~~(Former name, former address and former fiscal year, if changed since last report)~~

~~This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly~~

Table of ~~satisfying the performance obligation is typically indicated by the terms of the contract. All performance obligations are expected~~Contents

Resideo Technologies, Inc.

Notes to ~~be satisfied within one year.~~

~~The timing of satisfaction of our performance obligations does not significantly vary from the typical timing of payment. For some contracts, we may be entitled to receive an advance payment.~~

We have applied the practical expedient to not disclose the value of remaining performance obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which we recognize revenue in proportion to the amount we have the right to invoice for services performed.

~~Note 7. Accounts, Notes and Other Receivables - Net~~

Consolidated Financial Statements

September 30,
2018

December 31,
2017

Accounts, notes and other receivables

$
798

$
792

Less - Allowance for doubtful accounts

(15
)

(13
)

$
783

$
779

(Unaudited)

~~Note 8. Inventories~~

September 30,
2018

December 31,
2017

Raw materials

$
139

$
108

Work in process

26

21

Finished products

438

336

$
603

$
465

~~Note 9. Accrued Liabilities~~

September 30,
2018

December 31,
2017

Environmental costs

$
186

$
204

Compensation, benefit and other employee related

61

65

Customer rebate reserve

39

49

Repositioning

17

22

Product warranties and performance guarantees

15

17

Customer advances and deferred income

2

3

Other (primarily operating expenses)

68

49

$
388

$
409

~~Note 10. Accumulated Other Comprehensive Income (Loss)~~

~~Changes in Accumulated Other Comprehensive Income (Loss) by Component~~

Foreign
Exchange
Translation
Adjustment

Changes in
Fair Value of
Effective
Cash Flow
Hedges

Total
Accumulated
Other
Comprehensive
Income (Loss)

Balance at December 31, 2016

$
(170
)

$
1

$
(169
)
Other comprehensive income (loss) before reclassifications

70

(4
)

66

Amounts reclassified from accumulated other comprehensive (loss)

-

2

2

Net current period other comprehensive income (loss)

70

(2
)

68

Balance at September 30, 2017

$
(100
)

$
(1
)

$
(101
)

Balance at December 31, 2017

$
(100
)

$
-

$
(100
)
Other comprehensive income (loss) before reclassifications

(23
)

(2
)

(25
)
Amounts reclassified from accumulated other comprehensive (loss)

-

1

1

Net current period other comprehensive income (loss)

(23
)

(1
)

(24
)
Balance at September 30, 2018

$
(123
)

$
(1
)

$
(124
)

Note ~~11.~~15. Accrued Liabilities

Accrued liabilities consist of the following:



(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 accruals for advertising, legal and professional reserves, freight, royalties, interest, and other miscellaneous items.

The Indemnification Agreements are further described in Note 16. Commitments and Contingencies

to the Unaudited Consolidated Financial Statements.

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.~~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 ~~lawsuits and~~ claims associated with environmental and safety matters, including products containing hazardous substances. Additional ~~lawsuits,~~ claims and costs involving environmental matters are likely to continue to arise in the future.

With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with other potentially responsible parties, to determine the feasibility of various remedial techniques. It is our policy to record appropriate liabilities

Environment-related expenses for ~~environmental matters when remedial efforts or damage claim payments are probable~~sites owned and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of remedial investigations and feasibility studies, the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties.

~~We 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.~~ ~~Environmental-related expenses~~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, environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $22 million at September 30, 2023 and ~~Other expense~~December 31, 2022.

Obligations Payable Under Indemnification Agreements

The Reimbursement Agreement and the Tax Matters 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, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for ~~non-operating sites~~certain Honeywell environmental-liability payments, which include amounts billed (payments), less 90% of Honeywell’s net insurance receipts relating to such liabilities, 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 recoveries). While the ~~Combined Interim~~amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million

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Resideo Technologies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

under the Reimbursement Agreement, the estimated liability for resolution of ~~Operations~~.

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 to Note 15. Commitments and Contingencies in 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, 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 ~~our recorded~~the Reimbursement and Tax Matter Agreements’ liabilities:


(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 ~~for environmental costs:~~

December 31, 2017

$
537

Accruals for environmental matters deemed probable and reasonably estimable

322

Environmental liability remediated

(124
)
September 30, 2018

$
735

~~Current~~deemed probable and ~~non-current environmental~~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.

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

accounts:

September 30,
2018

December 31,
2017

Accrued liabilities

$
186

$
204

Other liabilities

549

333

$
735

$
537


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

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 million and $116 million, respectively, and are recorded in other expense, net.

We do not currently possess sufficient information to reasonably estimate the amounts of ~~environmental~~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 ~~environmental matters~~such indemnification liability payments can be determined although they could be material to our ~~combined~~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

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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

We are subject to ~~other~~ lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, ~~prior~~ acquisitions and divestitures, employee ~~benefit plans,~~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 ofor 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. ~~To date, no~~No such matters are material to 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 were defendants in a consolidated derivative action, In re Resideo Technologies, Inc. Derivative Litigation (the “Consolidated Federal Derivative Action”), which was stayed pending entry of final judgment in the ~~Combined Interim~~related securities litigation and Delaware Chancery 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 Action. On November 17, 2022, the parties executed a Confidential Term Sheet summarizing the agreed terms of a global settlement to resolve all of the pending lawsuits and derivative claims. Under the terms of the settlement, we agreed to implement or codify certain corporate governance reforms and reimburse the plaintiffs’ attorneys’ fees of up to $1.6 million. On February 3, 2023, the parties executed a definitive stipulation of settlement. The U.S. District Court for the District of Minnesota preliminarily approved the settlement, and a fairness hearing was held on June 22, 2023. The final settlement remains subject to, among other things, court approval. The settlement liability is included in the other accrued liabilities in the Unaudited Consolidated Balance Sheets, and the expected insurance recovery of approximately $0.6 million is included in accounts receivable, net.

On September 16, 2022, Salvatore Badalamenti (“Plaintiff”) filed a putative class action lawsuit (the “Badalamenti Lawsuit”) in the 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 nonconformance. Plaintiff further alleges that the 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.

Plaintiff seeks to represent a putative class of other persons in the 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.

We believe we have strong defenses against the allegations and claims asserted in the Badalamenti Lawsuit and our motion to dismiss Plaintiff's complaint was fully briefed on March 3, 2023. We 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 ~~Operations.~~

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. ~~Products~~Product warranties and product performance guarantees are included in ~~Accrued~~accrued and other liabilities. The following table summarizes information concerning ~~our~~ recorded obligations for product warranties and product performance ~~guarantees.~~

guarantees:

December 31, 2017

$
17

Accruals for warranties/guarantees issued during the year

12

Adjustment of pre-existing warranties/guarantees

(2
)
Settlement of warranty/guarantee claims

(12
)
September 30, 2018

$
15


(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

Note ~~12. Segment Financial Data~~

~~We globally manage our business operations through two reportable operating segments, Products~~17. 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 and ~~Distribution:~~

~~Products~~ ~~- Our Products business is a leading global provider~~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 September 30, 2023, the net tax expense was $16 million and $84 million, respectively, and for the three and nine months ended October 1, 2022, net tax expense was $33 million and $104 million, respectively, and consists primarily of residential security and intrusion products, consumer thermostats, consumer HVAC and consumer awareness systems, residential thermal solutions and residential water controls that allow owners of homes to stay connected and in control of their comfort, security and energy use.

~~Distribution~~ ~~- Our Distribution business is a leading global distributor of security and low voltage fire protection products.~~

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company’s chief operating decision maker (CODM) evaluates segment performanceinterim period tax expense based on ~~segment profit. Segment profit~~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 ~~measured as segment income (loss) before taxes excluding, pension expense, repositioning~~impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and ~~other charges, other expense, and interest and other charges, net.~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Sales

Total Products sales

$
603

$
603

$
1,803

$
1,719

Less: Intersegment sales

77

84

236

258

External Products sales

526

519

1,567

1,461

External Distribution sales

674

633

1,994

1,849

Total sales

$
1,200

$
1,152

$
3,561

$
3,310

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Segment profit

Products

$
92

$
90

$
290

$
239

Distribution

39

38

113

102

Total

$
131

$
128

$
403

$
341

~~A reconciliation~~U.S. taxation of ~~segment profit~~foreign earnings.

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Resideo Technologies, Inc.

Notes to ~~combined income (loss) from continuing operations before taxes are as follows:~~

Consolidated Financial Statements

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

Segment profit

$
131

$
128

$
403

$
341

Pension expense

(3
)

(4
)

(10
)

(12
)
Repositioning

-

(2
)

(5
)

(21
)
Other expense

(146
)

(65
)

(322
)

(165
)
Interest and other charges, net

-

1

-

1

Income (loss) before taxes

$
(18
)

58

$
66

$
144

(Unaudited)

Note ~~13.~~18. Earnings Per Share

~~On October 29, 2018, the date of consummation~~

The reconciliation of the Spin-Off, 122,966,558 shares of the Company’s Common Stock, par value $0.001 per share, were distributed to Honeywell shareholders of record as of the October 16, 2018 Record Date. This share amount is being utilizednumerator and denominator used for the ~~calculation~~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 ~~all periods presented as no~~the period plus the dilutive effect of common stock ~~was~~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 rights to purchase approximately 1.0 million and 1.5 million shares of common stock, respectively, were outstanding ~~prior to~~and anti-dilutive, and therefore excluded from the ~~date~~computation of ~~the Spin-Off. On October 29, 2018, the Company issued 1,601,037 time-based restricted stock units in connection with the Spin-Off. These restricted stock units were not included in~~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, ~~2018.~~

Three Months Ended
September 30,

2018

2017

Net income

$
311

$
23

Weighted average common shares outstanding (in thousands)

122,967

122,967

Common stock - basic and diluted

$
2.53

$
0.19

Nine Months Ended
September 30,

2018

2017

Net income

$
389

$
55

Weighted average common shares outstanding (in thousands)

122,967

122,967

Common stock - basic and diluted

$
3.16

$
0.45

~~Note 14. Subsequent Events~~

~~The Company evaluated subsequent events for recognition or disclosure through November 13, 2018,~~2023, respectively, as the ~~date~~contingency had not been satisfied. For the ~~Combined Financial Statements were available~~three and nine months ended October 1, 2022, average options and other rights to ~~be issued.~~

~~Completion of Spin-Off~~

~~On October 29, 2018, the Company became an independent publicly-traded company through a pro rata distribution by Honeywell of 100% of the outstanding~~purchase approximately 0.8 million and 0.4 million shares of ~~Resideo~~common stock, respectively, were outstanding and anti-dilutive, and therefore excluded from the computation of diluted income 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 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 ~~Honeywell's shareowners. For additional details, refer to Note 1. Organization, Operations and Basis~~$150 million of ~~Presentation~~ our common stock over an unlimited time period (the “Share Repurchase Program”).

~~Spin-Off Related Agreements~~

~~On October 19, 2018 in connection with~~ Under the Spin-Off, the Company entered into several agreements with Honeywell that set forth the principal actions taken or to be taken in connection with the Spin-Off and that govern the relationship of the parties following the Spin-Off, including the following:

Transaction Services Agreement: provides that for a limited time, Honeywell is to provide us, and we are to provide Honeywell, with certain services to ensure an orderly transition following the Spin-Off (the “Transaction Services Agreement”), including: IT, financial, human resources and labor, safety, environmental, sales, product stewardship, operational and manufacturing support, procurement, customer support, and supply chain logistics. For a limited time after the Spin-Off,Share Repurchase Program, we may ~~request that additional services~~repurchase common stock from 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 ~~same functional categories~~requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as ~~the specified services~~amended, in compliance with applicable state and federal securities laws. The Share Repurchase Program can be ~~provided~~modified or terminated by ~~Honeywell to us so long as such additional services were provided historically by Honeywell to~~ our ~~business.~~ Board of Directors at any time.

The services are generally intended to be provided for a period no longer than twelve months following the Spin-Off, with a possibility to extend the term of each service up to an additional twelve months;

•

Separation and Distribution Agreement: sets forth certain agreements with Honeywell regarding the principal actions to be taken in connection with the Spin-Off. It also sets forth other agreements that govern aspects of our relationship with Honeywell following the Spin-Off (the “Separation and Distribution Agreement”);

~~Tax Matters Agreement: provides that Resideo is responsible for indemnifying Honeywell for certain tax matters related to the Resideo business and the Spin-Off (the “Tax Matters Agreement”);~~

~~Employee Matters Agreement: provides for the allocation and treatment of assets and liabilities relating to employee compensation and benefit plans and programs (the “Employee Matters Agreement”);~~

Trademark License Agreement: grants Resideo a 40-year license to use the trademark “Honeywell Home” on certain products that were historically part of the Homes business , subject to termination in certain circumstances upon Resideo’s change of control,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 intrinsic value and market price of our common stock, general market and economic conditions, available liquidity, compliance with our debt and other ~~customary grounds, such as for material uncured breaches (including failure by a subsidiary~~agreements, applicable legal requirements, the nature of other investment opportunities available to us and other considerations.

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Resideo Technologies, Inc.

Notes to ~~comply with all material obligations, including~~Consolidated Financial Statements

(Unaudited)

During the ~~payment obligations, set forth~~three months ended September 30, 2023, we repurchased 1.8 million shares of common stock in the ~~Indemnification and Reimbursement Agreement, defined below (the “Trademark License Agreement”); and~~

~~Patent Cross-License Agreement: grants royalty-free rights to both Honeywell and Resideo to patents that were historically used by the Resideo business (the “Patent Cross-License Agreement”).~~

~~For additional information related to these agreements, please refer to the exhibits to our Current Report on Form 8-K filed with the SEC on October 19, 2018.~~

~~Indemnification and Reimbursement Agreement:~~

~~In connection with the Spin-Off,~~open market at a ~~subsidiary~~total cost of $30 million. As of September 30, 2023, the Company (the “Company Subsidiary”) an Indemnification and Reimbursement Agreement with Honeywell (the “Indemnification and Reimbursement Agreement”), which was entered into on October 14, 2018, and pursuant to which the Company Subsidiary has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments, which include amounts billed, with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case, including consequential damages (the “liabilities”) in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, 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 in respect of such liabilities arising in any given year will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum).

~~Financing~~

~~On October 19, 2018, Resideo issued $400 million in principal amount 6.125% senior unsecured notes due in 2026 (the “Senior Notes”).~~

~~On October 25, 2018, the Company incurred substantial additional indebtedness in the following forms:~~

~~a seven-year LIBOR plus 2.00% senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the “Term B Facility”);~~

a five-year LIBOR plus 2.00% senior secured first-lien term A loan facility in an aggregate principal amount of $350 million (the “Term A Facility” and, together with the Term B Facility, the “Term Loan Facilities”); and

a five-year senior secured first-lien revolving credit facility to be used for our working capital and other cash needs from time to time in an aggregate principal amount of $350 million (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Senior Credit Facilities”). The Revolving Credit Facility has a quarterly commitment fee based on the unused portion, which is determined by our leverage ratio and ranges from 0.25% to 0.35% per annum.

~~The net proceeds of $1.2 billion, net of $29~~had approximately $120 million of ~~transaction costs, from the sale of the Senior Notes, together with borrowings~~authorized repurchases remaining under the ~~Senior Credit Facilities were used by the Company to (i) repay intercompany indebtedness to Honeywell or~~Share Repurchase Program. Common stock repurchases are recorded at cost and presented as a subsidiary of Honeywell of approximately $1.2 billion, (ii) to pay fees, costs and expenses related to the Senior Notes offering and the Senior Credit Facilities and (iii) for general corporate purposes.

~~On November 13, 2018, the Company drew $135 million on the Revolving Credit Facility to support other Spin-Off related settlements.~~

deduction from stockholders’ equity.

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

~~The following~~ 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 (“Resideo” or “the Company”, “we”, “us” or “our”) for the three and nine months ended September 30, 2018 and 2017 andOperations.

The following information should be read in conjunction with the ~~Combined~~Unaudited Consolidated Financial Statements included herein under “Item 1. Unaudited Consolidated Financial Statements” and the Audited Consolidated Financial Statements and the notes thereto ~~contained elsewhere in this Quarterly Report on Form 10-Q, as well as the~~and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations section~~Operations” (“MD&A”) included in our 2022 Annual Report on Form 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. This 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 ~~Exhibit 99.1~~this 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 ~~Amendment No. 2~~differ materially from those in such forward-looking statements, including but not limited to:

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

•our ability to identify consumer preferences and industry standards, develop and protect intellectual property related thereto, and successfully market new technologies, products, and services to 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;

•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;

•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;

•the potential adverse impacts of enhanced tariff, import/export restrictions, or other trade barriers on global economic conditions, financial markets and our business;

•our dependence upon IT infrastructure and network operations having adequate cyber-security functionality;

•risks associated with the Reimbursement Agreement, the other agreements we entered into with Honeywell in connection with the Spin-Off, and our relationships with Honeywell, including our reliance on Honeywell for the Honeywell Home trademark and potential material environmental liabilities;

•regulations and societal actions to respond to global climate change;

•failure to comply with the broad range of current and future standards, laws and regulations in the jurisdictions in which we operate;

•the impact of potential material litigation matters, government proceedings, and other contingencies and uncertainties;

•our ability to borrow funds and access capital markets in light of the terms of our debt documents or otherwise;

•our ability to recruit and retain qualified personnel;

•currency exchange rate fluctuations; and

•other risks detailed under the caption “Risk Factors” in this Quarterly Report, in Part I, Item 1A in our 2022 Annual Report on Form 10-K, and other filings we make with the SEC.

There have been no material changes to the ~~Company’s Registration Statement~~risk factors described in our 2022 Annual Report on Form ~~10 as filed~~10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this 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 ~~Securities~~forward-looking statements contained in this 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 Quarterly Report speak only as of the date on which they are made. We are under no obligation to and ~~Exchange Commission ) (“SEC”) on October 2, 2018, which became effective on October 3, 2018 (the “Information Statement”). As more fully described below,~~expressly disclaim any obligation to, update or alter our ~~financial~~forward-looking statements, whether as a result of new information, ~~and this Management’s Discussion and Analysis (except as otherwise noted) reflects a carve-out basis. See “Basis of Presentation”.~~

subsequent events or otherwise.

Overview and Business Trends

We are a leading global ~~provider~~manufacturer and distributor of ~~critical~~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 ~~solutions primarily~~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 ~~residential environments.~~ comparison to the ADI Global Distribution operating segment.

Our ~~products consist of solutions in Comfort & Care~~Products and ~~Security & Safety categories and~~Solutions operating segment offerings include temperature and humidity control, ~~thermal,~~energy products and solutions, water and air solutions, smoke and ~~remote patient monitoring software solutions as well as~~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 ~~security and low voltage electronic~~low-voltage products ~~which include video surveillance, intrusion,~~including access control, fire detection, security, and ~~life safety,~~video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire ~~networking~~ and cable. Our ADI strategy is focused on growth in our omni-channel presence, expansion into adjacent markets, and continued enhancements to our value-add services to support our professional ~~audio visual systems. We manage our business operations through two segments, Products~~installers’ efficiency and Distribution. The Products segment offerings include our Comfort & Care and Security & Safety products, which, consistent with our industry, has a higher margin profile in comparison to the Distribution segment.

profitability.

Our financial performance ~~over the last three years has been supported~~is influenced by ~~several macro trends. Steady growth in~~macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates and growth in renovation and remodeling in the United States has had a positive impact on the growth of our Products and Distribution businesses. The financial performance of our Products business has further benefited from increasing penetration of wireless connectivitybank lending standards, supply chain dynamics, and the ~~proliferation~~overall macroeconomic environment. Our visibility toward future performance is more limited due to uncertainty surrounding the prevailing macroeconomic environment. While we believe supply chain and logistics will continue to normalize over the remainder of ~~connected devices. The financial performance~~2023, customer demand continues to moderate as inventories rebalance over the period and uncertainties remain including the potential for changes in inflation and interest rates, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, the resumption of ~~our Distribution business has been further aided by increasing contractor needs for training~~student loan repayments, unfavorable foreign currency impacts from a stronger U.S. Dollar, and ~~technical expertise,~~potential market and ~~increasing demand for same day order fulfilment.~~

~~Spin-off Transaction~~

The Company was incorporated in Delaware on April 24, 2018. The Company separated from Honeywell International Inc. (“Honeywell” or the “Parent”) on October 29, 2018 (the “Distribution Date”), becoming an independent publicly traded company as a result of a pro rata distribution of the Company common stock to shareholders of Honeywell (the “Spin-Off”). On October 29, 2018, Honeywell’s shareholders of record as of October 16, 2018 (the “Record Date”) received one share of the Company’s common stock, par value $0.001 per share, for every one share of Honeywell’s common stock, par value $1.00 per share, held as of the Record Date. The Company began trading “regular way” under the ticker symbol “REZI” on the New York Stock Exchange on October 29, 2018.

We have entered into certain agreements with Honeywell that were not effective prior to the Spin-Off, such as the Indemnification and Reimbursement Agreement, the Trademark License Agreement, Tax Matters Agreement, Employee Matters Agreement, Patent Cross-License Agreement and Transition Services Agreement, which will cause us to incur new costs. See “Certain Relationships and Related Party Transactions—Agreements with Honeywell,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Indemnification and Reimbursement Agreement,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Trademark License Agreement,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Tax Matters Agreement” and “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Transition Services Agreement” in the Information Statement for a description of the material terms thereof.

~~Basis of Presentation~~

~~The accompanying Combined Interim Financial Statements have been prepared on a carve-out basis and were derived~~other disruption from the ~~Consolidated Financial Statements~~ongoing conflicts in Ukraine and ~~accounting records~~Israel.

Recent Developments

During the third quarter of Honeywell. These Combined Interim Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Company as they were historically managed in conformity with ~~Generally Accepted Accounting Principles in the United States (“U.S. GAAP”).~~ ~~Therefore, the historical combined financial information may not be indicative of~~2023, we announced a restructuring program to align our future performance and does not necessarily reflect what our combined results of operations, financial condition and cash flows would have been had the Company operated as a separate, publicly traded company during the periods presented, particularly because of changes that we expect to experience as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure ~~and personnel needs of our Company. All periods presented concluded prior to the Distribution Date.~~

The Combined Interim Financial Statements include certain assets and liabilities that have historically been held at the Honeywell corporate level but are specifically identifiable or otherwise attributable to the Company. Additionally, Honeywell historically provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Company. The cost of these services has been allocated to the Company on the basis of the proportion of revenues. The Company and Honeywell consider these allocations to be a reasonable reflection of the benefits received by the Company. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. Both we and Honeywell consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Company during the periods presented.

Since the completion of the Spin-Off, we have incurred and expect to continue to incur expenditures consisting of employee-related costs, costs to start up certain stand-alone functions and information technology systems and other one-time transaction related costs. Recurring stand-alone costs include establishing the internal audit, treasury, investor relations, tax and corporate secretary functions as well as the annual expenses associated with running an independent publicly traded company including listing fees, compensation of non-employee directors, related board of director fees and other fees and expenses related to insurance, legal and external audit.

Our environmental expenses are primarily reported within Other expense in our Combined Interim Statement of Operations, which reflect an estimated liability for resolution of pending and future environmental-related liabilities, calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites. See Environmental Matters in Note 18. Commitments and Contingencies of Notes to Combined Financial Statements in the Information Statement for additional information. In connection with the Company’s separation from Honeywell, a subsidiary of the Company (the “Company Subsidiary”) is a party to an Indemnification and Reimbursement Agreement, which was entered into on October 14, 2018, pursuant to which the Company Subsidiary has agreed to indemnify Honeywell in amounts equal to 90% of payments which include amounts billed with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case including consequential damages (the “liabilities”), in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, 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. Pursuant to the Indemnification and Reimbursement Agreement, the Company Subsidiary is responsible for paying to Honeywell such amounts, up to a cap of $140 million in respect of liabilities arising in any given calendar year (exclusive of any late payment fees up to 5% per annum). The payments that the Company Subsidiary is required to make to Honeywell pursuant to this agreement are not deductible for U.S. federal income tax purposes. See “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Indemnification and Reimbursement Agreement” in the Information Statement.

~~Results of Operations for~~market conditions. For the three and nine months ended September 30, ~~2018 compared with~~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, ~~2017~~

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 ~~Sales~~

Three months ended
September 30,

Nine months ended
September 30,

2018

2017

2018

2017

(Dollars in millions)

(Dollars in millions)

Net sales

$
1,200

$
1,152

$
3,561

$
3,310

% change compared with prior period

4.2
%

7.6
%

~~The change~~revenue of $1.55 billion, down 4.0% from $1.62 billion in ~~net sales~~the third quarter of 2022

•Income from operations of $109 million, or 7.0% of revenue, compared to ~~prior year period is attributable to the following:~~

Three months

Year to Date

Volume

2.6%

4.1%

Price

2.3%

1.8%

Foreign currency translation

(0.7)%

1.7%

% change compared with prior period

4.2%

7.6%

~~A discussion~~$155 million, or 9.6% of ~~net sales by segment can be found~~revenue in the ~~Review~~third quarter of ~~Business Segments section~~2022

•Fully diluted earnings per share of ~~this Management’s Discussion~~$0.14, compared to $0.42 per share in the third quarter of 2022

•Cash Flow From Operations was $60 million in 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 ~~Analysis~~updated full year 2023 outlook. This outlook includes an estimated gain on the sale of ~~Financial Condition and~~ 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.~~

Operations

The ~~foreign currency translation impact~~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, ~~2018 compared to~~2023 was $1,554 million, a decrease of $64 million, or 4.0%, from the ~~prior~~same period ~~was unfavorable due to the weakening~~in 2022, driven primarily by lower sales volume of ~~both the Euro and the Canadian Dollar against the U.S. Dollar. The~~$109 million partially offset by higher selling prices of $29 million, favorable foreign currency ~~translation impact~~fluctuations of $10 million and $6 million from acquisitions across both segments. Volume declines were driven by customer destocking and lower demand for air and energy products.

Nine months ended

Net revenue for the nine months ended September 30, ~~2018~~2023 was $4,705 million, a decrease of $105 million, or 2.2% from the same period in 2022, driven primarily by lower sales volume of $358 million and unfavorable foreign currency fluctuations of $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 variance from the three months ended October 1, 2022 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”) to 26.8% compared to 26.6% in the same period in the prior ~~year period~~year. The change in gross margin was driven by 340 bps of favorable ~~due~~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 gross profit variance from the nine months ended October 1, 2022 to the ~~strengthening~~nine months ended September 30, 2023.

Gross profit dollars decreased $62 million in the nine months ended September 30, 2023 as 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 ~~both~~ the ~~Euro~~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, ~~British Pound against~~unfavorable product mix shift of 100 bps partially offset by 150 bps of favorable material, freight and other costs as the ~~U.S. Dollar.~~

~~Cost~~inflationary environment has begun to stabilize and 10 bps of ~~Goods Sold~~

favorable foreign currency fluctuations.

Three months ended
September 30,

Nine months ended
September 30,

2018

2017

2018

2017

(Dollars in millions)

(Dollars in millions)

Cost of goods sold

$
853

$
816

$
2,525

$
2,355

% change compared with prior period

4.5
%

7.2
%

Gross profit percentage

28.9
%

29.2
%

29.1
%

28.9
%

Research and Development Expenses

Three months ended

~~Costs of goods sold~~

Research and development expenses for the three months ended September 30, ~~2018 was $853~~2023 were $28 million ~~an increase~~a slight decrease of ~~$37~~$1 million, or ~~approximately 4.5%~~3.4%, ~~from $816 million for the three months ended September 30, 2017.~~

This increase was primarily driven by $37 million in higher product cost in the Distribution segment driven by an increase in sales volume and material inflation, partially driven by lower vendor rebates.

~~The decrease in gross profit percentage was primarily due~~as compared to the impact of material inflation, net of productivity (approximately 1.2 percentage point impact) and product mix (approximately 0.7 percentage point impact), partially offset by the impact of higher selling prices (approximately 1.6 percentage point impact).

same period in 2022.

Nine months ended

~~Costs of goods sold~~

Research and development expenses for the nine months ended September 30, ~~2018 was $2,525~~2023 were $84 million, an increase of ~~$170~~$3 million, or ~~approximately 7.2%~~3.7%, ~~from $2,355 million for~~as compared to the ~~nine months ended September 30, 2017.~~

~~This~~same period in 2022. The increase was primarily driven by ~~$121 million~~additional research and development costs from the acquisition of First Alert, Inc. in ~~higher product cost in the Distribution segment and $55 million in higher direct material cost in the Products segment driven by the increase in sales volume and the strengthening~~first quarter of ~~both the Euro and British Pound against the U.S. Dollar.~~

The increase in gross profit percentage was primarily due to the impact of higher selling prices (approximately 1.2 percentage point impact), partially offset by the impact of higher inflation, net of material productivity (approximately 0.6 percentage point impact) and unfavorable product mix (approximately 0.5 percentage points).

2022.

Selling, General and Administrative Expenses

Three months ended
September 30,

Nine months ended
September 30,

2018

2017

2018

2017

(Dollars in millions)

(Dollars in millions)

Selling, general and administrative expense

$
219

$
214

$
648

$
647

% of sales

18.3
%

18.6
%

18.2
%

19.5
%

Three months ended

Selling, general and administrative expenses for the three months ended September 30, ~~2018 was $219~~2023 were $233 million, ~~an increase~~a decrease of $5$3 million, or ~~2.3%~~1.3%, ~~from $214 million for~~as compared to the ~~three months ended September 30, 2017.~~

same period in 2022. The decrease ~~in expenses as a percentage of sales~~ was primarily ~~due to~~driven by executed cost savings actions partially offset by the ~~impact~~tax matters indemnification accrual release of ~~labor productivity on higher sales volume.~~

$8 million in the third quarter of 2022.

Nine months ended

Selling, general and administrative expenses for the nine months ended September 30, ~~2018 was $648~~2023 were $719 million, an increase of $1$3 million, or ~~0.2%~~0.4%, ~~from $647~~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 September 30, ~~2017.~~

~~The decrease~~2023 as compared to the same period in ~~expenses as a percentage of sales was~~2022, due to the increased amortization costs primarily due to ~~the impact of labor productivity on higher sales volume.~~

intangibles obtained through acquisition activities.

Other ~~Expense~~

Expenses, Net

Three months ended
September 30,

Nine months ended
September 30,

2018

2017

2018

2017

(Dollars in millions)

(Dollars in millions)

Other expense

$
146

$
65

$
322

$
165

Three months ended

Other ~~expense for~~expenses, net consists primarily of Reimbursement Agreement expenses in the ~~three months ended September 30, 2018 was $146 million, an increase~~amount of ~~$81 million, or 124.6%, from $65~~$43 million for the three months ended September 30, ~~2017 driven by higher environmental-related expenses accrued for final remediation plans and corrective measures at certain sites.~~

2023.

Nine months ended

Other ~~expense for~~expenses, net consists primarily of Reimbursement Agreement expenses in the ~~nine months ended September 30, 2018 was $322 million, an increase~~amount of ~~$157 million, or 95.2%, from $165~~$128 million for the nine months ended September 30, ~~2017 driven by higher environmental-related expenses accrued for final remediation plans and corrective measures at certain sites.~~

2023.

~~Tax~~

Interest Expense,

Net

Three months ended
September 30,

Nine months ended
September 30,

2018

2017

2018

2017

Tax expense (benefit)

$
(329
)

$
35

$
(323
)

$
89

Effective tax rate

1,827.8
%

60.3
%

(489.4
%)

61.8
%

Three months ended

~~The effective tax rate~~

Interest expense, net increased ~~for the quarter year-over-year primarily due to increased tax benefits attributable to internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $79~~$1 million reduction in tax expense, currency impacts for withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $259 million reduction in tax expense, and decreased income before taxes.

~~The effective tax rate~~ for the three months ended September 30, ~~2018 was higher than the U.S. federal statutory rate of 21% primarily from tax benefits related~~2023 as compared to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $79 million reduction in tax expense, currency impacts on withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $259 million reduction in tax expense, and decreased income before taxes.

~~The effective tax rate for the three months ended in 2017 was higher than the U.S. federal statutory rate of 35% as a result of non-deductible expenses.~~

~~Nine months ended~~

The effective tax rate decreased for the quarter year-over-year primarily due to increased tax benefits attributable to internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $97 million reduction in tax expense, currency impacts for withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $262 million reduction in tax expense, and decreased income before taxes.

The effective tax rate for the nine months ended in 2018 was lower than the U.S. federal statutory rate of 21% primarily from tax benefits related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $97 million reduction in tax expense, currency impacts on withholding taxes on undistributed foreign earnings adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $262 million reduction in tax expense, and decreased income before taxes.

~~The effective tax rate for the nine months ended September 30, 2017 was higher than the U.S. federal statutory rate of 35% as a result of non-deductible expenses.~~

On December 22, 2017, the U.S. enacted tax reform that instituted fundamental changes to the taxation of multinational corporations. As a result of the U.S. Tax Reform, we recorded a provisional tax charge at December 31, 2017 of $156 million related to the mandatory transition tax and $314 million related to taxes on undistributed foreign earnings that are no longer intended to be permanently reinvested. We recorded a provisional amount because certain information related to the computation of earnings and profits, distributable reserves, and foreign exchange gains and losses is not readily available; some of the testing dates to determine taxable amounts have not yet occurred; and there is limited information from federal and state taxing authorities regarding the application and interpretation of the recently enacted legislation. In accordance with current SEC guidance, the Company will report the impact of final provisional amounts in the reportingsame period in ~~which the accounting is completed, which will not exceed one year from the date of enactment of U.S. Tax Reform.~~

As described in our Combined Financial Statements for the year ended December 31, 2017, we reasonably estimated certain effects of U.S. Tax Reform and, therefore, recorded provisional amounts, including the deemed repatriation transition tax and withholding taxes on undistributed earnings. For the nine months ended September 30, 2018, the Company recorded an adjustment to the provisional tax amount related to the deemed repatriation transition tax and taxes on undistributed earnings of $85 million and $177 million, respectively. This adjustment results in a decrease to the effective tax rate for the nine months ended September 30, 2018 of 397.0%. The adjustment reflects the revised determination of the fair value of assets and liabilities of legal entities included in the Company’s business, which is utilized to allocate earnings and profit for purposes of calculating the deemed repatriation tax and taxes on undistributed earnings. The Company has not finalized the accounting for the tax effects of the tax legislation, primarily related to computations of earnings and profits and deferred tax balances for tax returns that have not been finalized. We expect to complete our accounting within the prescribed measurement period

The effective tax rate can vary from quarter to quarter for unusual or infrequently occurring items, such as the tax impacts from the resolution of income tax audits, changes in tax laws, revisions to the provisional amounts from U.S. Tax Reform or internal restructurings.

~~Review of Business Segments~~

We operate two segments: Products and Distribution. Management evaluates segment performance based on segment profit. Segment profit is measured as segment income (loss) before taxes excluding other expense (primarily environmental costs), interest and other charges, net, pension expense and repositioning charges.

~~Products~~

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

% Change

2018

2017

% Change

Total sales

$
603

$
603

$
1,803

$
1,719

Less: intersegment sales

77

84

236

258

External Sales

526

519

1%

1,567

1,461

7%

Cost of products and services sold

296

295

880

823

Selling general and administrative and other expenses

138

134

397

399

Segment profit

$
92

$
90

2%

$
290

$
239

21%

2018 vs. 2017

Three Months Ended September 30,

Nine Months Ended September 30,

Factors Contributing to Year-Over-Year Change

Sales (%)

Segment
Profit (%)

Sales (%)

Segment
Profit (%)

Organic Growth/Operational segment profit

2%

3%

5%

18%

Foreign currency translation

(1)%

(1)%

2%

3%

Total % Change

1%

2%

7%

21%

~~Three months ended~~

Products sales increased by 1% primarily due to an increase in selling prices in the Comfort & Care product line, partially offset by the impact of unfavorable currency translation and impacts of a temporary supply chain issue as a result of the Spin-Off.

~~Products segment profit increased by 2% primarily~~2022, due to higher ~~prices, partially offset by inflation, net of productivity.~~

interest rates on our borrowings.

Nine months ended

~~Products sales~~

Interest expense, net increased ~~by 7% primarily due to an increase in external sales volume in the Comfort & Care product line, the impact of favorable currency translation and the impact of higher prices.~~

~~Products segment profit increased by 21% primarily due to higher selling prices and external sales volume, partially offset by higher product costs on that higher sales volume.~~

~~Distribution~~

Three Months Ended September 30,

Nine Months Ended September 30,

2018

2017

% Change

2018

2017

% Change

Total sales

$
674

$
633

$
1,994

$
1,849

Less: intersegment sales

-

-

-

-

External Sales

674

633

6%

1,994

1,849

8%

Cost of products and services sold

556

518

1,637

1,513

Selling general and administrative and other expenses

79

77

244

234

Segment profit

$
39

$
38

3%

$
113

$
102

11%

2018 vs. 2017

Three Months Ended September 30,

Nine Months Ended September 30,

Factors Contributing to Year-Over-Year Change

Sales (%)

Segment
Profit (%)

Sales (%)

Segment
Profit (%)

Organic Growth/Operational segment profit

7%

3%

7%

10%

Foreign currency translation

(1)%

(0)%

1%

1%

Total % Change

6%

3%

8%

11%

~~Three months ended~~

Distribution sales increased by 6% primarily due to volume growth across all of our key geographic markets and higher selling prices partially offset by the unfavorable impact of foreign currency translation.

~~Distribution segment profit increased by 3% primarily driven by an increase in higher selling prices and higher sales volume partially offset by material inflation.~~

~~Nine months ended~~

~~Distribution sales increased by 8% primarily due to volume growth across all of our key geographic markets, higher selling prices, and the favorable impact of foreign currency translation.~~

~~Distribution segment profit increased by 11% primarily driven by an increase in higher selling prices and higher sales volume partially offset by material inflation.~~

~~Repositioning Charges~~

See Note 4. Repositioning Charges of Notes to Combined Interim Financial Statements for a discussion of our repositioning charges incurred in the three and nine months ended September 30, 2018 and 2017. These repositioning actions are expected to generate incremental pre-tax savings of $24 million in 2018 compared with 2017 principally from planned workforce reductions. Cash spending related to our repositioning actions was $3 million and $9 million for the three and nine months ended September 30, 2018, respectively, and was funded through operating cash flows. For the full year 2018, we expect cash spending for repositioning actions to be approximately $11 ~~million and to be funded through operating cash flows.~~

~~Liquidity and Capital Resources~~

~~Historical Liquidity~~

~~Historically, we have generated positive cash flows from operations.~~

As part of Honeywell, the Company has been dependent upon Honeywell for all of its working capital and financing requirements. Honeywell uses a centralized approach to cash management and financing of its operations. Historically, the majority of the Company’s cash was transferred to Honeywell daily and Honeywell funded its operating and investing activities as needed. This arrangement is not reflective of the manner in which the Company would have been able to finance its operations had it been a stand-alone business separate from Honeywell during the periods presented. Cash transfers to and from Honeywell’s cash management accounts are reflected within cash and cash equivalents.

All intracompany transactions have been eliminated. All significant transactions between the Company and Honeywell have been included in these Combined Interim Financial Statements and were settled for cash prior to the Spin-Off or will be settled for cash as described in Section 2.08 of the Separation and Distribution Agreement entered into between the Company and Honeywell on October 19, 2018, and the schedules thereto. These transactions, are reflected in the Combined Interim Balance Sheet as Due from related parties, current or Due to related parties, current. In the Combined Interim Statement of Cash Flows, the cash flows related to related party notes receivables presented in the Combined Interim Balance Sheet in Due from related parties, current are reflected as investing activities since these balances represent amounts loaned to Parent. The cash flows related to related party notes payables presented in the Combined Interim Balance Sheet in Due to related parties, current are reflected as financing activities since these balances represent amounts financed by Parent.

The cash and cash equivalents held by Honeywell at the corporate level are not specifically identifiable to the Company and therefore were not allocated for any of the periods presented. Honeywell third party debt and the related interest expense have not been allocated for any of the periods presented as Honeywell’s borrowings were not directly attributable to the Company.

In addition, the Company had related party notes receivables of $ - and $7 million as of September 30, 2018 and December 31, 2017, respectively, which are presented in Due from related parties, current within the Combined Interim Balance Sheet. The Company received interest income for related party notes receivables of $2 million and $1 million for the nine months ended September 30, ~~2018~~2023 as compared to the same period in 2022, due to higher interest rates and ~~2017, respectively.~~

~~Future Liquidity~~

Onadditional 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 ~~recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital expenditures, payments~~decrease in income before taxes. The effective income tax rate increased 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 ~~Indemnification and~~ 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 ~~interest payments.~~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 $99 million and 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, primarily material and freight, due to the inflationary environment stabilizing and $20 million from the First Alert, 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 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 slightly offset by price, net of mix and other favorable impacts of $15 million.

Corporate

Three months ended

Corporate costs for the three months ended September 30, 2023, were $58 million, an $11 million increase compared to the same period in 2022 primarily due to the tax matters indemnification accrual release of $8 million in the third quarter of 2022 and restructuring costs of $3 million incurred during the quarter.

Nine months ended

Corporate costs for the nine months ended September 30, 2023 were $163 million, an increase of $1 million, or 0.6%, from $162 million in the same period in 2022, primarily due to the cost savings actions offsetting incremental selling, general and administrative costs from the acquisition of First Alert, Inc.

Capital Resources and Liquidity

As of September 30, 2023, total cash and cash equivalents were $368 million. Our ~~ability to fund these needs will depend, in part,~~liquidity is primarily dependent on our ~~ability to generate or raise cash in the future, which is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.~~

Since we separated from Honeywell on October 29, 2018, our capital structure and sources of liquidity have changed from its historical capital structure because we no longer participate in Parent’s centralized cash management program. Our ability to fund our operating needs depends on our future ability to continue to generate positive cash ~~flow~~flows from operations, supplemented by external sources of capital, as needed.

Additional liquidity may also be provided through access to the capital markets and ~~raise~~our $500 million 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 ~~capital markets. Based upon our history of generating strong cash flows,~~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 ~~we will be able~~our existing cash, cash equivalents and availability under our credit facilities are sufficient to meet our ~~short-term liquidity needs. We believe we will meet known or reasonably likely future cash~~capital requirements through at least the ~~combination~~next 12 months and the longer term.

We may from time to time take steps to reduce our debt or 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 ~~flows from operating activities, available cash balances~~position, compliance with debt covenants and ~~available borrowings~~other considerations.

Credit Agreement

As of September 30, 2023, we had $1,409 million of long-term debt outstanding under our credit agreements. We expect our primary cash requirements in 2018 will primarily be to fund capital expenditures and to meet our obligations under the debt instruments and the Indemnification and Reimbursement Agreement described below, as well as other tax matters as described in “Certain Relationships and Related Party Transactions–Agreements with Honeywell–Tax Matters Agreement” in the Information Statement.

If these sources of liquidity need to be augmented, additional cash requirements would likely need to be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms, or at all, in the future.

~~Credit Agreement~~

On October 25, 2018, the Company entered into a Credit Agreement, by and among the Company, Resideo Holding Inc., Resideo Intermediate Holding Inc., Resideo Funding Inc. (the “Borrower” or the “Issuer”), the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”), which provides for (i) a seven-year senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the “Term B Facility”); (ii) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $350 million (the “Term A Facility” and, together with the Term B Facility, the “Term Loan Facilities”); and (iii) a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $350 million (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Senior Credit Facilities”). The Company incurred indebtedness under the Term Loan Facilities in an aggregate principal amount of approximately $825 million on October 25, 2018, and $135 million under the Revolving Credit Facility on November 13, 2018.

~~We are obligated to make quarterly principal payments throughout the term of the Term Loan Facilities according to the amortization provisions in the~~&R Credit Agreement and Senior Notes due 2029, of which $12 million is due in ~~addition~~the next 12 months. We entered into certain interest rate swap agreements to ~~paying interest on outstanding borrowings~~effectively convert a portion of our variable-rate debt to fixed rate debt. During the second quarter of 2023, we transitioned the reference rate under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility. Borrowings under the Credit Agreement are prepayable at our option without premium or penalty other than a 1.00% prepayment premium that may be payable in connection with certain repricing transactions within a certain period of time after the closing date. Up to $75 million may be utilized under the Revolving Credit Facility for the issuance of letters of credit to the Borrower or any of its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce the available funds under the Revolving Credit Facility.

~~The~~A&R Senior Credit Facilities ~~are subject~~and the Swap Agreements from LIBOR to ~~an interest rate~~SOFR.

Refer to Note 12. Long-Term Debt and Note 13.Derivative Financial Instruments to the Unaudited Consolidated Financial Statements for a description of our debt obligations and the timing of future principal and interest ~~period which~~payments, including impacts from our Swap Agreements.

Share Repurchase Program

On August 3, 2023, we ~~will elect. If~~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 months ended September 30, 2023, we ~~choose to make a base rate borrowing on an overnight basis, the interest rate will be based on the highest~~repurchased 1.8 million shares of ~~(1) the rate of interest last quoted by The Wall Street Journal as the “prime rate”~~common stock in the ~~United States, (2) the greater~~open market at a total cost of ~~the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR rate, plus 1.00% per annum. If~~$30 million. As of September 30, 2023, we choose to make a LIBOR borrowing on a one, two, three or six-month basis, the interest rate will be based on an adjusted LIBOR rate (which shall not be less than zero) based on the interest period for the borrowing. The applicable margin for the Term B Facility is currently 2.00% per annum (for LIBOR loans) and 1.00% per annum (for base rate loans). The applicable margin for eachhad $120 million of the Term A Facility and the Revolving Credit Facility varies from 2.00% per annum to 1.50% per annum (for LIBOR loans) and 1.00% to 0.50% per annum (for base rate loans) based on our leverage ratio. Accordingly, the interest rates for the Senior Credit Facilities will fluctuate during the term of the Credit Agreement based on changes in the base rate, LIBOR or future changes in our leverage ratio. Interest payments with respect to the borrowings are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months.

The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends, to make other distributions or redemptions/authorized repurchases in respect of our and our subsidiaries’ equity interests, to engage in transactions with affiliates or amend certain material documents. In addition, the Credit Agreement also contains financial covenants requiring the maintenance of a consolidated total leverage ratio of not greater than 4.00 to 1.00 (with step-downs to (i) 3.75 to 1.00 starting in the fiscal quarter ending December 31, 2019, (ii) 3.50 to 1.00 starting in the fiscal quarter ending December 31, 2020 and (iii) 3.25 to 1.00 starting in the fiscal quarter ending December 31, 2021), and a consolidated interest coverage ratio of not less than 2.75 to 1.00. The Credit Agreement contains customary events of default, including with respect to a failure to make paymentsremaining under the ~~Senior Credit Facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events.~~

All obligations under the Senior Credit Facilities are or will be unconditionally guaranteed jointly and severally, by: (a) the Company and (b) substantially all of the direct and indirect wholly owned subsidiaries of the Company that are organized under the laws of the United States, any state thereof or the District of Columbia (collectively, the “Guarantors”). The Guarantors entered into a guarantee under the Credit Agreement concurrently with the effectiveness of the Credit Agreement. Subject to certain limitations, the Senior Credit Facilities are or will be secured on a first priority basis by: (x) a perfected security interest in the equity interests of each direct subsidiary of the Borrower and each Guarantor under the Senior Credit Facilities (subject to certain customary exceptions) and (y) perfected, security interests in, and mortgages on, substantially all tangible and intangible personal property and material real property of the Borrower and each of the Guarantors under the Senior Credit Facilities, subject, in each case, to certain exceptions. The Borrower and the Guarantors entered into security documents concurrently with effectiveness of the Credit Agreement.

~~Senior Notes~~

On October 19, 2018, the Issuer completed an offering of $400 million aggregate principal amount of the Issuer’s 6.125% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes and related guarantees were offered to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside of the United States in reliance on Regulation S under the Securities Act. The Senior Notes and related guarantees will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Senior Notes were issued pursuant to an Indenture, dated October 19, 2018 (the “Indenture”), among the Issuer, the Company, the other Guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”). The Senior Notes are senior unsecured obligations of the Issuer and are guaranteed on an unsecured senior basis by the Company and each of the Company’s existing and future domestic subsidiaries that guarantee the Senior Credit Facilities.

The Indenture limits the Company and its restricted subsidiaries’ ability to, among other things, incur, assume or guarantee debt or issue certain disqualified equity interests and preferred shares; pay dividends on or make distributions in respect of capital stock and make other restricted payments and investments; sell or transfer certain assets; create liens on assets to secure debt unless the Senior Notes are secured equally and ratably; enter into certain transactions with their affiliates; restrict dividends and other payments by certain of their subsidiaries; and consolidate, merge, sell or otherwise dispose of all or substantially all of their assets. These covenants are subject to a number of limitations and exceptions.

~~Additionally, upon certain events constituting a change of control under the Indenture, the holders of the Senior Notes have the right to require the Issuer to offer to~~share repurchase ~~the Senior Notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, to (but not including) the date of purchase.~~

Further, if the Company or its restricted subsidiaries sell assets, under certain circumstances, the holders of the Senior Notes have the right, subject to certain conditions, to require the Company to use any excess net proceeds of such sale above $75 million to offer to purchase outstanding Senior Notes at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date.

program.

The Indenture also provides for customary events of default, which, if any of them occurs, may cause the principal of and accrued interest on the Senior Notes to become, or to be declared, due and payable. Events of default (subject in certain cases to customary grace and cure periods), include, among others, nonpayment of principal or interest, breach of other covenants or agreements in the Indenture, failure to pay certain other indebtedness, failure to pay certain final judgments, failure of certain guarantees to be enforceable, certain events of bankruptcy or insolvency and failure of certain security interests to be valid or enforceable.

We used the gross proceeds from the sale of the Senior Notes, together with the borrowings under the Term Loan Facilities, (i) to repay intercompany indebtedness to Honeywell or a subsidiary of Honeywell of approximately $1.2 billion, (ii) to pay fees, costs and expenses related to the Senior Notes offering and the Senior Credit Facilities (approximately $29 million) and (iii) for general corporate purposes.

Cash Flow Summary for the Nine Months ~~ended~~Ended September 30, ~~2018~~2023 and ~~2017~~

October 1, 2022

Our cash flows from operating, investing and financing activities for the nine months ended September 30, ~~2018~~2023 and ~~2017,~~October 1, 2022, as reflected in the ~~unaudited Combined Interim~~Unaudited Consolidated Financial Statements, are summarized as follows:

9 Months ended September 30,

2018

2017

Cash provided by (used for):

Operating activities

$
375

$
180

Investing activities

(56
)

(38
)
Financing activities

(186
)

(136
)
Effect of exchange rate changes on cash

(5
)

4

Net increase in cash and cash equivalents

$
128

$
10

~~Nine months ended~~

~~Cash~~


	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

Net cash provided by operating activities increased by $206 million, primarily driven by tax benefits related to the internal restructuring of Resideo’s business in advance of its Spin-Off and an increase in gross profit, offset by an increase in inventory due to new product launch.

Cash used for investing activities increased by $18 million, primarily due to an increase in expenditures on property plant and equipment of $25 million due to new product introduction and spin related cost offset by payments due from related parties of $13 million.

Cash used for financing activities increased by $50 million primarily due to a decrease in invested equity of $158 million offset by an increase in cash pooling of $105 million as a result of pre-spin activities.

~~Environmental Matters~~

~~Expenses for environmental matters deemed probable and reasonably estimable was $322 million~~ for the nine months ended September 30, ~~2018~~2023 was $177 million. Compared to the nine months ended October 1, 2022, net cash provided by operating activities increased $164 million primarily due to improvements in accounts receivable, inventory, and ~~$165~~other current assets of $291 million partially offset by a decrease in net income of $116 million.

Net cash used for investing activities for the nine months ended September 30, ~~2017. This increase~~2023 was ~~related~~$90 million, a decrease of $617 million compared to ~~expenses accrued~~the nine months ended October 1, 2022, primarily due to a decrease in acquisitions of $644 million resulting from the First Alert, Inc acquisition occurring in the prior year.

Net cash used for ~~final remediation plans and corrective measures at certain sites.~~

~~Spending related~~financing activities was $47 million during the nine months ended September 30, 2023, as compared to ~~environmental matters was $124~~cash provided by financing activities of $182 million for the nine months ended October 1, 2022. The primary uses of cash 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, ~~2018~~2023, a liability of $637 million was deemed probable and ~~$107~~reasonably estimable; however, it is possible we could pay $140 million ~~for~~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 September 30, ~~2017. We do not currently possess sufficient information~~2023, we paid Honeywell $105 million under the Reimbursement Agreement.For further discussion on the Reimbursement Agreement, refer to reasonably estimate the amounts of environmental 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 environmental matters can be determined although they could be material to our combined results of operations and operating cash flows in the periods recognized or paid.

~~See~~ Note ~~18.~~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 ~~Notes to Combined Financial Statements in~~September 30, 2023, a payment of $22 million was deemed probable and reasonably estimable.

Operating Leases

We have operating lease arrangements for the ~~Information Statement, Note 11. Commitments and Contingencies of Notes to Combined Interim Financial Statements and Note 14. Subsequent Events for further discussion~~majority of our ~~environmental matters.~~

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, with $36 million payable within 12 months.

Capital Expenditures

We believe our capital spending in recent years has been sufficient to 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 to do so. We expect to continue investing to expand and modernize our existing facilities and to create capacity for new product development. We expect capital expenditures for full year 2018 to be approximately $60 million, excluding spin related expenditures.

~~Off-Balance Sheet Arrangements~~

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Critical Accounting Policies~~

The preparation of our Combined Interim Financial Statements in accordance with generally accepted accounting principles is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our Combined Interim Financial Statements and are consistent with GAAP included in the unaudited Combined Interim Financial Statements, which include allocations of corporate expenses from Honeywell, that could differ from those that would have been prepared had the Company operated on a stand-alone basis. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Combined Interim Financial Statements.

Other Matters

Litigation, Environmental~~—We accrue costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site~~ Matters and the amount can be reasonably estimated. Environmental-related expenses are presented within Cost of goods sold for operating sites and Other expense for non-operating sites in the Combined Interim Statements of Operations. For additional information, see Reimbursement Agreement

Refer to Note ~~18.~~16. Commitments and Contingencies ~~of Notes~~ to ~~Combined~~the Unaudited Consolidated Financial Statements ~~included in~~for further discussion.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies to the ~~Information Statement.~~

~~Goodwill—Goodwill has an indefinite life~~Unaudited Consolidated Financial Statements for further discussion.

Item 3. Quantitative and ~~is not amortized, but is subject~~Qualitative Disclosures About Market Risk.

We are exposed to ~~annual, or more frequent if necessary, impairment testing. In testing goodwill, the fair value is estimated utilizing a discounted~~market risk from foreign currency exchange rates, commodity price risk and interest rates, which could affect operating results, financial position and cash ~~flow approach utilizing cash flow forecasts in~~flows. We manage our ~~five year strategic~~exposure to these market risks through our regular operating and ~~annual operating plans adjusted for terminal value assumptions. These impairment tests involve~~financing activities and, when appropriate, through the use of ~~accounting estimates and assumptions, changes in which could materially impact~~derivative financial instruments.

Interest Rate Risk

As of September 30, 2023, the Swap Agreements, with a notional value of $560 million, effectively convert a portion of our ~~financial condition or operating performance if actual results differ from such estimates and assumptions. To address this uncertainty~~$1,123 million long-term variable rate A&R Term B Facility to fixed rate debt. In June 2023, we ~~perform sensitivity analysis on key estimates and assumptions.~~

~~Income Taxes—The tax provision is presented on~~modified our A&R Term B Facility to implement a separate company basis as if we were a separate filer. The effects of tax adjustments and settlements from taxing authorities are presented in our Combined Interim Financial Statements in the period to which they relate as if we were a separate filer. Our current obligations for taxes are settled with our Parent on an estimated basis. All income taxes due to or due from our Parent that have not been settled or recovered by the end of the period are reflected in invested equity within the Combined Interim Financial Statements. We are subject to income tax in the United States (federal, state and local) as well as other jurisdictions in which we operate.

~~Our provision for income tax expense is~~forward-looking rate based on ~~our income,~~SOFR. In conjunction, we amended the ~~statutory tax rates and other provisions~~Swap Agreements to transition from a hedge of ~~the tax laws applicable~~LIBOR-based cash flows to ~~us in each~~a hedge of ~~these various jurisdictions. These laws are complex, and their application to our facts is at times open to interpretation.~~SOFR-based cash flows. The process of determining our combined income tax expense includes significant judgments and estimates, including judgments regarding the interpretation of those laws. Our provision for income taxes and our deferred tax assets and liabilities incorporate those judgments and estimates, and reflect management’s best estimate of current and future income taxes to be paid.

~~Deferred tax assets and liabilities relate to temporary differences between the financial reporting and income tax bases~~Swap Agreements effectively convert a portion of our ~~assets~~variable interest rate obligations to a rate 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.

As of 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 13.Derivative Financial Instruments and liabilities, as well as the impact of tax loss carryforwards or carrybacks. Deferred income tax expense or benefit represents the expected increase or decrease to future tax payments as these temporary differences reverse over time. Deferred tax assets are specificNote 14. Fair Value to the jurisdiction in which they arise, and are recognized subject to management’s judgment that realization of those assets is “more likely than not.” In making decisions regarding our ability to realize tax assets, we evaluate all positive and negative evidence, including projected future taxable income, taxable income in carryback periods, expected reversal of deferred tax liabilities, and the implementation of available tax planning strategies.

Significant judgment is required in evaluating tax positions. We establish additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, Honeywell and its subsidiaries are examined by various federal, state and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a change in estimate become known.

The tax provision has been calculated as if the carve-out entity was operating on a stand-alone basis and filed separate tax returns in the jurisdiction in which it operates. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances had the Company been a stand-alone company during the periods presented.

~~Market~~Unaudited Consolidated Financial Statements.

Foreign Currency Exchange Rate Risk ~~Management~~

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 Mexican Peso, British Pound, Canadian Dollar, Indian Rupee, Euro, Polish Zloty, and Czech 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 out of international ~~financing activities between subsidiaries,~~trade, foreign currency denominated monetary assets and liabilities, and ~~transactions arising from~~ international ~~trade. Our primary objective is to preserve the U.S. Dollar value of foreign currency denominated cash flows and earnings.~~financing activities between subsidiaries. We ~~attempt to hedge currency exposures with~~rely primarily on natural offsets to ~~the fullest extent possible~~address our exposures and ~~once these opportunities have been exhausted, through foreign currency exchange~~may supplement this approach from time to time by entering into forward and option ~~contracts (foreign currency exchange contracts).~~

We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S. Dollars, these assets and liabilities are re-measured at spot exchange rates in effect on the balance sheet date. The effectshedging contracts. As of changes in spot rates are recognized in earnings and included in Non-operating (income) expense. We partially hedge forecasted sales and purchases, which occur in the next twelve months and are denominated in non-functional currencies, with foreign currency exchange contracts. Changes in the forecasted non-functional currency cash flows due to movements in exchange rates are substantially offset by changes in the fair value of the foreign currency exchange contracts designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the hedged transaction is recognized. Open foreign currency exchange contracts mature in the next twelve months. At September 30, ~~2018 and December 31, 2017,~~2023, we ~~had contracts with notional amounts of $80 million and $25 million, respectively, to exchange foreign currencies, principally the Euro and Canadian Dollar.~~

have no outstanding hedging arrangements.

Commodity Price Risk

While we are exposed to commodity price risk, we attempt to pass through ~~abnormal~~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.

~~Other Matters~~

~~Agreements with Honeywell~~

We have entered into certain arrangements with Honeywell that were not effective prior to the Spin-Off, such as Honeywell’s provision of transition and other services and brand licensing agreements, and undertaking indemnification obligations, which will cause us to incur new costs. See “Certain Relationships and Related Party Transactions—Agreements with Honeywell” within the Information Statement for a description of the material terms thereof.

~~Litigation and Environmental Matters~~

See Note 18. Commitments and Contingencies of Notes to Combined Financial Statements in the Information Statement, Note 11. Commitments and Contingencies of Notes to Combined Interim Financial Statements and Note 14. Subsequent Events for a discussion of environmental and other litigation matters.

~~Recent Accounting Pronouncements~~

See Note 2. Summary of Significant Accounting Policies of Notes to Combined Financial Statements in the Information Statement and Note 2. Recent Accounting Pronouncements of Notes to Combined Interim Financial Statements for a discussion of recent accounting pronouncements.

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

For a discussion of the Company’s qualitative disclosures about market risks, see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation - Market Risk Management.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~The Company maintains~~

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 ~~were~~was no ~~changes with respect to the Company’s~~change in our internal control over financial reporting ~~or in other factors~~ that ~~materially affected, or are reasonably likely to materially affect, internal control over financial reporting~~occurred during the quarter ended September 30, ~~2018.~~

2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART ~~II –~~II. Other ~~Information~~

Information

Item ~~1 –~~1. Legal Proceedings

~~General Legal Matters~~

~~We are subject~~

Refer to various of lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, and environmental, health and safety matters. See Note ~~11.~~16. Commitments and Contingencies to Unaudited Consolidated Financial Statements of ~~Notes to Combined Interim Financial Statements~~this Quarterly Report for a discussion ~~of environmental and other litigation matters.~~

Additionally, in connection with the Indemnification and Reimbursement Agreement the Company Subsidiary has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments, which include amounts billed, with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case, including consequential damages in respect of specified properties contaminated through historical business operations, including theon legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, 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 in respect of such liabilities arising in any given year will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum). See in Note 14. Subsequent Events of Notes to Combined Interim Financial Statements for a further discussion of the Indemnification and Reimbursement Agreement.

proceedings.

Item ~~1A –~~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 ~~from~~to the risk factors ~~disclosed~~described in our 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 ~~Information Statement under “Risk Factors” except~~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 ~~note that~~satisfy tax withholding obligations or forfeitures of equity awards.

(2) Refer to Note 19. Shareholders’ Equity to the ~~Spin-Off was effectuated.~~

Unaudited Consolidated Financial Statements for information about the share repurchase program.

Item ~~6 –~~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 Quarterly Report.

EXHIBIT INDEX


~~Exhibit~~ ~~No.~~	~~Description~~
~~31.1~~ Exhibit Number		Exhibit Description

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

32.2		Certification of Principal Financial Officer ~~Pursuant~~pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~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~~

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.

Date: November ~~13, 2018~~ 1, 2023	By:	~~By:~~	/s/ ~~Joseph D. Ragan III~~ Anthony L. Trunzo
			~~Joseph D. Ragan III~~ Anthony L. Trunzo Executive Vice President and Chief Financial Officer ~~(on~~ (on behalf of the Registrant and as the Registrant’s Principal Financial Officer)

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

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

~~1985 Douglas Drive North~~ ~~Golden Valley, Minnesota~~ 16100 N. 71st Street, Suite 550 Scottsdale, Arizona		~~55422~~ 85254
(Address of principal executive offices)		(Zip Code)

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


Large accelerated filer☐	☒	Accelerated filer	☐
Non-accelerated filer☒	☐	Smaller reporting company	☐
		Emerging growth company	☐


(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


	Three Months Ended				Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Comprehensive income (loss):
Net income	$	21	$	63	$	128	$	244
Other comprehensive loss, net of tax:
Foreign exchange translation loss	(37)		(86)		(11)		(165)





Pension liability adjustments	2		—		6		—



Changes in fair value of effective cash flow hedges	(2)		14		(4)		38
Total other comprehensive loss, net of tax	(37)		(72)		(9)		(127)
Comprehensive income (loss)	$	(16)	$	(9)	$	119	$	117


	Nine Months Ended
(in millions)	September 30, 2023		October 1, 2022
Cash Flows From Operating Activities:
Net income	$	128	$	244
Adjustments to reconcile net income to net cash in operating activities:

Depreciation and amortization	71		69
Restructuring and impairment expenses	42		—
Stock-based compensation expense	36		36

Other, net	2		8

Changes in assets and liabilities, net of acquired companies:
Accounts receivable, net	(9)		(142)
Inventories, net	(4)		(129)
Other current assets	(5)		(38)

Accounts payable	(14)		5
Accrued liabilities	(114)		(25)
Other, net	44		(15)


Net cash provided by operating activities	177		13
Cash Flows From Investing Activities:
Capital expenditures	(74)		(34)
Acquisitions, net of cash acquired	(16)		(660)
Other investing activities, net	—		(13)


Net cash used in investing activities	(90)		(707)
Cash Flows From Financing Activities:
Common stock repurchases	(28)		—
Proceeds from issuance of A&R Term B Facility	—		200
Repayments of long-term debt	(9)		(9)

Other financing activities, net	(10)		(9)



Net cash (used in) provided by financing activities	(47)		182
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	1		(12)
Net increase (decrease) in cash, cash equivalents and restricted cash	41		(524)
Cash, cash equivalents and restricted cash at beginning of period	329		779
Cash, cash equivalents and restricted cash at end of period	$	370	$	255

Supplemental Cash Flow Information:
Interest paid	$	81	$	38
Taxes paid, net of refunds	$	104	$	129
Capital expenditures in accounts payable	$	19	$	18

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars in millions except share and per share data)
Net sales	$	1,200		$	1,152		$	3,561		$	3,310
Cost of goods sold		853			816			2,525			2,355
Gross Profit		347			336			1,036			955
Selling, general and administrative expenses		219			214			648			647
Other expense		146			65			322			165
Interest and other charges, net		-			(1	)		-			(1	)
		365			278			970			811

Income (loss) before taxes		(18	)		58			66			144
Tax expense (benefit)		(329	)		35			(323	)		89
Net income	$	311		$	23		$	389		$	55

Weighted Average Number of Common Shares Outstanding
Basic and Diluted (in thousands)		122,967			122,967			122,967			122,967

Per Share Amounts
Basic and Diluted net income per share	$	2.53		$	0.19		$	3.16		$	0.45

	September 30, 2018			December 31, 2017
	(Dollars in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	184		$	56
Due from related parties, current		26			23
Accounts, notes and other receivables – net		783			779
Inventories		603			465
Other current assets		72			69
Total current assets		1,668			1,392

Property, plant and equipment – net		276			265
Goodwill		2,638			2,648
Other intangible assets - net		138			140
Deferred income taxes		4			5
Other assets		18			23
Total assets	$	4,742		$	4,473

LIABILITIES
Current liabilities:
Accounts payable	$	850		$	678
Due to related parties, current		162			60
Accrued liabilities		388			409
Total current liabilities		1,400			1,147

Deferred income taxes		100			377
Other liabilities		557			346

EQUITY
Invested equity		2,809			2,703
Accumulated other comprehensive (loss)		(124	)		(100	)
Total equity		2,685			2,603
Total liabilities and equity	$	4,742		$	4,473


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


Fiscal Year to Date Periods	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 January 1, 2023	146,222	$	—	$	2,176	$	600	$	(212)	2,050	$	(35)	$	2,529
Net income	—	—		—		128		—		—	—		128
Other comprehensive loss, net of tax	—	—		—		—		(9)		—	—		(9)
Common stock issuance, net of shares withheld for taxes	1,711	—		7		—		—		923	(16)		(9)
Stock-based compensation expense	—	—		36		—		—		—	—		36
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 January 1, 2022	144,808	$	—	$	2,121	$	317	$	(165)	1,440	$	(21)	$	2,252
Net income	—	—		—		244		—		—	—		244
Other comprehensive loss, net of tax	—	—		—		—		(127)		—	—		(127)
Common stock issuance, net of shares withheld for taxes	1,030	—		5		—		—		425	(10)		(5)
Stock-based compensation expense	—	—		36		—		—		—	—		36

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


(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


	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

	September 30, 2018		December 31, 2017
Cash pooling and short-term notes receivable, net	$	21	$	10
Receivables from related parties		5		6
Related party notes payables		-		7
	$	26	$	23

	September 30, 2018		December 31, 2017
Cash pooling and short-term notes payables, net	$	140	$	23
Payables to related parties		21		36
Foreign currency exchange contracts		1		-
Related party notes payables		-		1
	$	162	$	60


	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

	Severance Costs			Asset Impairments			Total
Balance at December 31, 2017	$	22		$	-		$	22
Charges		4			1			5
Usage - cash		(4	)		-			(4	)
Usage - noncash		-			(1	)		(1	)
Balance at March 31, 2018		22			-			22
Charges		-			-			-
Usage - cash		(2	)		-			(2	)
Usage - noncash		-			-			-
Balance at June 30, 2018	$	20		$	-		$	20
Charges		-			-			-
Usage - cash		(3	)		-			(3	)
Usage - noncash		-			-			-
Balance at September 30, 2018		17			-			17


(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


	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

	Three Months Ended		Nine Months Ended
	September 30, 2018		September 30, 2018
U.S. and Canada	$	525	$	1,579
EMEA (1)		107		338
India		42		77
Distribution		674		1,994

Comfort & Care		407		1,209
Safety & Security		119		358
Products		526		1,567
	$	1,200	$	3,561

	2018
Contract assets and liabilities
Contract assets - January 1	$	1
Contract assets - September 30		1
Change in contract assets - increase/(decrease)	$	-

Contract liabilities - January 1	$	3
Contract liabilities - September 30		2
Change in contract liabilities - increase/(decrease)	$	(1	)

	September 30, 2018			December 31, 2017
Accounts, notes and other receivables	$	798		$	792
Less - Allowance for doubtful accounts		(15	)		(13	)
	$	783		$	779

	September 30, 2018		December 31, 2017
Raw materials	$	139	$	108
Work in process		26		21
Finished products		438		336
	$	603	$	465

	September 30, 2018		December 31, 2017
Environmental costs	$	186	$	204
Compensation, benefit and other employee related		61		65
Customer rebate reserve		39		49
Repositioning		17		22
Product warranties and performance guarantees		15		17
Customer advances and deferred income		2		3
Other (primarily operating expenses)		68		49
	$	388	$	409

	Foreign Exchange Translation Adjustment			Changes in Fair Value of Effective Cash Flow Hedges			Total Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016	$	(170	)	$	1		$	(169	)
Other comprehensive income (loss) before reclassifications		70			(4	)		66
Amounts reclassified from accumulated other comprehensive (loss)		-			2			2
Net current period other comprehensive income (loss)		70			(2	)		68
Balance at September 30, 2017	$	(100	)	$	(1	)	$	(101	)

Balance at December 31, 2017	$	(100	)	$	-		$	(100	)
Other comprehensive income (loss) before reclassifications		(23	)		(2	)		(25	)
Amounts reclassified from accumulated other comprehensive (loss)		-			1			1
Net current period other comprehensive income (loss)		(23	)		(1	)		(24	)
Balance at September 30, 2018	$	(123	)	$	(1	)	$	(124	)

December 31, 2017	$	537
Accruals for environmental matters deemed probable and reasonably estimable		322
Environmental liability remediated		(124	)
September 30, 2018	$	735

	Three months	Year to Date
Volume	2.6%	4.1%
Price	2.3%	1.8%
Foreign currency translation	(0.7)%	1.7%
% change compared with prior period	4.2%	7.6%

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017		% Change	2018		2017		% Change
Total sales	$	603	$	603		$	1,803	$	1,719
Less: intersegment sales		77		84			236		258
External Sales		526		519	1%		1,567		1,461	7%
Cost of products and services sold		296		295			880		823
Selling general and administrative and other expenses		138		134			397		399
Segment profit	$	92	$	90	2%	$	290	$	239	21%

	2018 vs. 2017
	Three Months Ended September 30,		Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change	Sales (%)	Segment Profit (%)	Sales (%)	Segment Profit (%)
Organic Growth/Operational segment profit	2%	3%	5%	18%
Foreign currency translation	(1)%	(1)%	2%	3%
Total % Change	1%	2%	7%	21%

	9 Months ended September 30,
	2018			2017
Cash provided by (used for):
Operating activities	$	375		$	180
Investing activities		(56	)		(38	)
Financing activities		(186	)		(136	)
Effect of exchange rate changes on cash		(5	)		4
Net increase in cash and cash equivalents	$	128		$	10