third Quarter Highlights~~

~~Net revenue increased $122 million, or 8%, over~~

During the third quarter ~~prior year~~of 2023, we announced a restructuring program to align our cost structure with market conditions. For the three and nine months ended September 30, 2023, we recognized restructuring and impairment expenses of $38 million and $42 million, respectively. These expenses primarily related to workforce reductions.

On August 3, 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period. During the three and nine months ended September 30, 2023, we repurchased 1.8 million shares of common stock in the open market at a total cost of $30 million.

On August 9, 2023, we acquired 100% of the outstanding equity of Sfty SA, a developer of cloud-based services providing alerts to multifamily homes and property managers with smoke, carbon monoxide and water leak detection products. This acquisition will allow us to further expand our safety and security service offerings in the Products and Solutions business segment.

On September 19, 2023, we announced that we entered into a definitive agreement to sell our Genesis Wire & Cable business in a cash transaction to Southwire Company, LLC for $87.5 million, subject to customary adjustments. The transaction closed in October 2023.

Current Period Highlights

•Net revenue of $1.55 billion, down 4.0% from ~~$135~~$1.62 billion in the third quarter of 2022

•Income from operations of $109 million, or 7.0% of revenue, compared to $155 million, or 9.6% of revenue in the third quarter of 2022

•Fully diluted earnings per share of $0.14, compared to $0.42 per share in the third quarter of 2022

•Cash Flow From Operations was $60 million in ~~revenue from acquisitions and $99~~the third quarter of 2023 as compared to $37 million in the third quarter of 2022

Outlook

The following table summarizes our current fourth quarter 2023 and updated full year 2023 outlook. This outlook includes an estimated gain on the sale of Genesis of approximately $24 million. The transaction closed in October 2023 for estimated pre-tax cash proceeds of approximately $85 million.


($ in millions, except per share data)	Q4 2023	2023
Net revenue	$1,495 - $1,545	$6,200 - $6,250
Gross profit margin	26.0% - 27.0%	26.6% - 27.2%
Income from operations	$135 - $155	$535 - $555
GAAP Earnings per share	$0.43 - $0.53	$1.30 - $1.41

Results of Operations

The following table represents results of operations on a consolidated basis for the periods indicated:


	Three Months Ended						Nine Months Ended
(in millions, except per share data and percentages)	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
Net revenue	$	1,554		$	1,618		$	4,705		$	4,810
Cost of goods sold	1,137			1,188			3,432			3,475
Gross profit	417			430			1,273			1,335
Gross profit %	26.8		%	26.6		%	27.1		%	27.8		%
Operating expenses:
Research and development expenses	28			29			84			81
Selling, general and administrative expenses	233			236			719			716
Intangible asset amortization	9			10			28			25
Restructuring and impairment expenses	38			—			42			—
Total operating expenses	308			275			873			822
Income from operations	109			155			400			513
Other expenses, net	56			44			138			126
Interest expense, net	16			15			50			39
Income before taxes	37			96			212			348
Provision for income taxes	16			33			84			104


Net income	$	21		$	63		$	128		$	244

Earnings per share:
Basic	$	0.14		$	0.43		$	0.87		$	1.68




Diluted	$	0.14		$	0.42		$	0.86		$	1.64

Net Revenue

Three months ended

Net revenue for the three months ended September 30, 2023 was $1,554 million, a decrease of $64 million, or 4.0%, from the same period in 2022, driven primarily by lower sales volume of $109 million partially offset by higher selling prices of $29 million, favorable foreign currency fluctuations of $10 million and $6 million from acquisitions across both segments. Volume declines were driven by customer destocking and lower demand for ~~our products~~air and energy products.

Nine months ended

Net revenue for the nine months ended September 30, 2023 was $4,705 million, a decrease of $105 million, or 2.2% from the same period in ~~response to the current inflationary environment. Partially offsetting these increases were~~2022, driven primarily by lower ~~organic~~ sales volume of ~~$61~~$358 million and unfavorable foreign currency fluctuations of ~~approximately 300 bps or $51 million.~~$22 million, partially offset by $147 million in revenue from acquisitions and $128 million from higher selling prices.

Gross Profit

Three months ended

The chart below presents the drivers of the gross profit ~~as a percent of net revenues was 27% for~~variance from the three months ended October 1, 2022 ~~a decrease of approximately 100~~to the three months ended September 30, 2023.

Gross profit dollars decreased $13 million in the three months ended September 30, 2023 as compared to the same period in 2022, and gross margin increased 20 basis points (“bps”) ~~over~~to 26.8% compared to 26.6% in the same period ~~last~~in the prior year. The change in gross margin was driven by 340 bps of favorable material, freight and other manufacturing costs, partially offset by lower demand from customers as they continued to normalize inventory levels of 170 bps and unfavorable margin mix shift of 150 bps, as the inflationary environment has begun to stabilize.

Nine months ended

The chart below presents the drivers of the ~~decrease include unfavorable impacts~~gross profit variance from ~~higher costs~~the nine months ended October 1, 2022 to the nine months ended September 30, 2023.

Gross profit dollars decreased $62 million in the nine months ended September 30, 2023 as ~~a result~~compared to the same period in 2022, and gross margin decreased 70 bps to 27.1% compared to 27.8% in the same period of the ~~current inflationary environment~~prior year. The decrease in gross margin was driven by lower demand from customers as they continue to normalize inventory levels of 130 bps and, unfavorable product mix shift of 100 bps ~~as well as lower volume leverage primarily from the Products & Solutions operating segment of 100 bps. These impacts were~~ partially offset by a150 bps of favorable ~~price~~material, freight and ~~sales mix~~other costs as the inflationary environment has begun to stabilize and 10 bps of ~~100 bps.~~favorable foreign currency fluctuations.

Research and Development Expenses

Three months ended

Research and development expenses for the three months ended ~~October 1, 2022~~September 30, 2023 were ~~$29~~$28 million a slight decrease of $1 million, or 3.4%, as compared to the same period in 2022.

Nine months ended

Research and development expenses for the nine months ended September 30, 2023 were $84 million, an increase of $9$3 million, ~~from $20 million for~~or 3.7%, as compared to the ~~three months ended October 2, 2021.~~same period in 2022. The increase was primarily driven by ~~acquisitions~~additional research and ~~new product investments.~~development costs from the acquisition of First Alert, Inc. in first quarter of 2022.

Selling, General and Administrative Expenses

Three months ended

Selling, general and administrative expenses for the three months ended ~~October 1, 2022~~September 30, 2023 were ~~$236~~$233 million, ~~an increase~~a decrease of $9$3 million, or ~~4% from $227 million for~~1.3%, as compared to the ~~three months ended October 2, 2021.~~same period in 2022. The ~~increase~~decrease was primarily driven by ~~increased costs associated with the First Alert acquisition of $19 million, investment in marketing and sales of $5 million, and labor inflation of $4 million,~~executed cost savings actions partially offset by ~~lower impairment charges resulting from~~ the ~~relocation of our Austin, Texas corporate headquarters to a lower cost site in 2021 of $10 million, an~~tax matters indemnification accrual release of $8 million ~~and foreign currency impacts of $9 million.~~

~~Net income for the three months ended October 1, 2022 was $63 million compared to net income of $68 million for the three months ended October 2, 2021, a 7% decrease and $0.04 decrease~~ in ~~earnings per share. The decrease is a result of the factors discussed above.~~

Unrestricted cash on hand was approximately $252 million and liquidity was approximately $752 million as of October 1, 2022. Also, there were no borrowings under the $500 million the A&R Revolving Credit Facility.

~~Results of Operations~~

We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280, Segment Reporting. We have determined that we have two reportable segments, organized and managed principally by the different services provided. While the segments often operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors. We report all other business activities in Corporate and unallocated costs. Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment. These items are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, restructuring charges, acquisition costs, gain on legal settlements, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategy, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, and other income (expense).

~~Consolidated Statements of Operations~~

~~(In millions, except shares in thousands and per share data)~~

~~(Unaudited)~~

Three Months Ended

Nine Months Ended

October 1,
2022

October 2,
2021

October 1,
2022

October 2,
2021

Net revenue

$
1,618

$
1,496

$
4,810

$
4,392

Cost of goods sold

1,188

1,075

3,475

3,210

Gross profit

430

421

1,335

1,182

Research and development expenses

29

20

81

63

Selling, general and administrative expenses

236

227

716

678

Intangible asset amortization

10

7

25

23

Income from operations

155

167

513

418

Other expense, net

44

58

125

130

Interest expense

15

12

40

37

Income before taxes

96

97

348

251

Provision for income taxes

33

29

104

76

Net income

$
63

$
68

$
244

$
175

Earnings per share

Basic

$
0.43

$
0.47

$
1.68

$
1.22

Diluted

$
0.42

$
0.46

$
1.64

$
1.18

Weighted average number of common shares outstanding

Basic

145,755

144,284

145,442

143,865

Diluted

149,158

148,559

148,972

148,260

~~Net Revenue~~

Three Months Ended

Nine Months Ended

October 1,
2022

October 2,
2021

October 1,
2022

October 2,
2021

Net revenue

$
1,618

$
1,496

$
4,810

$
4,392

% change compared with prior period

8
%

10
%

~~Three months ended~~

~~Net revenue increased $122 million, or 8%, over~~ the third quarter ~~prior year primarily due to $135 million in revenue from the acquisitions and $99 million in revenue from higher selling prices. Partially offsetting these increases were lower organic sales volume~~ of ~~$61 million and unfavorable foreign currency fluctuations of approximately 300 bps or $50 million.~~2022.

Nine months ended

Net revenue for the nine months ended October 1, 2022 was $4,810 million, an increase of $418 million, or 10%, from $4,392 million for the nine months ended October 2, 2021. The increase in net revenue was driven primarily by $288 million in revenue from the acquisitions, and higher selling prices of $305 million. Partially offsetting these increases were foreign currency fluctuations of approximately 300 bps or $115 million and lower sales volumes of $60 million.

~~Cost of Goods Sold and Gross Profit~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Cost of goods sold

$
1,188

$
1,075

$
3,475

$
3,210

% change compared with prior period

11
%

8
%

Gross profit percentage

27
%

28
%

28
%

27
%

~~Three months ended~~

Gross profit as a percentage of net sales was 27% for the three months ended October 1, 2022, compared to 28%, a 100 bps decrease over the same period last year. The drivers of the decrease include unfavorable impacts from higher costs as a result of the current inflationary environment of 100 bps, as well as lower volume leverage primarily from the Products & Solutions operating segment of 100 bps. These impacts were partially offset by favorable price and sales mix of 100 bps.

~~Nine months ended~~

Gross profit as a percentage of net sales was 28% for the nine months ended October 1, 2022, compared to 27% for the nine months ended October 2, 2021. The primary items driving the increase in gross profit percentage were a 200 bps impact from price increases and favorable sales mix. This impact was partially offset by an unfavorable impact of 100 bps from increased material costs.

~~Research and Development Expenses~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Research and development expenses

$
29

$
20

$
81

$
63

% of revenue

2
%

1
%

2
%

1
%

~~Three months ended~~

Research and development expenses for the three months ended October 1, 2022 were $29 million, an increase of $9 million from $20 million for the three months ended October 2, 2021. The increase was driven by acquisitions of $3 million and new product investments of $2 million.

~~Nine months ended~~

Research and development expenses for the nine months ended October 1, 2022 were $81 million, an increase of $18 million from $63 million for the nine months ended October 2, 2021. The increase was driven by the inclusion of acquisitions of $8 million and planned investment to support new product launches of $7 million.

~~Selling, General and Administrative Expenses~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Selling, general and administrative expenses

$
236

$
227

$
716

$
678

% of revenue

15
%

15
%

15
%

15
%

~~Three months ended~~

Selling, general and administrative expenses for the three months ended October 1, 2022 were $236 million, an increase of $9 million, or 4%, from $227 million for the three months ended October 2, 2021. The increase was primarily driven by increased costs associated with the First Alert acquisition of $19 million, investment in marketing and sales of $5 million, and labor inflation of $4 million partially offset by lower impairment charges resulting from the relocation of our Austin, Texas corporate headquarters to a lower cost site in 2021 of $10 million, an indemnification accrual release of $8 million, and foreign currency impacts of $9 million.

~~Nine months ended~~

Selling, general and administrative expenses for the nine months ended ~~October 1, 2022~~September 30, 2023 were ~~$716~~$719 million, an increase of ~~$38~~$3 million, ~~from $678~~or 0.4%, as compared to the same period in 2022. The increase was primarily driven by $18 million in costs related to the inclusion of First Alert, Inc. and other acquisitions for the nine months ended September 30, 2023. This increase was partially offset by $10 million of transaction costs incurred in the first quarter of 2022.

Restructuring and Impairment Expenses

Three months ended

During the third quarter of 2023, we initiated our 2023 Plan in order to align our cost structure with market conditions. The following summarizes our restructuring and impairment expenses for the three months ended September 30, 2023, which were primarily related to workforce reductions.


	Three Months Ended
(in millions)	September 30, 2023		October 1, 2022
Products and Solutions	$	25	$	—
ADI	10		—
Corporate	3		—
Restructuring and impairment expenses	$	38	$	—

Nine months ended

In the fourth quarter of 2022 and during 2023, we have taken actions to align our cost structure with market conditions. The intent of these actions is to lower costs, increase margins, and position us for long-term growth. The following summarizes our restructuring and impairment expenses for the nine months ended September 30, 2023, which were primarily related to workforce reductions.


	Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022
Products and Solutions	$	27	$	—
ADI	12		—
Corporate	3		—
Restructuring and impairment expenses	$	42	$	—

Intangible Asset Amortization

Three months ended

Intangible asset amortization was approximately flat for the three months ended September 30, 2023 as compared to the same period in 2022, primarily due to intangibles obtained through acquisition activities.

Nine months ended

Intangible asset amortization increased $3 million for the nine months ended ~~October 2, 2021. The increase was~~September 30, 2023 as compared to the same period in 2022, due to the increased amortization costs primarily due to intangibles obtained through acquisition activities.

Other Expenses, Net

Three months ended

Other expenses, net consists primarily of Reimbursement Agreement expenses in the amount of $43 million for the three months ended September 30, 2023.

Nine months ended

Other expenses, net consists primarily of Reimbursement Agreement expenses in the amount of $128 million for the nine months ended September 30, 2023.

Interest Expense, Net

Three months ended

Interest expense, net increased $1 million for the three months ended September 30, 2023 as compared to the same period in 2022, due to higher interest rates on our borrowings.

Nine months ended

Interest expense, net increased $11 million for the nine months ended September 30, 2023 as compared to the same period in 2022, due to higher interest rates and additional borrowings of $200 million in March 2022 associated with our A&R Credit Agreement.

TaxExpense

Three months ended

Income tax expense decreased by $17 million for the three months ended September 30, 2023 as compared to the same period in 2022, primarily driven by a decrease in income before taxes. The effective income tax rate increased ~~costs~~1,096 bps for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to non-deductible expenses associated with obligations payable under the Reimbursement Agreement being forecasted to be a larger portion of earnings.

Nine months ended

Income tax expense decreased by $20 million for the nine months ended September 30, 2023 as compared to the same period in 2022, primarily driven by a decrease in income before income taxes. The effective income tax rate increased 1,000 bps compared to the same period in 2022, primarily due to non-deductible expenses associated with obligations payable under the Reimbursement Agreement being forecasted to be a larger portion of earnings.

Segment Results of Operations

Products and Solutions

Three months ended

The chart below presents net revenue and income from operations for the three months ended September 30, 2023 and October 1, 2022.

Products and Solutions net revenue decreased $53 million, or 7%, as compared to the same period in 2022, primarily due to lower sales volume of $81 million, partially offset by price increases of $25 million and favorable foreign exchange impacts of $4 million. Inventory remains extended in the HVAC distribution channel and overall end customer demand is being negatively impacted by slower existing home turnover and reduced new home construction. First Alert, Inc. smoke and carbon monoxide detector product sales again performed well, driven by continued expansion in the home builder channel. Income from operations decreased $17 million, or 14%, from the same period in 2022, primarily due to lower sales volume of $52 million, restructuring expense of $25 million and unfavorable price/mix of $8 million from mix shifts to lower priced products. Partially offsetting the unfavorable impacts to income from operations was $56 million of lower manufacturing input costs, primarily material and freight, due to the inflationary environment stabilizing.

Nine months ended

The chart below presents net revenue and income from operations for the nine months ended September 30, 2023 and October 1, 2022.

Products and Solutions net revenue decreased $101 million, or 4.8%, as compared to the same period in 2022, primarily due to lower sales volume of $274 million and unfavorable foreign currency fluctuations of $11 million, partially offset by revenue from the First Alert, Inc. acquisition of ~~$35 million, investment in marketing and sales of $16 million, labor inflation of $13~~$99 million and ~~transaction~~price increases of $85 million. Income from operations decreased $79 million, or 18.3%, from the same period in 2022, primarily due to lower sales volume of $155 million, restructuring expense of $27 million, and unfavorable price/mix of $17 million from mix shifts to lower priced products. Partially offsetting the unfavorable impacts to income from operations were $74 million of lower manufacturing input costs, ~~associated with~~primarily material and freight, due to the inflationary environment stabilizing and $20 million from the First Alert, ~~acquisition~~Inc. acquisition.

ADI Global Distribution

Three months ended

The chart below presents net revenue and income from operations for the three months ended September 30, 2023 and October 1, 2022.

ADI Global Distribution net revenue decreased by $11 million, or 1.2%, as compared to the same period in 2022, due to a decrease in volume of $28 million, offset by acquisitions of $7 million, favorable foreign exchange of $6 million, and price increases of $4 million. Sales decline in North America was partially offset by growth in the EMEA region. ADI saw strength in the access control category but continued slower demand within residential security category. Income from operations decreased $18 million, or 23%, due to restructuring costs of $10 million, sales mix and carry over inflation impacts of $9 million and lower volumes of $3 million, partially offset by lower ~~legal~~freight and other selling, general and administrative costs of $4 million.

Nine months ended

The chart below presents net revenue and income from operations for the nine months ended September 30, 2023 and October 1, 2022.

ADI Global Distribution net revenue decreased $4 million, or 0.1%, as compared to the same period in 2022, driven by the impact of acquisitions of $49 million and price increases of $42 million, partially offset by lower sales volume of $84 million, primarily in sales in residential security and AV categories, and unfavorable foreign exchange fluctuations of $11 million. Income from operations decreased $33 million, or 14%, as compared to the same period in 2022, due to $21 million of higher input costs, primarily material, $15 million of lower sales volume, and $12 million of restructuring expenses ~~as a result of the previously disclosed 2021 securities class action litigation settlement~~slightly offset by price, net of ~~insurance recoveries~~mix and other favorable impacts of ~~$16~~$15 million.

Corporate

Three months ended

Corporate costs for the three months ended September 30, 2023, were $58 million, ~~lower impairment charges resulting from~~an $11 million increase compared to the ~~relocation of our Austin, Texas corporate headquarters~~same period in 2022 primarily due to ~~a lower cost site in 2021 of $10 million,~~the tax matters indemnification accrual release of $8 million in the third quarter of 2022 and ~~foreign currency impacts.~~

~~Other Expense, Net~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Other expense, net

$
44

$
58

$
125

$
130

~~Three months ended~~

~~Other expense, net for~~restructuring costs of $3 million incurred during the three months ended October 1, 2022 was $44 million, a decrease of $14 million from $58 million for the three months ended October 2, 2021. The decrease was primarily driven by $18 million from 2021 debt extinguishment costs incurred as a result of the redemption of the remaining Senior Notes due 2026, $9 million in lower expenses related to the Honeywell Reimbursement Agreement, and partially offset by $13 million in legal expenses as a result of the pre-Spin-Off litigation matter settlement.quarter.

Nine months ended

~~Other expense, net~~

Corporate costs for the nine months ended ~~October 1, 2022 was $125~~September 30, 2023 were $163 million, ~~a decrease~~an increase of $5$1 million, or 0.6%, from $130 million for the nine months ended October 2, 2021. The decrease was primarily driven by $41 million from 2021 debt extinguishment costs incurred as a result of the Senior Notes due 2026 redemption and the execution of the A&R Credit Agreement, and partially offset by $13$162 million in ~~legal expenses as a result of~~ the ~~pre-Spin-Off litigation matter settlement, $9 million reduction~~same period in ~~the 2021 accruals related~~2022, primarily due to the ~~Tax Matters Agreement, $5 million in lower expenses related to the Honeywell Reimbursement Agreement,~~cost savings actions offsetting incremental selling, general and ~~$9 million in other non-operating income.~~

~~Tax Expense~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Provision for income taxes

$
33

$
29

$
104

$
76

Effective tax rate

34
%

30
%

30
%

30
%

~~Three months ended~~

For the three months ended October 1, 2022, the net tax expense of $33 million consists primarily of year-to-date pretax income multiplied by our forecast effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

~~Nine months ended~~

For the nine months ended October 1, 2022, the net tax expense of $104 million consists primarily of year-to-date pretax income multiplied by our forecast effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

~~Results of Operations - Operating Segments~~

~~Products & Solutions~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

% Change

2022

2021

% Change

Net revenue

$
707

$
631

12
%

$
2,090

$
1,835

14
%
Income from operations

$
124

$
157

(21
)%

$
431

$
416

4
%
Income from operations percentage

18
%

25
%

(700 bps)

21
%

23
%

(200 bps)

~~On March 31, 2022, we completed~~administrative costs from the acquisition of First Alert, a leading provider of home safety products. This acquisition was integrated into the Products & Solutions portfolio and expands our footprint in the home with complementary smoke and carbon monoxide detection home safety products and fire suppression products.Inc.

~~Three months ended~~

Net revenue increased $76 million or 12%, mainly due to $112 million in acquisition revenue and price increases of $64 million, partially offset by foreign exchange fluctuations of $30 million and lower organic sales volumes of $70 million. Income from operations decreased from $157 million to $124 million, or 21%, primarily from lower sales volumes of $35 million, partially offset by price increases, net of inflationary cost increases of $7 million.

~~Nine months ended~~

Net revenue increased $255 million or 14%, mainly due to acquisition revenue of $225 million and price increases of $181 million, partially offset by foreign exchange fluctuations of $69 million and lower organic sales volumes of $82 million. Income from operations increased $15 million, or 4%. Income from operations was positively impacted by price increases and favorable sales mix, net of inflationary cost increases of $51 million, contributions from the First Alert acquisition of $11 million and other cost reductions. These impacts were partially offset by lower organic sales volumes of $39 million and new product investment of $7 million.

~~ADI Global Distribution~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

% Change

2022

2021

% Change

Total revenue

$
911

$
865

5
%

$
2,720

$
2,557

6
%
Income from operations

$
78

$
73

7
%

$
244

$
198

23
%
Income from operations percentage

9
%

8
%

100 bps

9
%

8
%

100 bps

~~Three months ended~~

Net revenue increased $46 million, or 5% highlighted by strong growth in the U.S. and Canada driven by price increases of $36 million, and the impact of acquisitions of $23 million, partially offset by foreign exchange fluctuations of $22 million. Income from operations increased $5 million, or 7%. Income from operations was favorably impacted primarily by changes in sales mix, price increases, impact of acquisitions, and other expense productivity totaling $14 million. These positive impacts were partially offset by commercial investments and increased freight costs, as well as labor inflation totaling $9 million.

~~Nine months ended~~

Net revenue increased $163 million, or 6% driven by price increases of $125 million and the impact of acquisitions of $64 million, partially offset by foreign exchange fluctuations of $46 million. Income from operations increased $46 million, or 23%. Income from operations was favorably impacted by changes in sales mix, price increases, impact of acquisitions, and other expense productivity totaling $74 million. These positive impacts were partially offset by commercial investments, increased freight costs, as well as labor inflation totaling $28 million.

~~Corporate~~

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

% Change

2022

2021

% Change

Corporate expenses

$
47

$
63

(25
)%

$
162

$
196

(17
)%

~~Three months ended~~

Corporate expenses for the three months ended October 1, 2022 decreased $16 million, or 25%. The decrease was due primarily to lower impairment charges resulting from the relocation of our Austin, Texas corporate headquarters to a lower cost site in 2021 of $10 million and indemnification accrual releases of $8 million.

~~Nine months ended~~

Corporate expenses for the nine months ended October 1, 2022 decreased $34 million, or 17%. The decrease was due primarily to the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, lower impairment charges resulting from the relocation of our Austin, Texas corporate headquarters to a lower cost site in 2021 of $10 million, indemnification accrual releases of $8 million, lower consulting spend of $7 million, and other cost reductions. These positive impacts were partially offset by transaction costs associated with the First Alert acquisition of $10 million.

Capital Resources and Liquidity

As of September 30, 2023, total cash and cash equivalents were $368 million. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital, as needed.

Additional liquidity may also be provided through access to the ~~financial~~ capital markets and ~~a committed global credit facility. The following is a summary of our liquidity position:~~

•

Net cash provided by operating activities was $13 million for the nine months ended October 1, 2022 compared to cash provided by operating activities of $203 million for the nine months ended October 2, 2021.

•

~~As of October 1, 2022, cash and cash equivalents were $252 million.~~

•

~~As of October 1, 2022, long-term debt was $1,407 million and current maturities of long-term debt were $12 million. There were no borrowings and no letters of credit issued under~~ our $500 million ~~revolving credit facility.~~A&R Revolving Credit Facility.

Liquidity

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities. We may enter into acquisitions or strategic arrangements in the future, which also could require us to seek additional equity or debt financing. While we may elect to seek

additional funding at any time, we believe our existing cash, cash equivalents and availability under our credit facilities are sufficient to meet our capital requirements through at least the next 12 months and the longer term.

We may ~~enter into acquisitions~~from time to time take steps to reduce our debt or ~~strategic arrangements~~otherwise improve our financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt, raising additional capital or divesting certain non-core assets. The amount of prepayments or the amount of debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations.

Credit Agreement

As of September 30, 2023, we had $1,409 million of long-term debt outstanding under our A&R Credit Agreement and Senior Notes due 2029, of which $12 million is due in the ~~future which also could require us to seek additional equity or debt financing.~~

~~Reimbursement Agreement~~

~~In connection with the Spin-Off, we~~next 12 months. We entered into certain interest rate swap agreements to effectively convert a portion of our variable-rate debt to fixed rate debt. During the ~~Reimbursement Agreement, pursuant~~second quarter of 2023, we transitioned the reference rate under the A&R Senior Credit Facilities and the Swap Agreements from LIBOR to ~~which we have an obligation~~SOFR.

Refer to make cash payments to Honeywell in amounts equal to 90% of payments for certain Honeywell environmental-liability payments, which include amounts billed, less 90% of Honeywell’s net insurance receipts relating to such liabilities,Note 12. Long-Term Debt and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million.

~~The amount paid during the nine months ended October 1, 2022 was $105 million.~~Note 13. ~~Refer to~~Derivative Financial Instruments ~~Note 16. Commitments and Contingencies~~ ~~of Notes~~ to the Unaudited Consolidated Financial Statements for a description of ~~this Form 10-Q~~our debt obligations and ~~Note 17. Commitments~~ the timing of future principal and ~~Contingencies~~interest payments, including impacts from our Swap Agreements.

Share Repurchase Program

On August 3, 2023, we announced that our Board of ~~Notes~~Directors authorized a share repurchase program for the repurchase of up to ~~Consolidated and Combined Financial Statements~~$150 million of our common stock over an unlimited time period. During the three months ended September 30, 2023, we repurchased 1.8 million shares of common stock in ~~our 2021 Annual Report on Form 10-K for further discussion.~~the open market at a total cost of $30 million. As of September 30, 2023, we had $120 million of authorized repurchases remaining under the share repurchase program.

Cash Flow Summary for the ~~nine months ended~~Nine Months Ended September 30, 2023 and October 1, 2022 ~~and October 2, 2021~~

Our cash flows from operating, investing and financing activities for the nine months ended September 30, 2023 and October 1, 2022, ~~and October 2, 2021,~~ as reflected in the ~~unaudited~~Unaudited Consolidated Financial Statements, ~~of Cash Flows,~~ are summarized as follows:


	Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		$ change
Cash provided by (used for) operating activities:
Operating activities	$	177	$	13	$	164
Investing activities	(90)		(707)		617
Financing activities	(47)		182		(229)




Effect of exchange rate changes on cash	1		(12)		13
Net increase (decrease) in cash, cash equivalents and restricted cash	$	41	$	(524)	$	565

Nine months ended

October 1,

October 2,

2022

2021

Cash provided by (used for):

Operating activities

$
13

$
203

Investing activities

(707
)

(56
)
Financing activities

182

28

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(12
)

(6
)
Net (decrease) increase in cash, cash equivalents and restricted cash

$
(524
)

$
169

Net cash provided by operating activities for the nine months ended September 30, 2023 was $177 million. Compared to the nine months ended October 1, 2022, ~~decreased~~net cash provided by ~~$190~~operating activities increased $164 million primarily due to ~~an increase~~improvements in accounts receivable, inventory, and other current assets of $291 million partially offset by a decrease in net income of $69 million, more than offset by non-cash operating activities totaling $28 million, an increase in cash used in operating activities for accounts receivable, inventory, and accrued liabilities totaling $204 million, and cash used in other assets and liabilities totaling $27$116 million.

Net cash used for investing activities ~~increased by $651~~for the nine months ended September 30, 2023 was $90 million, a decrease of $617 million compared to the nine months ended October 1, 2022, primarily due to ~~$649~~a decrease in acquisitions of $644 million resulting from the First Alert, Inc acquisition occurring in the prior year.

Net cash used for financing activities was $47 million during the nine months ended September 30, 2023, as compared to cash provided by financing activities of ~~additional cash paid~~$182 million for ~~acquisitions in~~ the nine months ended October 1, 2022.

~~Net~~ The primary uses of cash ~~provided by financing activities~~during the third quarter of 2023 was $28 million of common stock repurchases under our share repurchase program, $10 million for employee incentive plans and $9 million of principal debt repayments. During the second quarter of 2022, we received $200 million of proceeds from the A&R Credit Agreement to support the First Alert, Inc. acquisition.

Contractual Obligations and Probable Liability Payments

In addition to our long-term debt discussed above, our material cash requirements include the following contractual obligations.

Reimbursement Agreement Payments

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of September 30, 2023, a liability of $637 million was deemed probable and reasonably estimable; however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million. During the nine months ended ~~October 1, 2022 increased by $154 million. The increase~~September 30, 2023, we paid Honeywell $105 million under the Reimbursement Agreement.For further discussion on the Reimbursement Agreement, refer to Note 16. Commitments and Contingencies to the Unaudited Consolidated Financial Statements.

Environmental Liability Payments

We make environmental liability payments for sites which we own and are directly responsible. As of September 30, 2023, a payment of $22 million was ~~primarily due to $196~~deemed probable and reasonably estimable.

Operating Leases

We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. As of September 30, 2023, we had operating lease payment obligations of $210 million, ~~of net proceeds from the March 2022 Amended A&R Credit Agreement, partially offset by principal debt payments totaling $9~~with $36 million and other financing activities totaling $5 million in 2022, as compared to $26 million of net proceeds resulting from the 2021 execution of the A&R Credit Agreement, debt issuance, modification costs, repayments of long-term debt, and cash provided by other financing activities totaling $2 million.payable within 12 months.

Capital Expenditures

We believe our capital spending in recent years has been sufficient to ~~support the requirements of the business. We expect~~maintain efficient production capacity, to implement important product and process redesigns and to expand capacity to meet increased demand. Productivity projects have freed up capacity in our manufacturing facilities and are expected to continue ~~investing~~ to ~~expand and modernize our existing facilities and to create capacity for new product development.~~do so.

~~Critical Accounting Policies~~

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our critical accounting policies throughout the year. We have concluded that there have been no significant changes to our critical accounting policies or estimates, as described in our Annual Report on Form 10-K for the year ended December 31, 2021, during the nine months ended October 1, 2022.

Other Matters

Litigation, Environmental Matters and the Reimbursement Agreement

Refer to Note 16. Commitments and Contingencies~~of Notes~~ to the Unaudited Consolidated Financial Statements ~~of this Form 10-Q~~ for ~~a discussion of environmental and other litigation matters.~~further discussion.

Recent Accounting Pronouncements

Refer toNote 2. Summary of Significant Accounting Policies ~~of Notes~~ to the Unaudited Consolidated Financial Statements ~~of this Form 10-Q~~ for ~~a discussion of recent accounting pronouncements.~~further discussion.

Item 3. Quantitative and ~~Qualitative~~Qualitative Disclosures About Market ~~Risk~~Risk.

We are exposed to market risk from foreign currency exchange rates, commodity price risk and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.

Interest Rate Risk

As of ~~October 1, 2022, $1,134 million of our total debt, excluding unamortized deferred financing costs, carried variable interest rates. In March 2021, eight interest rate swap agreements were entered into~~September 30, 2023, the Swap Agreements, with ~~various financial institutions for~~ a ~~combined~~ notional ~~amount~~value of $560 million, ~~(the “Swap Agreements”).~~effectively convert a portion of our $1,123 million long-term variable rate A&R Term B Facility to fixed rate debt. In June 2023, we modified our A&R Term B Facility to implement a forward-looking rate based on SOFR. In conjunction, we amended the Swap Agreements to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. The Swap Agreements effectively ~~converted~~convert a portion of ~~the Company’s~~our variable interest rate obligations to a rate based on ~~three-month LIBOR~~Term SOFR with a minimum rate of ~~0.50%~~0.39% per annum to a base fixed weighted average rate of ~~0.9289%~~1.13% over ~~a term~~the remaining terms.

As of ~~two to four years.~~ September 30, 2023, an increase in interest rates by 100 bps would have an approximately $6 million impact on our annual interest expense.

For more information on the Swap Agreements, refer to Note ~~18.~~ 13.Derivative Financial Instruments ~~of Notes~~and Note 14. Fair Value to the Unaudited Consolidated Financial Statements of this Form 10-Q. The fair market values of our fixed-rate financial instruments and Swap Agreements are sensitive to changes in interest rates. As of October 1, 2022, an increase or decrease in the interest rate by 100 basis points would have an approximate $6 million impact on our annual interest expense.Statements.

Foreign Currency Exchange Rate Risk

We are exposed to market risks from changes in currency exchange rates. While we primarily transact with customers and suppliers in the U.S. Dollar, we also transact in foreign currencies, primarily including the ~~Euro,~~Mexican Peso, British Pound, Canadian Dollar, ~~Mexican Peso,~~Indian Rupee, Euro, Polish Zloty, and Czech ~~Koruna, and Indian Rupee.~~Korona. These exposures may impact total assets, liabilities, future earnings and/or operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates ~~arises~~results from transactions arising ~~from~~out of international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. We rely primarily on natural offsets to address our exposures and may supplement this approach from time to time by entering into forward and option hedging contracts. As of ~~October 1, 2022 and December 31, 2021,~~September 30, 2023, we have no outstanding ~~foreign currency~~ hedging arrangements.

Commodity Price Risk

While we are exposed to commodity price risk, we attempt to pass through significant changes in component and raw material costs to our customers based on the contractual terms of our arrangements. In limited situations, we may not be fully compensated for such changes in costs.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures designed to give reasonable assurance that information required to be disclosed in ~~the Company’s~~our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been or will be detected.

Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted an evaluation of the effectiveness of ~~the Company’s~~our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) ~~under~~of the Exchange Act) as of the end of the period covered by this Quarterly ~~Report on Form 10-Q.~~Report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by this Quarterly ~~Report on Form 10-Q.~~Report.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended ~~October 1, 2022~~September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

Refer toNote 16. Commitments and Contingencies ~~— Other Matters~~ ~~of Notes~~ to Unaudited Consolidated Financial Statements of this ~~Form 10-Q~~Quarterly Report for a discussion on legal proceedings.

Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal, and regulatory risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations, and historical trends. There have been no material changes to the risk factors described in our ~~2021~~2022 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities

The following table summarizes information with respect to the purchase of our common stock during the three months ended September 30, 2023.


	Share Repurchases (1)
Period	Total Number of Shares Purchased (thousands) (2)	Average Price Paid per Share Excluding Commissions		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (thousands)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (millions)
July 2, 2023 to July 29, 2023	—	—		—	$	150
July 30, 2023 to August 26, 2023	656	$	16.12	656	$	139
August 27, 2023 to September 30, 2023	1,184	$	16.22	1,184	$	120
Total	1,840	$	16.18	1,840

(1) This table does not include the value of equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards.

(2) Refer to Note 19. Shareholders’ Equity to the Unaudited Consolidated Financial Statements for information about the share repurchase program.

Item 5. Other Information

During the three months ended September 30, 2023, no director or officer of the Company adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

The Exhibits listed below on the Exhibit Index are filed or incorporated by reference as part of this ~~Form 10-Q.~~Quarterly Report.

EXHIBIT INDEX


Exhibit Number			Exhibit Description
~~4.1~~			~~Third Supplemental Indenture, dated September 26, 2022, to the Senior Notes Indenture, dated August 26, 2021, relating to the Issuer's 4.000% Senior Notes due 2029 (filed herewith)~~

~~10.1~~	~~Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Restricted Stock Unit Agreement amended as of July 28, 2022 (filed herewith)~~

~~10.2~~	~~Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Performance Stock Unit Agreement amended as of July 28, 2022 (filed herewith)~~

~~10.3~~	Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Omnibus Amendment to Performance Stock Unit Agreements (for outstanding PSU awards) (filed herewith)

31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2			Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101.INS			Inline XBRL Instance Document (filed herewith)

101.SCH			Inline XBRL Taxonomy Extension Schema (filed herewith)

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Resideo Technologies, Inc.

		~~Resideo Technologies, Inc.~~

Date: November 1, ~~2022~~ 2023	By:		/s/ Anthony L. Trunzo
				Anthony L. Trunzo Executive Vice President and Chief Financial Officer (on behalf of the Registrant and as the Registrant’s Principal Financial Officer)

Date: November 1, ~~2022~~ 2023		By:		/s/ Tina Beskid
				Tina Beskid
				Vice President, Controller, and Chief Accounting Officer (Principal Accounting Officer)


Delaware						82-5318796
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

16100 NN. 71st Street,, Suite 550 Scottsdale,, Arizona						85254
(Address of principal executive offices)						(Zip Code)

(480) 573-5340
(Registrant’s telephone number, including area code)


(in millions, except par value)	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	368	$	326
Accounts receivable, net	988		1,002
Inventories, net	970		975
Other current assets	289		199

Total current assets	2,615		2,502

Property, plant and equipment, net	380		366
Goodwill	2,687		2,724
Intangible assets, net	456		475
Other assets	321		320

Total assets	$	6,459	$	6,387

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	863	$	894
Current portion of long-term debt	12		12
Accrued liabilities	592		640

Total current liabilities	1,467		1,546

Long-term debt	1,397		1,404
Obligations payable under Indemnification Agreements	599		580
Other liabilities	351		328

Total liabilities	3,814		3,858

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity

Common stock, $0.001 par value: 700 shares authorized, 151 and 146 shares issued and outstanding at September 30, 2023, respectively, and 148 and 146 shares issued and outstanding at December 31, 2022, respectively	—		—
Additional paid-in capital	2,219		2,176
Retained earnings	728		600
Accumulated other comprehensive loss, net	(221)		(212)
Treasury stock at cost	(81)		(35)
Total stockholders’ equity	2,645		2,529
Total liabilities and stockholders’ equity	$	6,459	$	6,387


Fiscal Quarters	Common Shares		Common Shares ($)		Additional Paid- In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Shares		Treasury Shares ($)			Total Stockholders’ Equity
Balance as of July 2, 2022		145,684	$	-	$	2,147	$	498	$	(220	)		1,844	$	(31	)	$	2,394
Net income		-		-		-		63		-			-		-			63
Other comprehensive loss, net of tax		-		-		-		-		(72	)		-		-			(72	)
Share issuances, net of shares withheld for taxes		154		-		2		-		-			21		-			2
Share-based compensation		-		-		13		-		-			-		-			13
Balance as of October 1, 2022		145,838	$	-	$	2,162	$	561	$	(292	)		1,865	$	(31	)	$	2,400

Balance as of July 3, 2021		144,171	$	-	$	2,098	$	182	$	(163	)		1,188	$	(14	)	$	2,103
Net income		-		-		-		68		-			-		-			68
Other comprehensive (loss), net of tax		-		-		-		-		(24	)		-		-			(24	)
Share issuances, net of shares withheld for taxes		212		-		3		-		-			45		(2	)		1
Share-based compensation		-		-		10		-		-			-		-			10
Balance as of October 2, 2021		144,383	$	-	$	2,111	$	250	$	(187	)		1,233	$	(16	)	$	2,158

Fiscal Year to Date Periods	Common Shares		Common Shares ($)		Additional Paid- In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Shares		Treasury Shares ($)			Total Stockholders’ Equity
Balance as of December 31, 2021		144,808	$	-	$	2,121	$	317	$	(165	)		1,440	$	(21	)	$	2,252
Net income		-		-		-		244		-			-		-			244
Other comprehensive loss, net of tax		-		-		-		-		(127	)		-		-			(127	)
Share issuances, net of shares withheld for taxes		1,030		-		5		-		-			425		(10	)		(5	)
Share-based compensation	-			-		36		-	-			-			-			36
Balance as of October 1, 2022		145,838	$	-	$	2,162	$	561	$	(292	)		1,865	$	(31	)	$	2,400

Balance as of December 31, 2020		143,059	$	-	$	2,070	$	75	$	(146	)		900	$	(6	)	$	1,993
Net income		-		-		-		175		-			-		-			175
Other comprehensive loss, net of tax		-		-		-		-		(41	)		-		-			(41	)
Share issuances, net of shares withheld for taxes		1,324		-		12		-		-			333		(10	)		2
Share-based compensation	-			-		29		-	-			-			-			29
Balance as of October 2, 2021		144,383	$	-	$	2,111	$	250	$	(187	)		1,233	$	(16	)	$	2,158


							Part I.I - Financial Information	~~Page~~

Item 1.			Unaudited Consolidated Financial Statements	3

	Unaudited Consolidated Balance Sheets as of ~~October 1, 2022~~September 30 , 2023 and December 31, ~~2021~~2022	3

	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30 , 2023 and October 1 , 2022 ~~and October 2, 2021~~	4

	Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30 , 2023 and October 1 , 2022 ~~and October 2, 2021~~	5

	Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Nin e Months Ended September 30 , 2023 and October 1 , 2022 ~~and October 2, 2021~~	6

	Unaudited Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity for the Three and ~~Nine~~Nin e Months Ended ~~October 1, 2022~~September 30 , 2023 and ~~October 2, 2021~~Oc tober 1 , 2022	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.			Quantitative and Qualitative Disclosures About Market Risk	3438

Item 4.			Controls and Procedures	3539
Part II - Other Information
Item 1.		Legal Proceedings			~~Part II. Other Information~~39
Item 1A.		Risk Factors			39
Item 1.2.		Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			~~Legal Proceedings~~39	36
Item 5.		Other Information			40
Item ~~1A.~~6.		Exhibits			~~Risk Factors~~41	36
		Signatures			42
~~Item 6.~~	~~Exhibits~~	37

	~~Signatures~~	38


	October 1, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	252		$	775
Accounts receivable, net		1,043			876
Inventories, net		957			740
Other current assets		198			150
Total current assets		2,450			2,541
Property, plant and equipment, net		351			287
Goodwill		2,678			2,661
Other intangible assets, net		460			120
Other assets		323			244
Total assets	$	6,262		$	5,853
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	936		$	883
Current maturities of long-term debt		12			10
Accrued liabilities		594			601
Total current liabilities		1,542			1,494
Long-term debt, net of current maturities		1,407			1,220
Obligations payable under Indemnification Agreements		575			585
Other liabilities		338			302
Total liabilities		3,862			3,601
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity:
Common shares, $0.001 par value, 700,000 shares authorized, 147,703 and 145,838 shares issued and outstanding as of October 1, 2022, 146,248 and 144,808 shares issued and outstanding as of December 31, 2021, respectively		-			-
Additional paid-in capital		2,162			2,121
Retained earnings		561			317
Accumulated other comprehensive loss, net		(292	)		(165	)
Treasury shares		(31	)		(21	)
Total stockholders’ equity		2,400			2,252
Total liabilities and stockholders’ equity	$	6,262		$	5,853


	Nine Months Ended
	October 1, 2022			October 2, 2021
Cash flows from operating activities:
Net income	$	244		$	175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		69			67
Loss on extinguishment of debt		-			41
Share-based compensation expense		36			29
Other, net		8			4
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		(142	)		(78	)
Inventories, net		(129	)		(40	)
Other current assets		(38	)		(6	)
Accounts payable		5			(19	)
Accrued liabilities		(25	)		26
Other, net		(15	)		4
Net cash provided by operating activities		13			203
Cash flows from investing activities:
Capital expenditures		(34	)		(48	)
Acquisitions, net of cash acquired		(660	)		(11	)
Other, net		(13	)		3
Net cash used in investing activities		(707	)		(56	)
Cash flows from financing activities:
Proceeds from issuance of A&R Term B Facility		200			1,250
Payments of debt facility issuance and modification costs		(4	)		(39	)
Repayments of long-term debt		(9	)		(1,185	)
Other, net		(5	)		2
Net cash provided by financing activities		182			28
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash		(12	)		(6	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(524	)		169
Cash, cash equivalents and restricted cash at beginning of period		779			517
Cash, cash equivalents and restricted cash at end of period	$	255		$	686

Supplemental Cash Flow Information:
Interest paid	$	38		$	33
Income taxes paid, net	$	129		$	84


Fiscal Quarters	Common Stock							Accumulated Other Comprehensive Loss		Treasury Stock
(in millions, except shares in thousands)	Shares	Amount		Additional Paid-In Capital		Retained Earnings				Shares	Amount		Total Stockholders’ Equity
Balance at July 2, 2023	147,649	$	—	$	2,204	$	707	$	(184)	2,902	$	(50)	$	2,677
Net income	—	—		—		21		—		—	—		21
Other comprehensive loss, net of tax	—	—		—		—		(37)		—	—		(37)
Common stock issuance, net of shares withheld for taxes	284	—		4		—		—		71	(1)		3
Stock-based compensation expense	—	—		11		—		—		—	—		11
Common stock repurchases	(1,840)	—		—		—		—		1,840	(30)		(30)
Balance at September 30, 2023	146,093	$	—	$	2,219	$	728	$	(221)	4,813	$	(81)	$	2,645

Balance at July 3, 2022	145,684	$	—	$	2,147	$	498	$	(220)	1,844	$	(31)	$	2,394
Net income	—	—		—		63		—		—	—		63
Other comprehensive loss, net of tax	—	—		—		—		(72)		—	—		(72)
Common stock issuance, net of shares withheld for taxes	154	—		2		—		—		21	—		2
Stock-based compensation expense	—	—		13		—		—		—	—		13

Balance at October 1, 2022	145,838	$	—	$	2,162	$	561	$	(292)	1,865	$	(31)	$	2,400


	Financial Statement Line Item	As of October 1, 2022		As of December 31, 2021
Operating right-of-use assets	Other assets	$	187	$	141
Operating lease liabilities - current	Accrued liabilities	$	37	$	32
Operating lease liabilities - noncurrent	Other long-term liabilities	$	161	$	120


	As of October 1, 2022
2022	$	11
2023		45
2024		37
2025		31
2026		28
Thereafter		91
Total future minimum lease payments		243
Less: Imputed interest		45
Present value of future minimum lease payments	$	198
Weighted-average remaining lease term (years)		6.96
Weighted-average incremental borrowing rate		5.74	%


	October 1, 2022			December 31, 2021
Accounts receivable	$	1,052		$	885
Allowance for doubtful accounts		(9	)		(9	)
Accounts receivable, net	$	1,043		$	876


	October 1, 2022			December 31, 2021
Machinery and equipment	$	625		$	602
Buildings and improvements		292			292
Construction in progress		64			35
Other		7			4
Total Property, plant, and equipment, at cost		988			933
Less: Accumulated depreciation		(637	)		(646	)
Property, plant, and equipment, net	$	351		$	287


Cash	$	2
Accounts receivable, net		72
Inventories, net		117
Other current assets		2
Property, plant and equipment		82
Goodwill (1)		86
Other intangible assets		349
Other assets (non-current)		31
Total assets		741
Accounts payable		57
Accrued liabilities		33
Other liabilities		36
Total liabilities		126
Net assets acquired	$	615


	Products & Solutions			ADI Global Distribution			Total
Balance as of December 31, 2021	$	2,010		$	651		$	2,661
Acquisitions and divestitures		86			24			110
Foreign currency translation adjustments and other changes		(70	)		(23	)		(93	)
Balance as of October 1, 2022	$	2,026		$	652		$	2,678


	Range of Life (Years)	Weighted Average Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
As of October 1, 2022
Other intangible assets, net:
Patents and technology	3-10	10	$	62	$	(24	)	$	38
Customer relationships	7-15	14		289		(104	)		185
Trademarks (1)	10-Indefinite	10		193		(8	)		185
Software	2-7	6		167		(115	)		52
Total intangible assets			$	711	$	(251	)	$	460

As of December 31, 2021
Other intangible assets, net:
Patents and technology	3-10	9	$	31	$	(23	)	$	8
Customer relationships	7-15	14		162		(106	)		56
Trademarks	10	10		14		(8	)		6
Software	2-7	6		162		(112	)		50
Total intangible assets			$	369	$	(249	)	$	120


	Reimbursement			Tax Matters
	Agreement			Agreement			Total
Beginning Balance, December 31, 2021	$	597		$	128		$	725
Accruals for liabilities deemed probable and reasonably estimable (1)		116			(2	)		114
Payments to Honeywell		(105	)		(19	)		(124	)
Balance as of October 1, 2022	$	608		$	107		$	715


	October 1, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

4.000% Senior Notes due 2029	$	300	$	241	$	300	$	294
Seven-year variable rate term loan due 2028	$	1,134	$	1,103	$	943	$	943


		October 1, 2022						December 31, 2021
		Level 1		Level 2		Total		Level 1		Level 2		Total
Assets:
	Interest rate swap assets	$	-	$	46	$	46	$	-	$	7	$	7
Liabilities:
	Interest rate swap liabilities		-		-		-		-		1		1
Total		$	-	$	46	$	46	$	-	$	6	$	6


	U.S. Plans
	Three months ended						Nine months ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Periodic benefit cost:
Service cost	$	2		$	2		$	5		$	6
Interest cost		3			5			8			7
Expected return on plan assets		(4	)		(8	)		(13	)		(12	)
Net periodic benefit cost	$	1		$	(1	)	$	0		$	1

	Non-U.S. Plans
	Three months ended						Nine months ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Periodic benefit cost:
Service cost	$	1		$	2		$	4		$	5
Interest cost		-			-			1			1
Expected return on plan assets		-			-			-			-
Net periodic benefit cost	$	1		$	2		$	5		$	6


	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net revenue	$	1,618	$	1,496	$	4,810	$	4,392
Cost of goods sold		1,188		1,075		3,475		3,210
Gross profit		430		421		1,335		1,182
Research and development expenses		29		20		81		63
Selling, general and administrative expenses		236		227		716		678
Intangible asset amortization		10		7		25		23
Income from operations		155		167		513		418
Other expense, net		44		58		125		130
Interest expense		15		12		40		37
Income before taxes		96		97		348		251
Provision for income taxes		33		29		104		76
Net income	$	63	$	68	$	244	$	175
Earnings per share
Basic	$	0.43	$	0.47	$	1.68	$	1.22
Diluted	$	0.42	$	0.46	$	1.64	$	1.18
Weighted average number of common shares outstanding
Basic		145,755		144,284		145,442		143,865
Diluted		149,158		148,559		148,972		148,260


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2022			2021			2022			2021
Cost of goods sold	$	1,188		$	1,075		$	3,475		$	3,210
% change compared with prior period		11	%					8	%
Gross profit percentage		27	%		28	%		28	%		27	%