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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

2023

or

☐

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission File Number 001-38635

Resideo Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-5318796

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

16100 N. 71st Street, Suite 550, Scottsdale, Arizona

85254

901 E. 6th Street

Austin, Texas

    78702

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (512) 726-3500

(480) 573-5340

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol:

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

REZI

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes OxleySarbanes-Oxley Act (15 U.S.CU.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the New York Stock Exchange as of June 30, 2020,2023, was $1.6$2.6 billion.

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share as of February 19, 20212, 2024 was 143,139,475145,318,782 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20212024 Annual Meeting of Stockholders,Shareholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2020.

2023.

Table of Contents
TABLE OF CONTENTS

 

Item

 

Page

 

 

 

 

Part I.

1.

Business

3

 

 

 

 

 

1A.

Risk Factors

8

 

 

 

 

 

1B.

Unresolved Staff Comments

20

 

 

 

 

 

2.

Properties

21

 

 

 

 

 

3.

Legal Proceedings

21

 

 

 

 

 

4.

Mine Safety Disclosures

21

 

 

 

 

Part II.

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

22

 

 

 

 

 

6.

Selected Financial Data

23

 

 

 

 

 

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

 

 

7A.

Quantitative and Qualitative Disclosures About Market Risk

42

 

 

 

 

 

8.

Financial Statements and Supplementary Data

42

 

 

 

 

 

9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

87

 

 

 

 

 

9A.

Controls and Procedures

87

 

 

 

 

 

9B.

Other Information

88

 

 

 

 

Part III.

10.

Directors, Executive Officers and Corporate Governance

88

 

 

 

 

 

11.

Executive Compensation

88

 

 

 

 

 

12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

88

 

 

 

 

 

13.

Certain Relationships and Related Transactions, and Director Independence

88

 

 

 

 

 

14.

Principal Accounting Fees and Services

88

 

 

 

 

Part IV.

15.

Exhibits, Financial Statement Schedules

89

 

 

 

 

 

16.

Form 10-K Summary

93

 

 

 

 

 

 

Signatures

94

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PART I.

Item 1.1.

3
Item 1A.
8
Item 1B.
20
Item 1C.
20
Item 2.
22
Item 3.
22
Item 4.
22
Item 5.
23
Item 6.
24
Item 7.
25
Item 7A.
36
Item 8.
36
Item 9.
80
Item 9A.
80
Item 9B.
80
Item 9C.
80
Item 10.
81
Item 11.
81
Item 12.
81
Item 13.
81
Item 14.
81
Item 15.
82
Item 16.
87
88

In this Annual Report on Form 10-K,

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PART I.
Item 1. Business
General
As used herein, unless the context otherwise dictates, references tothe term “Resideo”, “the Company”the “Company”, “we,”“we”, “us” or “our” means Resideo Technologies, Inc. and its consolidated subsidiaries.

This Annual Report includes industry and market data that we obtained from various third-party industry and market data sources. While we believe the projections of the industry sources referenced in this Annual Report are reasonable, forecasts based upon such data involve inherent uncertainties, and actual results are subject to change based upon various factors beyond our control. All such industry data is available publicly or for purchase and was not commissioned specifically for us. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, forecasts based upon such data involve inherent uncertainties, and actual results regarding the subject matter of such forecasts are subject to change based upon various factors, including those beyond our control and those discussed under the headings “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” in this Annual Report.

On October 29, 2018, we

We separated from Honeywell International Inc. (“Honeywell”), becoming an independent publicly traded company as a result of a pro rata distribution of our common stock to shareholdersstockholders of Honeywell (the “Spin-Off”(“the Spin-Off”). The Spin-Off is further described in Note 1. Organization, Operations and Basis of Presentation of Notes to the Consolidated and Combined Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Form 10-K. Our common stock began trading “regular way” under the ticker symbol “REZI” on the NYSE on October 29, 2018.

Description of Business

Resideo is a leading global manufacturer and developer of technology-driven products and solutions that provide critical comfort, residential thermalenergy management, water management, and safety and security solutions to over 150 million homes globally. We are also thea leading wholesale distributor of low-voltage security and life safety products for commercial and residential markets and serve a variety of adjacent product categories including intrusion, access control and video products and participates significantly in the broader related markets of smart home, fire, power, audio ProAV,visual, networking, communications, wire and cable, enterprise connectivity, and structured wiring products.smart home solutions. We have a global footprint serving commercialdeliver value to our customers via two business segments, Products and residential end markets. Solutions and ADI Global Distribution, which respectively contributed 42.8% and 57.2% of our net revenue for the year ended December 31, 2023.
Our primary focus is on the professional channel where we are a trusted partner to over 110,000 professional installers.approximately 100 thousand professionals. Our global scale, breadth of product offerings, innovation heritage, and differentiated service and support has enabled our trusted relationship with professional installers and has been a key driver of our success. Leveraging our underlying strengths, we are transforming our business with a strategy that includes operational improvements, product innovation, and investments to drive future growth and value creation. We believe our large presence in the home, both on the wall and behind the wall, positions us well for the value and convenience consumers will expect out of the connected home in the future.


We operate in large markets that sit at the intersection of multiple secular growth trends. We believe the increased desire for critical comfort, residential thermalenergy management, and actionable safety and security solutions in the home, combined with the long-term impacts of working from home,energy transitions, are driving investment in the home both in terms of time and dollars. We believe our total addressable market represents approximately a $114 billion inclusive of $27 billion for our comfort, residential thermal solutions and security, and $88 billion for distribution of low-voltage security products and additional adjacent products, including intrusion and smart home, fire, video surveillance, access control, power, audio and video, ProAV, networking, communications, wire and cable, enterprise connectivity and structured wiring. At the same time, the ability to better understand the functioning of a home through sensors, controls and connectivity has created a large and fast-growing connected home market. According to Statista, the global connected home market is expected to grow at a 16% compounded annual growth rate from $80 billion in 2019 to $195 billion in 2025. To date, we believe this market has been primarily composed of point products and services from a wide variety of industry participants, creating significant complexity for consumers. Given this complexity, we believe a significant opportunity exists to provide products, solutions and services to consumers and professional installers that integrate the disparate sensors, systems and controls inside the home, and enable differentiated insight.

Our meaningful presence in the home derived from our broad portfoliotypes of products and our focus on the professional installer, combined with our service-focused global distribution footprint, positions us well to take advantage of this significant market opportunity. We deliver value to our professional customers via two business

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segments, Products & Solutions and ADI Global Distribution, which respectively contributed 41.8% and 58.2% of our net revenue for the year ended December 31, 2020.

solutions we provide.

Products &and Solutions:Our comfort, security and energy products and solutions have a presence in over 150 million homes globallyfor comfort, energy management, safety and security benefit from the trusted, well-established Honeywell Home brand as well as key branded offerings such as Honeywell Home, First Alert, Resideo, Braukmann, BRK, and others. Our offerings include temperature and humidity control, thermal and combustion solutions, water and indoor air quality solutions, as well assmoke and carbon monoxide detection home safety products and fire suppression products, security panels, sensors, peripherals, wire and cable, communications devices, video cameras, awarenessother home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software. We are a leading player across the majority of our product categories with 15 million systems installed annually. Through our whole home presence on the wall and behind the wall, we are an enabler of home connectivity with approximately 6.711.6 million connected customers via our software solutions.customers. Our connected solutions harness this data to provide control, visibility, insights, and alerts to the end user. Our comprehensive product suite has also allowed us to develop and sustain a long-standing partnershippartnerships with professional installersprofessionals who have relied on our selection and availability of products and configured solutions to help them succeedsucceed.
Connectivity has created a large and fast-growing connected home market. We believe a significant opportunity exists to provide products, solutions and services to professionals and consumers that integrate the disparate sensors, systems and controls inside the home, and enable differentiated insight. Our significant presence in the home, both on the wall and behind the wall, positions us well for over 100 years. Our broad portfoliothe value and convenience consumers expect out of innovative products is delivered through a comprehensive network of over 110,000 professional contractors, more than 3,000 distributors and over 1,200 original equipment manufacturers (“OEMs”), as well as major retailers and online merchants.

the connected home.

ADI Global Distribution: Our ADI Global Distribution segment is thea leading wholesale distributor of low-voltage security products including intrusion,security, fire, access control and video products, and participates significantly in the broader related markets of smart home, fire, access control, power, audio, ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products. Through nearly 200 stocking locations in 1713 countries, ADI Global Distribution distributes more than 350,000450 thousand products from over 1,000one thousand manufacturers to a customer base of over 100,000 contractorsapproximately 100 thousand professionals and is independently recognized for superior customer service. We believe this global footprint gives us distinct scale and network advantages in our core products over our competitors. Further, we believe our customers derive great value from the advice and recommendations of our knowledgeable design specialists, allowing our customers to better meet the technical and systems integration expertise requirements to install and service professional security systems. We continue to be a leader in the industry withprovide value-added services including presales system design, 24/7 order pick-up, and the selective introduction of new product categories such as professional audio-visual.categories.

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Competition
Our industries and markets are highly competitive in both our Products &and Solutions and ADI Global Distribution segments, where we compete with global, national, regional and local providers for our products, services and solutions, including manufacturers, distributors, service providers, retailers and online commerce providers, as well as newer entrants to the market with non-traditional business and customer service models or disruptive technologies and products, including cable, telecommunications, and large technology companies competing in the connected home space.

space and smaller market entrants that offer control capabilities among their products, applications and services and have ongoing development efforts to address the broader connected home market.

Factors influencing our competitive position in the industry include product and service innovation, our reputation and the reputation of our brands, sales and marketing programs, customer relationships, product performance, reliability and warranty, quality and breadth of product training and events, product availability, speed and accuracy of delivery, service and price, technical support, and credit availability.

Our management team has significant experience and a track record of leading tech-enabled businesses, developing best-in-class products, and executing organizational change. This team is focused on ingraining a culture of continuous improvement into our organization with the goal of lowering costs, increasing margins and positioning the Company for growth. Leveraging the Company’s presence in the home and its relationship with professional installers, management has reorganized the Products & Solutions business to enhance focus and collaboration across business lines and segments.

With this ongoing transformation underway, we believe we are well-positioned to execute on our growth strategy across both of our segments. Our strategy in Products & Solutions is focused on accelerating our product innovation, expanding our presence in the home and buildings, and over time, enabling connected ecosystems grounded in relationships with professional installers. Our ADI Global Distribution growth strategy is focused on increasing our omni-channel presence to grow our customer base, expanding into adjacent growth markets, and continuing to enhance our value-add services to support our professional installers’ efficiency and profitability.

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Materials and Suppliers

Purchased materials used in our manufacture of products in Products and Solutions include copper, steel, aluminum, plastics, printed circuit boards (“PCB”), semiconductors, and passive electronics. Purchased materials cover a wide range of supplier value-add, from raw materials and single components to subassemblies and complete finished goods, and there are considerable expenditures on both commercial off-the-shelf and make-to-print items. Although execution of material substitutions or supplier changes may be resource intensive and can cause delays and other inefficiencies, alternatives usuallymay exist in the event that a supplier becomes unable to provide material. Unforeseen shortages and supply disruptions occur from timeWith respect to time but are typically manageable such that adverse impactour ADI Global Distribution business, we rely on key suppliers of branded products to deliver certain products for resale to our customers can be avoided.who may purchase based on job specifications or otherwise based on brand reputation. Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, and catastrophic events can increase the cost and affect the supply of our products and services and impact our ability to meet commitments to customers.

Manufacturing
Our Products and Solutions business operates manufacturing and distribution facilities throughout the world, including sites in Mexico, the Czech Republic, Hungary, the United States (“U.S.”), Germany, the United Kingdom, Netherlands, and China. A significant percentage of our Products and Solutions revenue is derived from products manufactured in our own facilities, with the remainder being “buy to sell” (finished products purchased directly from other manufacturers) or sourced from third-party contract manufacturers. Major activities and competencies in our manufacturing operations include PCB assembly, injection molding, surface mount technologies, automatic and manual assembly and test, electrotechnical assembly and test, die casting and machining, calibration and final test. We source raw materials and commodities, electronic components and assemblies, and mechanical components and assemblies from a wide range of third-party suppliers worldwide. With respect to our ADI Global Distribution business, we rely on third-party manufacturers to supply both third-party branded and ADI Global Distribution exclusive branded products.
Backlog
We include in backlog accepted product purchase orders from customers and worldwide distributor stocking orders. Product orders in our backlog are subject to changes in delivery schedules or cancellation at the option of the purchaser typically without penalty. Our backlog may fluctuate significantly depending upon customer order patterns which may, in turn, vary considerably based on rapidly changing business circumstances. Accordingly, we do not believe that our backlog at any time is necessarily representative of actual sales for any succeeding period.
Regulatory and Environmental Compliance and Regulatory Capital Expenditures

We are subject to various federal, state, local, and foreign government requirements relating to environmental health and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, remediation of environmental contamination, data privacy and security, cybersecurity, telemarketing, email marketing, other forms of online advertising and consumer protection, licensing, working conditions for and compensation of our employees and others. The Company’s businessesOur business may also be affected by changes in governmental regulation of energy efficiency and conservation standards and product safety regulations, and consumer privacy and protection regulations. These and other laws and regulations impact the
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manner in which the Company conducts itswe conduct our business, and changes in legislation or government policies can affect the Company’sour worldwide operations, both favorably and unfavorably. For a more detailed description of the various laws and regulations that affect the Company’sour business, see refer to Item 1A. Risk Factors.

The Company’sFactors.

Our efforts to comply with numerous federal, state, and local laws and regulations applicable to itsour business and products often results in capital expenditures. We make capital expenditures to design and upgrade our products to comply with or exceed standards applicable to the industries in which they compete. Our ongoing environmental compliance programs also result in capital expenditures. As of December 31, 2020,2023, we have recorded a liability for environmental investigation and remediation of approximately $22 million related to sites owned and operated by Resideo. The Company makes capital expenditures to design and upgrade its products to comply with or exceed standards applicable to the industries in which it competes. The Company’s ongoing environmental compliance programs also results in capital expenditures. Regulatory and environmental considerations are a part of all significant capital expenditure decisions; however, expenditures in 20202023 related solely to regulatory compliance were not material. It is management’s opinion that the amount of any future capital expenditures related to compliance with any individual regulation or grouping of related regulations will not have a material adverse effect on the Company’sour financial results or competitive position in any one year. See Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for further discussion of environmental matters.

Statements.

Human Capital


As of December 31, 2020,2023, we employed approximately 14,70014,000 employees in 32 countries. Approximatelycountries, of which about 3,100 employees were located in the United States,U.S. and the remaining 11,6007,000 in Mexico. Approximately 4% of Resideo’s U.S. employees were located primarily in Mexico, the Czech Republic and the United Kingdom. Approximately 1608% non-U.S. employees in the U.S. were subject toare covered under collective bargaining with approximately 1,270 employees outside of the U.S. subject to collective bargaining. Weagreements. We believe overall our relations with our workforce are good.

Health and Safety: The Company’sOur commitment to providing a safe and healthy workplace for all employees continued throughout 20202023 demonstrated by progress towards full ISO 14001:2015 and was further heightened by the challenges created by the COVID-19 pandemic. In responseISO 45001:2018 certification with a total of 10 manufacturing locations now certified to the pandemic, we took numerous actionsISO 14001:2015, 8 manufacturing locations certified to protect the healthISO 45001:2018, and safety of our employees, visitors and customers. These actions included formation of a response team, contact tracing and tracking of exposure and positive cases, enhanced cleaning protocols, moving to work from home where possible, suspension of most business travel and in-person meetings, the purchase of face coverings, gloves, hand sanitizer, and hand held scanning devices, installation of thermal scanners at our4 manufacturing sites installation of floor demarcations and plastic shields in our ADI Global Distribution branches and on manufacturing lines, weekly internal audits, external audits of select sites, leasing of additional vanscertified to permit distancing where we provide transportation to employees,

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daily symptom self-assessments, curbside and contactless pickup in many locations, enhanced employee benefits, COVID-19 testing, and policies requiring face coverings and physical distancing.  

ISO 50001:2018. At the end of 2020,2023 our global Total Case Incident Rate (“TCIR”)or “TCIR” (the number of occupational injuries and illnesses per 100 employees) was 0.28, significantly lower than the North American Industry Classification System injury rate for Automatic Environmental Controls of 1.7 (as reported by the U.S. Bureau of Labor Statistics).0.37. We monitor our safety through a balanced scorecard of key performance indicators. In addition to reactive incident management investigation and root cause analysis indicators, we measure and analyze the data generated from our hazard observation, designated Health, Safety,health and Environment Internal Department (“HSE”)safety inspections by line managers and internal audit programs by accredited HSEhealth and safety lead auditors to provide insights and intelligence that help us proactively mitigate issues before they result in incidents.


Total Rewards:Rewards: Our primary reward strategy is ensuring “pay-for-performance” on an annual basis, as well as over the long term, which drives a mindset of accountability and productivity. Our compensation guiding principles are to structure compensation that is simple, aligned and balanced. We structure and administer our Rewardsrewards programs in a manner consistent with good governance practices. We believe that the interests of employees must be aligned with our shareholders. To that end, in 2020 we launched an employee stock purchase plan and expanded the use of stock-based incentives to encourage managers to think like owners of Resideo.stockholders. We provide comprehensive, competitive and contemporary benefits that recognize the diversity of our workforce and are designed to meet the varying needs of our employees and promote choice. Our package includes generous paid time off, flexible work schedules, education assistance programs, and more.

These actions reinforce our culture that values employees and seeks to attract and retain the talent that we need to win in the market. We believe the combination of our competitive pay-for-performance compensation programs and our comprehensive benefit programs demonstrate our commitment to a compelling total rewards value proposition for our employees.

In April 2020, we took the necessary steps to weather the COVID-19 crisis with several cost saving programs including temporary payroll savings, furloughs, and reduced work schedules. Where employee agreement was necessary, an overwhelming majority of employees joined their worldwide colleagues in supporting this effort to help the Company preserve business continuity. In December 2020, we announced a special year-end bonus payable to current employees who had been directly impacted by COVID-19 cost saving actions, in an amount generally comparable to the financial impact of the cost savings actions.

Diversity, Equity, Inclusion and Inclusion:Belonging (“DEIB”): In 2020,We are committed to creating a diverse, equitable and inclusive working environment where individuals feel a sense of belonging. Last year, we adopted a revisedexpanded our Diversity, Equity, Inclusion narrative to include “belonging” to ensure we not only have a diverse and Inclusion statement, throughinclusive culture, but our people feel connected to our organization. In 2023, we focused on executing our DEIB strategy, which we aspire toincludes (1) attract, develop, and retain a diverse workforce, (2) foster a winning culture and (3) be identified as a company where employees are empowered to bring their whole, authentic selves to work each day. We work to advance this missionof choice by actively reaching out to peopleour customers and the communities we serve. One example of diverse backgroundshow we executed our DEIB strategy is through the continued support and experiences to joinevolution of our teams and nurturing an inclusive culture. We maintainsix employee resource groups across six categories:(“ERGs”): Women, LGBTQIA+, Black, Latino, Veterans, and People with Differing Abilities. Each groupERG is sponsored and supported by a senior leader of the company. We encourage our hiring managerscompany and recruiters to build a network of diverse talent. Our diversity outreach includes reaching out to all categories of diversity job boards, including Historically Black Colleges and Universities (“HBCUs”). Diversity is a key component of service level agreements we maintainhave held conversations with our recruiting process outsourcing (“RPO”) partnersexecutive leadership to ensure they are accountablediscuss ideas for improving our culture of inclusion and meet our sourcing standards.belonging. Our corporate functions and business units continue to track and report on progress with respect to our diversity and inclusion initiatives.


Diversity is a core component of our recruiting strategy. We continue to assess the needs of the business and identify diverse organizations to partner with that promote a pipeline of diverse talent.Our diversity outreach includes contacting various categories of diversity job boards and diverse partnerships, such as Society of Women Engineers (“SWE”) and
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National Society of Black Engineers (“NSBE”). Additionally, we maintained our diverse slate guidelines for career level 5+ roles requiring that interview slates include female and/or racially/ethnically diverse candidates, except in rare circumstances.
Talent Acquisition, Management and Development: We have a robust recruiting model to attract all levels of talent across the regions where we operate. In 2020,2023, our average time to fill open roles was 3541 days, and we hired 6,7004,350 employees, of which approximately 5,6003,400 were production workers. We expanded our virtual interviewing platforms and onboarding experience to mitigate COVID-19 risk. Internally, strategic talent reviews and succession planning occur on an annual basis, globally and across all business areas.

We strongly value feedback from

In 2023, we continued our employees and launched a revisedannual cycle of our Employee Voice Survey in 2020.Survey. This survey allows each function in our company to see its ratings across three levers: Motivation, Ability, and Knowledge of Expectations. Our overall engagement score for the first2023 cycle was 7.8 on a 10-point scale, with an Employeea 0.1-point decrease over last year. Our employee Net Promoter scoreScore (“NPS”) was 31, a decrease of 252 points over last year, on a scale ranging from -100 to +100 (based on industry standards for Employee Net Promoter score,employee NPS, any score above 10 is considered good). While we are pleased with these results, thereEach sub-organization is still room for improvement, and each sub-organization has been tasked with creating an action plan based on feedback received.

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We recognize that a key facet of an effective and high performing team is the quality of thecontinue to provide regular trainings to our people manager. This yearmanagers. In 2023, we introduced a new initiative,continued the People Manager Certification, to equip managersLeadership Seminar with an understanding of Resideo’s expectationsincreased focus on bringing strategy and respect for managers. The certification includes trainings inothers to life across the skills required to be a successful manager at Resideo as well as a toolkit for managers to put learnings in action. We also encourage employees to take responsibility for their own development and provide an extensive learning library in order to ensure our people have what they need to succeed, both professionally and personally. In response to the COVID-19 pandemic, we provided training to our employees on working successfully from home and developing resiliency during this stressful time. 

organization. Managers and their team members continued to participate in quarterlytri-annual “Pulse” conversations to set performance expectations and monitor and evaluate performance. People managers at Resideo are strongly encouraged to give frequent, informal feedback so that employees are always clear on their performance level.

To better support the development of our employees, we continue to offer a mentorship platform that makes more effective pairings, provides developmental resources for both mentors and mentees, and facilitates a natural progression of a mentoring relationship through detailed session agendas. New for 2023, we designed and implemented a new internal certification program called Talent Builder, to help educate our mentors on expectations in mentoring relationships while also creating a more consistent experience for mentees. To date, we have certified more than 100 mentors as Resideo Talent Builders.
We believe that making investments in our future leaders will improve our succession capabilities. Our focus on developing future leaders is supported by the Resideo Leadership Program (“RLP”). Up and coming leaders are chosen to participate in this program. This year, we completely revamped the program into a longitudinal leadership transformation program. Participants went on a journey to discover new depths of leadership capacity and character development.
Culture: In supporting2023, we continued to reinforce our employees’four Core Values:
•Start with the Customer: We understand our customers’ needs and pride ourselves on delivering exceptional experiences;     
•Act as One Team: We work together toward common goals, engaging from a place of humility and respect;
•Pioneer the Future: We embrace change, boldly step into the unknown, and relentlessly foster innovation to fuel our growth; and
•Make a Difference: We care about the long-lasting, positive impact we make on each other, our customers, our communities, and the planet.
In addition to reinforcing our Core Values and expanding our commitment and attention to building a positive culture, we broadened the role of our VP of DEIB and increased the scope to include culture and learning and development, changing the title to VP of Culture and Talent Excellence.
To continue driving a culture in alignment with our values, we refineddeveloped and deployed a new onboarding offering called Ready, Set, Resideo to help integrate our global mentorship program, which supportsnew hires into our values from Day 1. The course provides an overview of our company, our brand promise, and our culture. Of those who completed a course completion survey, 85% agree that this new onboarding offering is better than any onboarding course they have attended at previous companies. We also explored additional opportunities to push nudges to managers to help with change management efforts across the company and conducted listening sessions with employees to understand what is needed to create potential culture ambassadors across all levels and functions. The program allows for multiple forms of interaction, including one-on-one relationships and "fireside chats," which improve knowledge transfer and skill development throughout the organization. 

company in the future.

Seasonality


Our Products &and Solutions business typically experiences a moderate level of seasonality. Sales activity is generally highest in the fall and early winter months, reflecting increased customer purchases of heating related products with the
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highest sales at the end of the third quarter and throughout the fourth quarter in the majority of our geographical markets.

The effects of climate change, such as extreme weather conditions and events and water scarcity, may exacerbate fluctuations in typical weather patterns, creating financial risks to our business. In addition, the dynamic global and macro-economic conditions may further disrupt these seasonal patterns.

Research and Development and Intellectual Property

We have software centers of excellence in Austin, Texas; Bengaluru, India; and Melville, New York, along with major product design centers in the U.S., Europe, Asia, and Latin America.America and software centers of excellence in Bengaluru, India and Melville, New York. In addition, our laboratories are certified to meet various industry standards, such as FCC and UL, enabling us to test and certify products internally. We also have a user experience design group that consists of researchers and product and user experience designers aligned with development sites with the primary studios in Golden Valley, Minnesota. As of December 31, 2020,2023, we employed over 850approximately 898 engineers.

Our deep domain expertise, proprietary technology and brands are protected by a combination of patents, trademarks, copyrights, trade secrets, non-disclosure agreements, and contractual provisions. We own approximately 2,3002,800 worldwide active patents and pending patent applications to protect our research and development investments in new products and services. We have and will continue to protect our products and technology by asserting our intellectual property rights against third-party infringers. See Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for more information.Statements. We also have a significant trademark license with Honeywell in connection with our use of the Honeywell Home trademark as well as certain intellectual property licensed by Honeywell to us in connection with the Spin-Off. For a more detailed description of the various intellectual property rights and relationships that affect the Company’sour business, see refer to Item 1A. Risk Factors.

Factors.

Other Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available free of charge on our website (www.resideo.com)(www.Resideo.com) under the heading Investors (see SEC Filings) immediately after they are filed with, or furnished to, the SEC.Securities and Exchange Commission (“SEC”). All of the reports that we file or furnish with the SEC are also available on the SEC’s website (www.sec.gov). In addition, in this Form 10-K, we incorporate by reference certain information from parts of our Proxy Statement for the 20212024 Annual Meeting of Stockholders,Shareholders, which will also be available free of charge on our website. Information contained on, or connected to, our website does not and will not constitute part of this Form 10-K.

We are a Delaware corporation incorporated on April 24, 2018. Our principal executive offices are located at 901 E. 6th16100 N. 71st Street Austin, Texas 78702.Suite 550, Scottsdale, Arizona 85254. Our telephone number is (512) 726-3500.(480) 573-5340. Our website address is www.resideo.com.

www.Resideo.com.

We disclose public information to investors, the media and others interested in our Company through a variety of means, including our investor relations website (https://investor.resideo.com), press releases, SEC filings, blogs, public conference calls and presentations, webcasts and social media, in order to achieve broad, non-

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exclusionarynon-exclusionary distribution of information to the public. We use these channels to communicate with our stockholders and the public about our Company,us, our products, solutions and other issues. It is possible that the information we post on social media could be deemed to be material information. We encourage investors, the media and others interested in our Company to review the information we post on our website and the social media channels listed below. The list of social media channels we use may be updated from time to time on our investor relations website.

The Company’s News Page (https://www.resideo.com/www.Resideo.com/news)

The Company’s Facebook Page (www.facebook.com/resideo)

Resideo)

The Company’s Twitter Feed (https://twitter.com/resideo)

Resideo)

The Company’s LinkedIn Feed (https://www.linkedin.com/company/resideo1/Resideo1/)

References to our website and other social media channels are made as inactive textual references and information contained on them is not incorporated by reference into this Annual Report.

Form 10-K.

Item 1A.

Risk Factors

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Item 1A. Risk Factors
You should carefully consider all of the information in this Form 10-K and each of the risks described below, which we believe are the material risks that we face.

Any of these risks could materially and adversely affect our business, financial condition, results of operations and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Form 10-K.

The following risk factors are not necessarily presented in order of relative importance and should not be considered to represent a complete set of all potential risks that could affect us.

Risks Relating to Our Business

We operate in highly competitive markets.

We operate in a highly competitive, marketsquickly changing environment in botheach of our Products &and Solutions and ADI Global Distribution segments and compete directly with global, national, regional, and local providers of our products, services and solutions including manufacturers, distributors, service and software providers, retailers, and online commerce providers. The most significant competitive factors we face are product and service innovation, reputation of our Company and brands, sales and marketing programs, product performance, warranty, quality of product training and events, product availability, speed and accuracy of delivery, price, customer and technical support, and furnishing of customer credit, with the relative importance of these factors varying among our segments and their respective products and services.


In addition to current competitive factors, there have been, and in the future, there may be new market entrants with non-traditional business, new business and customer service models or disruptive technologies and products, resulting in increased competition and changing business dynamics. Examples of these include cable, telecommunications and large technology companies competing in the connected home, home security/lifestyle and energy management spaces, smaller market entrants that offer control capabilities among their products, applications and services and have ongoing development efforts to address the broader connected home security spaces,market, utilities expanding their role in the provision of home energy management services, OEMsoriginal equipment manufacturers (“OEMs”) vertically integrating, and the expansion of direct-to-consumer, retail and e-tail distribution in competition with our ADI Global Distribution business. Existing or futureIn addition, aggressive pricing actions by competitors may seek to gain or retain market share by reducing prices, or shifting business models to a software based model, and we may be required to lower prices or may lose business, which could adversely affect our business, financial condition, results of operationsability to manage the price/cost relationship to achieve desired revenue growth and cash flows. Also, toprofitability levels. To the extent that we do not meet changing customer preferences or demands or other market changes, or if one or more of our competitors introduces new products or services, becomes more successful with private label products, online offerings or establishes exclusive supply relationships, our ability to attract and retain customers could be adversely affected.

affected, which could adversely affect our business, financial condition, results of operations and cash flows.

To remain competitive, we will need to invest continually in product and services development, marketing, customer service and support, manufacturing and our distribution networks. We may not have sufficient resources to continue to make such investments and we may be unable to maintain our competitive position including due to the

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fact that our competitors and potential competitors may have greater brand recognition, resources, access to capital, including greater research and development or sales and marketing funds, more customers, lower costs and more advanced technology platforms, particularly with our connected products and services and in connectedenergy management services, andas well as in new geographic regions. It is possible that competitive pressures resulting from consolidation, including customers taking manufacturing or distribution in house, purchasing directly from a manufacturer instead of from ADI Global Distribution, moving to a competitor, partnering with third parties and consolidation amongst our customers, could affect our growth and profit margins. Existing or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price for, and reducing the number of, suitable acquisition targets. We may not be successful in effectively identifying all risks of an acquired business, integrating the acquired business, product or technology into our existing business and operations or realizing the benefits expected at acquisition. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues.

Some of our competitors may also be able to deliver their service solutions more quickly to market than we can by capitalizing on technology developed in connection with their substantial existing service models. In addition, some of our competitors have significant bases of customer adoption in other services and in online content, which they could use as a competitive advantage in the growing connected home solutions services market or otherwise in our product or distribution businesses. The expansion by large technology companies into connected home solutions, could result in pricing pressure, a shift in customer preferences towardstoward the services of these companies and a reduction in our market share. In addition, in order to successfully compete, our products often need to integrate with the platforms of our competitors, who may be able to focus more on their own solutions versus ours, which may make it difficult to compete for the consumer market. In addition, there may be new technologies that are introduced that reduce demand for our solutions or make them obsolete.
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Our Products &and Solutions business' offerings are primarily solddelivered through a networknetworks of professional contractors, distributors, and OEMs, as well as major retailers and online merchants. Growth of the retail markets and greater e-tailelectronic retail distribution alternatives relative to the professional installation markets may negatively impact our sales and margins, which could negatively affect our cash flow and have an adverse effect on our business, financial condition and results of operations and cash flows.

With respect to our ADI Global Distribution business, if retail outlets, including online commerce or big box stores increase their participation in wholesale distribution markets, or if buying patterns for our products become more retail or e-commerce based through these outlets than they currently are, our ADI Global Distribution business may not be able to effectively compete, which could have an adverse effect on our business, financial condition, results of operations and cash flows.

Technology, industry standards and consumer preferences in our markets isare changing rapidly and ourrapidly. Our future results and growth are largely dependent upon our ability toto: identify consumer preferences and industry standards; develop and protect intellectual property related thereto; and successfully market new technologies and products and develop and protect the intellectual property related thereto as well as defend against the intellectual property threats of others.

services to consumers.


Technology in our markets changes constantly as new technologies and enhancements to existing technologies continue to be introduced both in our traditional and connected product markets.markets and industry standards continuously evolve. Our future results dependin our Products and Solutions segment depends upon a number of factors, including our ability to (i) identify consumer preferences and emerging technological trends and broader trends, such as decarbonization and electrification efforts in response to climate change, (ii) develop and maintain competitive products, in part by adding innovative features that differentiate our products from those of our competitors and prevent commoditization of our products, as well as through the use of intellectual property protections such as patents and trade secrets, (iii) grow our market share, (iv) develop, manufacture and bring compelling new products to market quickly and cost-effectively, (v) find and effectively partner with and continue to partner with home connected device platforms and (vi) attract, develop and retain individuals with the requisite technical expertise and understanding of customers’ needs to develop new technologies and introduce new products. Our inability to predict the growth of and respond in a timely way to customer preferences and other developments could have an adverse effect on our business, financial condition, results of operations and cash flows.

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We rely on a combination of patents, copyrights, trademarks, trade names, trade secrets and other proprietary rights, as well as contractual arrangements, including licenses, to establish, maintain and protect our intellectual property rights. Our intellectual property rights may not be sufficient to permit us to take advantage of some business opportunities. As a result, we may be required to change our plans or acquire necessary intellectual property rights, which could be costly. Furthermore, our ability to enforce our intellectual property rights in emerging markets may be limited by legal or practical considerations that have not historically affected our business in markets with more established intellectual property protection systems.

Our industry experiences significant intellectual property litigation and we have in the past and could in the future become involved in costly and lengthy litigation involving patents or other intellectual property rights which could adversely affect our business. We have received allegations of patent infringement from third parties, including both operating companies and non-practicing entity patent holders, as well as communications from customers requesting indemnification for allegations brought by third parties. These allegations have resulted in ongoing patent litigation relating to certain of our products and may continue to result in new litigation. These proceedings have in the past and could subject us to significantin the future result in financial liability, harm our ability to compete, and can divert our management’s time and attention. Often, we receive offers to license patents for our use. Such offers typically relate to various technologies including electronics, the “internet of things”, “connected homes”, power systems, controls, and software, as well as, the use of certain wireless networking methods, and the design of specific products. We believe that we will be able to access any necessary rights through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent we are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact us, requiring us to take specific actions including ceasing using, selling or manufacturing certain products, services or processes or incurring significant costs and time delays to develop alternative technologies or re-design products.

Our operations depend in part upon third-party technologies, software, and intellectual property. Failure to renew contracts with existing providers or licensors of technology, software, intellectual property or connectivity solutions, or to contract with other providers or licensors on commercially acceptable terms or at all, as well as any failure by such third-party provider to provide such technology solutions may adversely impact our business, financial condition, results of operations and cash flows.We could also be subjected to claims of infringement regardless of our lack of involvement in the development of the licensed technology. Although a third-party licensortechnology provider is typically obligated to indemnify us if the licensedprovided technology infringes on another party’s intellectual property rights, such indemnification is typicallyoften limited in amount and may be worthless if the licensorprovider becomes insolvent.

Market and economic conditions may adversely affect the economic conditions

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Table of our customers, demand for our products and services and our results of operations.

As a global provider of Comfort, RTS and Security products, services and technologies for the home, as well as a worldwide wholesale distributor of low-voltage electronics products, as well as smart home, fire, power, audio and ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products, our business is affected by the performance of the global new and repair and remodel construction industry. Our markets are sensitive to changes in the regions in which we operate and are also influenced by cyclical factors such as interest rates, inflation, availability of financing, consumer spending habits and confidence, housing market changes, employment rates and other macroeconomic factors over which we have no control, and which could adversely affect our business, financial condition, results of operations and cash flows. Our sales are also affected by fluctuations in demand for Internet-connected devices. If the market for connected home solutions grows more slowly than anticipated, we may not be able to increase our revenue and earnings.

We may not be able to retain or expand relationships with certain significant customers.

A number of our customers contribute significantly to our net revenue and operating income. Consolidation or change of control, particularly among our OEM customers (and in certain instances, their authorized dealers), or a decision by any one or more of our customers to outsource all or most manufacturing work to a single equipment manufacturer, or partner with third parties may continue to concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a smaller number of customers. We generally have to qualify, and are required to maintain our status, as a supplier for each of our OEM customers. A significant failure or inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements could result in financial penalties, cancelled orders, increased costs, loss of sales, market share shift, loss of customers or potential breaches of customer contracts, which have had and could in the future have an adverse effect on our profitability and results of

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operations. By virtue of certain customers’ size and the significant portion of revenue that we derive from them, they are able to exert significant influence in the negotiation of our commercial agreements and the conduct of our business with them. If we are unable to retain and expand our business with these customers on favorable terms, our business, financial condition, results of operations and cash flows will be adversely affected.Contents

Resideo Technologies, Inc.
We rely on certain suppliers of products, materials and components and are otherwise subject to raw material price and supply variability with our suppliers which may impact our ability to meet commitments to customers and cause us to incur significant liabilities.

Both

Each of our business segments dependdepends on third parties for the supply of certain materials and components for products we manufacture and those manufactured on our behalf, or sold through our ADI Global Distribution business, some of which are supplied by single or limited source suppliers/manufacturers. Our business, results of operations, financial condition and cash flows have been and could continue to be adversely affected by disruptions in supply from our third-party suppliers and manufacturers, whether due to work stoppages, cyberattacks, component failures, natural disasters, pandemics, economic, political, financial or labor concerns, weather conditions affecting products or shipments or transportation disruptions or other reasons, or if suppliers lack sufficient quality control or if there are significant changes in their financial or business condition or otherwise. For example, there is currently a global semiconductor supply shortage. WhileAlthough unlikely, our supply chain team has been diligently working to help ensure surety of supple, if our third-party suppliers and manufacturers fail to deliver materials, products, parts and components on time and at reasonable prices, we could have difficulties fulfilling our orders or stocking our distribution centers on similar terms or at all, sales and profits could decline, and our commercial reputation could be damaged. Our ability to manage inventory and meet delivery requirements maycould be constrained by our suppliers’ inability to scale production and adjust delivery of long-lead-timelong lead-time products during times of volatile demand. Our inability to fill our supply needs would jeopardize our ability to fulfill obligations which could, in turn, result in reduced sales and profits, contract penalties or terminations, and damageour contractual obligations.
With respect to customer relationships. In particular,our ADI Global Distribution segment, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key manufacturers have in the past and could in the future negatively affect our ADI Global Distribution’sthat segment’s operating income and margins, net revenue or the level of capital required to fund operations.

Manufacturers who currently distribute their products through our ADI Global Distribution business mayhave in the past and could in the future decide to shift to or substantially increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-users. This could result in more intense competition as distributors strive to secure distribution rights with these manufacturers, which could have an adverse impact on our ADI Global Distribution business, financial condition, results of operations and cash flows. In addition, our ADI Global Distribution business may not be able to acquire from manufacturers or additional supply chains certain product lines that we are interested in adding to our distribution business, and if even we are able to add products, they may not result in sales as expected and may not be profitable to the overall business.

We may from time to time pursue acquisitions. Our business may be adversely affected if we cannot consummate acquisitions on satisfactory terms, or if we cannot effectively integrate acquired companies or assets.
We have in the past and may from time to time in the future continue to pursue and consummate acquisitions of companies or assets. Our ability to consummate any future acquisitions will be partially dependent upon the availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions. We may not be able to find suitable acquisition candidates to purchase or may be unable to acquire on economically acceptable terms or to receive necessary regulatory approvals or support.
The consummation of any particular acquisition may depend, in part, on our ability to raise the capital necessary to fund such acquisition which may not be available to us at all or on economically advantageous terms. In addition, if we consummate an acquisition, our capitalization and results of operations may change significantly. Future acquisitions could result in gross and/or operating income dilution, the incurring of additional debt or equity issuances and contingent liabilities and an increase in interest and amortization expenses or periodic impairment expenses related to goodwill and other intangible assets and significant charges relating to integration costs.
We may not be successful in effectively identifying all risks of an acquired business, integrating the acquired business or technology into our existing business or realizing the benefits expected at acquisition. Our due diligence may fail to identify all of the liabilities or challenges of an acquired business, product, software, service or technology, including issues related to intellectual property, product quality or product or software architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee, customer or supplier issues. We may not be able to achieve the operational synergies or savings nor any growth targets identified in acquisition diligence. The successful integration of future acquisitions may also require substantial attention from our senior management and the management of the acquired business, which could decrease the time that they have to manage our existing portfolio, attract customers and develop new products and services or attend to other acquisition opportunities.
Our business is subject to the risks of earthquakes, hurricanes, tornadoes, fires, power outages, floods, pandemics, epidemics, natural disasters and other catastrophic events. or other public health emergencies.
A significant natural disaster, such as an earthquake, hurricane, tornado, fire, flood, or a public health pandemic, such as COVID-19, or a significant power outage could harm our business, financial condition, cash flows and results of
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operations. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity and frequency, sea-level rise, melting of permafrost and temperature extremes in areas where we conduct our business. Extreme weather, natural disasters, power outages, global health crises or other unexpected events have in the past and could in the future disrupt our operations by impacting the availability and cost of materials needed for manufacturing, causing physical damage and partial or complete closure of our manufacturing sites or distribution centers, loss of human capital, and disruption in the manufacturing and supply of products and services to customers.
With respect to our Products and Solutions segment, we operate seven factories in Mexico and rely on third-party manufacturing partners with manufacturing capabilities in Mexico. Approximately 45% of our finished products are manufactured in Mexican sites, several of which operate in water stressed environments. A significant natural disaster affecting the region could have a material and disproportionate impact on our ability to manufacture our products. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, consumers in that region may delay or forego purchases of our products and solutions in the region, which may harm our results of operations for a particular period. These risks may be increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above results in delays or cancellations of orders, or delays in the manufacture, deployment or shipment of our products and solutions, our business, financial condition, cash flows and results of operations would be harmed.
Our business, results of operations, financial condition, cash flows, and stock price may be adversely affected by public health emergencies, such as the COVID-19 pandemic. The COVID-19 outbreak has negatively impacted and may again negatively impact the global economy.
To the extent any such public health emergencies adversely affect our business and financial results, they may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Market and economic conditions may adversely affect the economic conditions of our customers, demand for our products and services and our results of operations.
As a global provider of comfort, energy management and life safety products, services and technologies for the home, as well as a wholesale distributor of low-voltage electronics products, smart home, fire and security life safety products, power, audio and ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products, our business is affected by the performance of the global new and repair and remodel construction industry. Geopolitical, social and economic conditions could result in increased volatility in worldwide financial markets and economies that could harm our sales. Similarly, slowing of the housing market may result in reduced demand for our products and services. Our markets are sensitive to changes in the regions in which we operate and are also influenced by cyclical factors such as interest rates, inflation, energy costs, availability of financing, consumer spending habits and preferences, housing market demand, employment rates and other macroeconomic factors over which we have no control, and which could adversely affect our business, financial condition, results of operations and cash flows.
Failure to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact our results.

Product and service quality issues could result in a negative impact on customer confidence in our Company, our products and our brand image. If our offerings do not meet applicable legal and safety standards or our customers’ expectations regarding safety or quality, or if our products are improperly designed, manufactured, packaged, or labeled, or are otherwise alleged to cause harm or injury, we may need to recall those items, experience increased warranty costs or lost sales and increased costs and be exposedexposure to legal, financial and reputational risks including litigation and government enforcement action, as well as product liability claims. Such actions may damage our relationship with our customers which may result in a loss of market share; additionally,share. Additionally, the financial expenses related to such events may not be covered by our insurance or may be subject to deductibles. We have in the past and in the future may not be able to obtain indemnity or reimbursement from our suppliers or other third parties for the warranty costs or liabilities associated with our products and there can be no assurance that we will have adequate reserves to cover any recalls and repair and replacement costs. A significant product recall, warranty claim, or product liability case, especially with respect to our security and life safety-related products or services, could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products and services. We have in the past experienced, and may in the future experience, product recalls and litigation related to our products or services, none of which have been material to date.

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OTable of Contentsur
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We may not be able to retain or expand relationships with certain significant customers.
A number of our customers contribute significantly to our net revenue and operating income. Consolidation, change of control, or termination of the contractual relationships with any of these customers, particularly among our OEM customers (and in certain instances, their authorized dealers), or a decision by any one or more of our customers to outsource all or most manufacturing work to a single equipment manufacturer, or to partner with third parties has in the past and may in the future continue to concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a smaller number of customers. We generally have to qualify, and are required to maintain our status, as a supplier for each of our OEM customers. A significant failure or an inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements could result in financial penalties, cancelled orders, increased costs, loss of sales, market share shift, loss of customers or potential breaches of customer contracts, which have had and could in the future have an adverse effect on our profitability and results of operations. By virtue of certain customers’ size and the significant portion of revenue that we derive from them, they can exert significant influence in the negotiation of our commercial agreements and the conduct of our business with them which could adversely affect our profitability. If consolidation among our retailers, distributors or other channel partners who purchase our products becomes more prevalent, our business, results of operations and financial condition, cash flows and stock price may be materially adversely impacted by pandemics, epidemics or other public health emergencies, such as the coronavirus (COVID-19) outbreak.

Our business, results of operations, financial condition, cash flows, and stock price mayconditions could be adversely affected by pandemics, epidemicsaffected.

Failure to increase productivity through sustainable operational improvements, as well as an inability to successfully execute transformation programs or other public health emergencies, such as the COVID-19 (including newly discovered variants) virus pandemic as described in this Annual Report, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This outbreak has negatively impacted and could continue to negatively impact the global economy. While we continue to comply with all applicable health and sanitation and legal requirements, we cannot ensure uninterrupted operations in geographical areas impacted by COVID-19. Deterioration in economic conditions couldeffectively manage our workforce, may reduce our sales and profitability. Any financial distress of our customers due to deterioration in economic conditionsprofitability or lack of continued governmental funding and support of our customers could result in reduced sales and decreased collectability of accounts receivable which could negativelyadversely impact our results of operations. The COVID-19 outbreak has had,businesses.
Our profitability and could continue to have, an impact onmargin growth are dependent upon our ability to obtain certaindrive sustainable improvements. In addition, we seek productivity and cost savings benefits through our ongoing transformation, restructuring and other programs, such as consolidation and outsourcing of the raw materials, partsmanufacturing operations or facilities, reductions in manufacturing shifts, transitions to cost-competitive regions, workforce optimizations, product line rationalizations and components we need to manufacture our products as our suppliers face disruptions in their businesses,divestitures, and disruptions to other aspects of our business. We depend greatly on our suppliers for itemscost-saving initiatives. Risks associated with these actions that are essential to the manufacturing of our products. If our suppliers fail to meet our manufacturing needs, it could delay our production and our product shipments to customers and negatively affect our operations. While we believe that we are considered as an essential product and service provider pursuant to laws, rules and regulations in the majority of regions in which we operate, which has generally provided us with the ability to continue to operate during the COVID-19 pandemic, we may be subject to changing laws, rules and regulations, and limitations on the scope of essential businesses, which may impact our ability to operate in such regions. In addition, we have in the past andor may continue in the future during the pendencyexperience include delays in execution of the corona virus pandemic,planned initiatives, additional unexpected costs, asset impairments, realization of fewer than estimated productivity improvements, reduced ability to manage supply chain anomalies, employment claims, and adverse effects on employee morale leading to reduced production and unanticipated departures. We may not realize the full operational or financial benefits we expect, the recognition of these benefits may be delayed and these actions may potentially disrupt our operations. In addition, organizational changes, attrition, labor relations difficulties, or work stoppages could have an adverse effect on our business, reputation, financial condition, results of operations, and cash flows.
We are subject to government inspectionsthe economic, political, regulatory, foreign exchange and other risks of international operations.
Our international revenue represented approximately 24% of our manufacturingnet revenue for the year ended December 31, 2023. Our international geographic footprint subjects us to many risks including: exchange control regulations; wage and price controls; antitrust/competition and environmental regulations; employment regulations; foreign investment laws; monetary and fiscal policies and protectionist measures that may prohibit acquisitions or joint ventures, establish local content requirements, or impact trade volumes; import, export and other trade restrictions (such as embargoes); tariffs; violations by our employees of anti-corruption laws (despite our efforts to mitigate these risks); changes in regulations regarding transactions with state-owned enterprises; nationalization of private enterprises; natural and man-made disasters, hazards and losses; backlash from foreign labor organizations related to our restructuring actions; violence; civil and labor unrest; acts of terrorism; and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. Additionally, certain of the markets in which we operate have adopted increasingly strict requirements concerning personal and non-personal data, privacy and cybersecurity. These requirements may negatively affect our ability to maintain, develop, sell and advertise our products and our services, may limit our ability to derive revenue from data, may require us to disclose product and services data to our competitors, may cause us to incur additional expense in obtaining mandatory certifications and may restrict our ability to transfer data internationally.
With respect to our Products and Solutions segment, we operate seven factories in northern Mexico. Approximately 45% of our finished products are manufactured in Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could cause a disruption of the supply of products to or from these facilities. Some of our Mexican facilities are authorized to confirmoperate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows us to temporarily import raw materials into Mexico, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status is subject to various restrictions and requirements, including compliance with government regulations related to employee health and safety at our sites.

To the extent the COVID-19 outbreak adversely affects our business and financial results, it may also have the effect of heightening manyterms of the Maquiladora program and other risks describedlocal regulations, which have

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become stricter in this “Risk Factors” section.

recent years. In addition, if the Mexican government adopts additional adverse changes to the program, including nationalization, our manufacturing costs in Mexico would increase.


Current global conflicts, such as those between Russia and Ukraine as well as the Middle East crisis between Hamas and Israel, have created substantial uncertainty in the global economy, including sanctions and penalties imposed on certain countries from several governments. While we do not have a physical presence in these locations and do not have significant direct exposure to customers and vendors in those countries, we are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these financial statements.

We operate in many diverse regions that require modifications to our products based on local building codes, regulations, standards, certifications and other factors, which may impact our cost to serve and profitability as we continue our penetration into these regions.

We rely on a dependable IT infrastructure and network operations that have adequate cyber-security functionality to produce and sell our products and solutions and manage our business.

The efficient operation of our business requires substantial investment in technology infrastructure systems, including enterprise resource planning (“ERP”) systems, information systems, supply chain management systems, digital commerce systems and connected solutions platforms and network operations and systems. The failure to acquire, implement, maintain and upgrade as required, these systems may impact our ability to respond effectively to changing customer expectations, manage our business, scale our solutions effectively or impact our customer service levels, which may put us at a competitive disadvantage and negatively impact our business, results of operations, financial condition and cash flows. Repeated or prolonged interruptions of service, due to cyber threats or problems with our systems or third- partythird-party technologies, whether or not in our control, could have a significant negative impact on our reputation and our ability to sell products and services. Our business, results of operations, financial condition and cash flows may be adversely affected if our information systems fail, become unavailable for prolonged periods of time, are corrupted or do not allow us to transmit accurate information. Failure to properly or adequately address these issues, including the failure to fund backups, upgrades and improvements to our systems, could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, results of operations, financial condition and cash flows. Our ability to keep our business operating is highly dependent on the proper and efficient operation of our network operationsdata centers, networks, and data backup systems. In addition, manya significant portion of our employees are and have been engaged in remote or hybrid work from their homes, during COVID-19; thiswhich further exposes our information technology (“IT”) systems to potential cyber interference and disruption of work activities based on availability and performance of Wi-Fiinternet access in the regions in which our employees reside.

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Our information technology (“IT”)IT and engineering systems may involvecontain sensitive information, including personal data, trade secrets, and other proprietary information. In addition, our connected products potentially expose our business and customers to cybersecurity threats. As a result, we arehave experienced and may in the future be subject to systems interruption, data corruption, data loss and service and product failures, not only resulting from the failures of our products or services but also from the failures of third-party service providers, natural disasters, power shortages or terrorist attacks, and cyber or other security threats. There is no assurance that the comprehensive security measures we have put in place to protect our informationIT and engineering systems, services, and products against unauthorized access and disclosure of personal informationdata or confidential or trade secret information will be effective in every case.

We have experienced, and expect to continue to experience, cybersecurity threats and incidents, none of which, to our knowledge, have been material to date. The potential consequences to any of our connected solutions platforms, data centers, or network operations and systems resulting from a material cyber or other security incident such as a successful ransomware attack or malicious publication of confidential information, trade secrets or personal data include financial loss, reputational and brand impact, negative media coverage, loss of stockholder value, loss of customers, litigation with third parties, including class-action litigation, regulatory investigations, audits or other enforcement actions, theft of intellectual property, fines, diminution in the value of our investment in research, development and engineering, regulatory reporting for data breaches, and increased cyber and other security protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness, business, financial condition, results of operations, and cash flows. In addition, damages, fines and claims arising from such incidents may not be covered by, or may exceed the amount of any insurance available or may not be insurable.


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Enhanced tariff, import/export restrictions, or other trade barriers may have an adverse impact on global economic conditions, financial markets and our business.

We are subject to certain laws and regulations affecting our international operations which, among other things, provide certain preferential duties and tariffs for qualifying imports subject to compliance with the economic, political, health, epidemic, regulatory, foreign exchangeapplicable rules of origin and other risks of international operations.

Our international revenues represented approximately 30% of our net revenue forrequirements. There have been, and continue to be, uncertainties with respect to the year ended December 31, 2020. Our international geographic footprint subjects us to many risks including: exchange control regulations; wageglobal economy and price controls; antitrust/competition and environmental regulations; employment regulations; foreign investment laws; monetary and fiscal policies and protectionist measures that may prohibit acquisitions or joint ventures, establish local content requirements, or impact trade volumes; import, exportrelations between the U.S. and other trade restrictions (such as embargoes); violations by our employees of anti-corruption laws (despite our efforts to mitigate these risks); changes in regulations regarding transactions with state-owned enterprises; nationalization of private enterprises; natural and man-made disasters, hazards and losses; backlash from foreign labor organizations related to our restructuring actions; violence, civil and labor unrest; acts of terrorism; health epidemics; and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions. Additionally, certain of the markets in which we operate have adopted increasingly strict data privacy and data protection requirements or may require local storage and processing of data or similar requirements

Instabilities and uncertainties arising from the global geopolitical environment can negatively impact our business. The implementationcountries globally. Implementation of more restrictive trade policies or the renegotiation of existing U.S. trade agreements in the U.S. or trade agreements of other countries where we sell, procure or manufacture large quantities of products and services or procure supplies and other materials incorporated into our products could negatively impact our business results of operations, cash flows and financial condition. For example, a government’s adoption of “buy national” policies or retaliation by another government against such policies, such as tariffs or quotas, could have a negative impact on our results of operations.

Tariffs, sanctions and other barriers to trade could adversely affect the business of our customers and suppliers, which could in turn negatively impact our net revenue and results of operations. Instabilities


Specifically, we source certain components and uncertainties arisingapproximately 7% of our finished goods from the global geopolitical environment, along with the costsuppliers in Asia, a significant portion of compliance with increasingly complex regulations worldwide, can impair our flexibility in modifying product, marketing, pricingwhich are subject to tariffs. New tariffs or other strategies for growingrestrictions imposed on imports from Asia, where certain components included in our businesses, as well as our ability to improve productivityend-user equipment are manufactured and maintain acceptable operating margins.

As a resultwhere certain of our global presence, a portiondistribution business suppliers are located, and any counter-measures taken in response to such new restrictions, may harm our business and results of our net revenue are denominated in currencies other than the U.S. Dollar, whereas a significant amount of our payment obligations, including pursuant to the Reimbursement Agreement and Tax Matters Agreement are denominated in U.S. Dollars, which exposes us to foreign exchange risk. We monitor and may seek to reduce such risk through hedging activities; however, foreign exchange hedging activities bear a financial cost and may not always be available to us or be successful in eliminating such volatility.

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Finally, we generate significant amounts of cash outside of the United States that is invested with financial and non-financial counterparties. While we employ comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the counterparties with whom we transact business could expose us to financial loss.

We operate in many high-growth regions that require modifications to our products based on local building codes, regulations, standards, certifications and other factors, which may impact our cost to serve and profitability as we continue our penetration into these regions.

Failure to increase productivity through sustainable operational improvements, as well as an inability to successfully execute transformation programs or to effectively manage our workforce, may reduce our profitability or adversely impact our businesses.

Our profitability and margin growth are dependent upon our ability to drive sustainable improvements. In addition, we seek productivity and cost savings benefits through transformation and other programs, such as consolidation and outsourcing of manufacturing operations or facilities, transitions to cost-competitive regions, workforce reductions, product line rationalizations and other cost-saving initiatives. Risks associated with these actions include delays in execution of the planned initiatives, additional unexpected costs, asset impairments, realization of fewer than estimated productivity improvements, and adverse effects on employee morale leading to reduced production and unanticipated departures. We may not realize the full operational or financial benefits we expect and the recognition of these benefits may be delayed and these actions may potentially disrupt our operations. In addition, organizational changes, attrition, labor relations difficulties,the U.S. federal government has imposed certain restrictions on the licensing, use and import of certain surveillance, telecommunications and other equipment manufactured by certain of our suppliers based in China for our ADI Global Distribution business, which may require us to find additional sources of end-user products and result in higher costs. We have in the past had inquiries from the U.S. federal government regarding these sales of certain Chinese made products in the U.S., which inquiries could impact our business reputation.


We cannot predict the extent to which the U.S. or workforce stoppageother countries will impose new or additional quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The continuing adoption or expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have ana material adverse effect on our business, reputation,operating results, and financial condition, results of operations, and cash flows.

Regulations and societal actions to respond to global climate change could negatively affect our business.

Responses to climate change may cause a shift away from fossil fuels to alternative power sources such as electricity or alternative fuels such as natural gas/hydrogen mixtures. Many of our thermal solutions are designed for application with oil and gas systems. A shift away from fossil fuels could affect our OEM customers’ business and result in a loss of business for them and for us. If we fail to adapt our solutions to alternative power sources, it could have an adverse effect on our business, financial condition, results of operations, and cash flows. Similarly, regulations to drive higher fuel efficiency and requirements to support varying fuel mix could shift business away from us if we fail to adapt our solutions to address these needs in a timely manner.

condition.

We are subject to risks associated with the Reimbursement Agreement, pursuant to which we are required to make substantial cash payments to Honeywell, measured in substantial part by reference to estimates by Honeywell of certain of its liabilities.

In connection with the Spin-Off, we entered into the an agreement with Honeywell, pursuant to which we have obligations to make cash payments to Honeywell for certain Honeywell environmental liabilities (“Reimbursement Agreement, described in Agreement”). Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements.Statements. In each calendar quarter, our ability to pay dividends and repurchase capital stock, or take other material corporate actions, in such calendar quarter will beare restricted until any amounts payable under the Reimbursement Agreement in such quarter are paid to Honeywell and we will beare required to use available restricted payment capacity under our debt agreements to make payments in respect of any such amounts. Payment of deferred amounts and certain other amounts could cause the amount we are required to pay under the Reimbursement Agreement in respect of liabilities arising in any given calendar year to exceed $140 million. All amounts payable under the Reimbursement Agreement are guaranteed by certain of our subsidiaries that act as guarantors under our principal credit agreement, subject to certain exceptions. Under the Reimbursement Agreement, we are subject to certain of the affirmative and negative covenants that are substantially similar to those presently included in our principal credit agreement. Further, pursuant to the Reimbursement Agreement, our ability to (i) amend or enter into waivers under our principal credit agreement or our indenture, (ii) enter into another credit agreement or our indenture or make amendments or waivers thereto, or (iii) enter into or amend or waive any provisions under other agreements, in each case, in a manner that would adversely affect the rights of Honeywell under the Reimbursement Agreement, may be limited or subject to Honeywell’s prior written consent. The covenants contained in the Reimbursement Agreement and/or the consent right described in the preceding sentence may significantly limit our ability to engage in many types of significant transactions on favorable terms (or at all), including, but not limited to, equity and debt financings, liability management transactions, refinancing transactions, mergers, acquisitions, joint ventures, and other strategic

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transactions. The Reimbursement Agreement may have material adverse effects on our liquidity and cash flows and on our results of operations, regardless of whether we experience a decline in net revenue. The Reimbursement Agreement may also require us to accrue significant long-term liabilities on our consolidated balance sheet,Consolidated Balance Sheets, the amounts of which will be dependent on factors outside our control, including Honeywell’s responsibility to manage and determine the outcomes of claims underlying the liabilities. This may have a significant negative impact on the calculation of key financial ratios and other metrics that are important to investors, rating agencies and securities analysts in evaluating our creditworthiness, and the value of our securities. Although we will have access to information regarding these liabilities as we may reasonably request for certain purposes,

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as well as the ability to participate in periodic standing meetings with Honeywell’s remediation management team responsible for management of the underlying claims, the payment obligations under the Reimbursement Agreement relate to legal proceedings, costs and remediation efforts that we will not control, and we accordingly do not expect to be able to make definitive decisions regarding settlements or other outcomes that could influence our potential related exposure.

Regulations and societal actions to respond to global climate change could negatively affect our business.
Responses to climate change may cause a shift away from fossil fuels to alternative power sources such as electricity or alternative fuels such as natural gas/hydrogen mixtures. Many of our thermal solutions are designed for application with oil and gas systems. A shift away from fossil fuels could affect our OEM customers’ business and result in a loss of business for them and for us. If we fail to adapt our goodwill, other intangible assets and long-lived assets become impaired, we may be requiredsolutions to record a significant charge to earnings.

We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2. Summary of Significant Accounting Policies of Notes to the Consolidated and Combined Financial Statements included in this Annual Report. We review other intangible assets and long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testingalternative power sources, it could differ from future actualhave an adverse effect on our business, financial condition, results of operations, and cash flows. IfSimilarly, regulations to drive higher fuel efficiency and requirements to support varying fuel mix could shift business away from us if we fail to adapt our solutions to address these needs in a timely manner.

We have periodically communicated our strategies, commitments and targets related to environmental, social and governance (“ESG”) matters through the assumptions used in our analysisissuance of an ESG report. Although we are not realized or if there was an adverse change in factscommitted to these strategies and circumstances, it is possible that an impairment chargetargets, we may needbe unable to be recorded in the future. If the fair valueachieve them due to impacts on resources, operational costs, regulatory changes and technological advancements. In light of the Company’s reporting units falls below its carrying amount because of reduced operating performance, market declines, changesincreased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet stakeholder expectations as to our proper role. Any failure or perceived failure by us in the discount rate, or other conditions, charges for impairment may be necessary. Any such charges may have a material negativethis regard could adversely impact on our results of operations. There were no impairment charges taken during the years ended December 31, 2020, 2019business and 2018.

reputation.


Risks Relating to Legal and Regulatory Matters

Failure to comply with the broad range of standards, laws and regulations in the jurisdictions in which we operate may result in exposure to substantial disruptions, costs and liabilities.

The laws and regulations impacting us impose complex, stringent and costly compliance activities, including but not limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, remediation of environmental contamination, data security, data protection and data privacy, consumer protection and working conditions, and benefits for and compensation of our employees. We may also be affected by future standards, laws or regulations, including those imposed in response to cybersecurity, energy, decarbonization, climate change, product functionality, geopolitical, corporate social responsibility, data privacy, artificial intelligence, new types of online advertising or similar concerns. We expect that the growth of our business may depend on our development of new technologies in response to legislation and regulationregulations related to efficiency standards, safety, data privacy and security,cybersecurity, and environmental concerns. These standards, laws, or regulations may further impact our costs of operation, the sourcing of raw materials, and the manufacture, design, re-design and distribution of our products and place restrictions and other requirements or impediments on the products and solutions we can sell in certain geographical locations. The net revenue and margins of our business are directly impacted by government regulations, including safety, performance and product certification regulations, particularly those driven by customer demands and national approvals, as well as changes in trade agreements, tariffs, and environmental and energy efficiency standards. We may develop unexpected legal contingencies or matters that exceed, or are excluded from, insurance coverage. We are subject to and in the future may be subject to various claims, including legal claims arising in the normal course of business. Such claims may include without limitation employment and benefits claims, product recall, personal injury, network security, breaches of or other non-compliance with cybersecurity, data protection, data privacy or advertising and marketing regulations, or property damage claims resulting from the use of our products, services, or solutions, as well as exposure to hazardous materials, contract disputes, or intellectual property disputes. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage we hold and/or the amounts accrued for

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such claims or may be excluded from coverage. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters could be unfavorable.

Various laws and regulations as well as contracts we have entered into with third parties and our public notices apply to the collection, processing, transfer, disposal, disclosure and security of personal data.data and other types of regulated data, including obligations concerning clear, accurate and transparent data use practices and advertising that is not misleading. The interpretation and application of many privacy and data protection laws and regulations around the world may be interpreted in a manner that is inconsistent with our existing data use, management and retention practices, public descriptions thereof or the features of our products and services. Any such new laws or regulations, any changes to existing laws and regulations and any such interpretation may affect demand for our products and services, impact our ability to effectively transfer data across borders
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or advertise our products and services in support of our business operations, or increase the cost of providing our products and services. Additionally, any actual or perceived breach of such laws or regulations may subject us to claims and may lead to administrative, civil or criminal liability, as well as fines and reputational harm. We could also be required to fundamentally change our business activities and practices, or modify or re-design our products and services, which could have an adverse effect on our business, financial condition, results of operations, and cash flows. Privacy-related claimsClaims or lawsuits related to cybersecurity, advertising, marketing, data protection or data privacy initiated by governmental bodies, customers or other third parties, whether meritorious or not, could be time consuming, result in costly regulatory proceedings, litigation, penalties and fines, or require us to change our business practices, sometimes in expensive ways, or other potential liabilities. Unfavorable publicity regarding our privacy practices could injure our reputation, harm our ability to keep existing customers or attract new customers or otherwise adversely affect our business, assets, revenue, brands, and reputation.

Changes in laws, regulations or government enforcement of policies concerning the environment, the discovery of previously unknown contamination or new technology or information related to individual contaminated sites owned or operated by Resideo, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques, could require us to incur additional currently unanticipated costs in the future that would have a negative effect on our business, financial condition, results of operations, and cash flows.

We are currently subject to laws and regulations regarding labor, employment and employmentbenefits matters, including consultation requirements, and may be subject in the future to government investigations and/or employment claims, allegations and/or work stoppages in these areas that may have a negative effect on our business operations and/or financial results.

We cannot predict with certainty the outcome of litigation matters, government proceedings, and other contingencies and uncertainties.

In the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating to current and past operations, and issue guarantees of third-party obligations. We are also subject to various lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to public disclosure and reporting, commercial transactions, government contracts, product liability, prior acquisitions and divestitures, labor and employment matters, employee benefit plans, intellectual property, and environmental, health and safety matters.

We are unablehave incurred, and may continue to predict how long such proceedings, in particular, the class action and derivative lawsuits described in Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements, will continue, but we anticipate that we may incur, significant costs in connection with some or all of these matters, including in connection with the derivative lawsuits described in Note 15. Commitments and that these proceedingsContingencies to Consolidated Financial Statements.

On February 3, 2023, we executed a definitive stipulation of settlement to resolve all of the pending lawsuits in relation to the derivative lawsuits. Under the terms of the settlement, we agreed to implement or codify certain corporate governance reforms and any related matters may result inreimburse the plaintiffs’ attorneys’ fees of up to $1.6 million. The U.S. District Court for the District of Minnesota issued an order granting final approval of the settlement, judgment was entered on January 9, 2024 and the action was dismissed with prejudice. The parties filed a substantial distractionjoint stipulation and proposed order of management’s time. In addition, we are currently subject to investigations and inquiries by governmental agencies (includingdismissal for the SEC) relating to these matters,Delaware Chancery action, which may result in fine or penalties which may not be covered by insurance. We may face future governmental inquiries and investigations on these and other issues.

Our potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or settlements that could have an adverse effect on our business, financial condition, results of operations and cash flows. If we were required to make payments, such payments could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our business, financial condition, results of operations, and cash flows. court approved.

While we maintain or may otherwise have access to insurance for certain risks, certain risks may be excluded and the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims, legal fees, costs and liabilities and we may have to satisfy high insurance retentions. The

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incurrence of significant liabilities for which there is no or insufficient insurance coverage (or where there is available insurance but high retention levels) could adversely affect our liquidity and financial condition, results of operations and cash flows.

As described in Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements,, we are subject to potentially material liabilities related to the investigation and cleanup of environmental hazards and to claims of personal injuries or property damages that may arise from hazardous substance releases and exposures. These liabilities arise out of our current and past operations and the operations and properties of predecessor companies (including off siteoff-site waste disposal). We are also subject to potentially material liabilities related to the compliance of sitesResideo owned or operated by Resideosites with the requirements of various federal, state, local, and foreign governments that regulate the discharge of materials into the environment and the generation, handling, storage, treatment, and disposal of and exposure to hazardous substances. If we are found to be in violation of these laws and regulations, we may be subject to substantial fines, criminal sanctions, trade
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restrictions, product recalls, public exposure and be required to install costly equipment or make operational changes to achieve compliance with such laws and regulations.

Risks related to the Spin-Off and our relationships with Honeywell

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 (“Tax Matters Agreement”). Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.
The Spin-Off was generally intended by Honeywell to be a tax-free transaction for our shareholders,stockholders, but any failure to comply with the relevant tax requirements could result in certain of our shareholdersstockholders incurring substantial tax liabilities. In addition, we may have material payment obligations to Honeywell under the Tax Matters Agreement, including upon the resolution of pending or future disputes with Honeywell regarding the appropriate allocation of tax liabilities incurred in connection with the Spin-Off.

Completion of the Spin-Off was conditioned on Honeywell’s receipt of separate written opinions from Cleary Gottlieb Steen & Hamilton and KPMG to the effect that the Spin-Off should qualify for non-recognition of gain and loss under Section 355 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”). The opinions assume that the Spin-Off was completed according to the terms of the Separation and Distribution Agreement.

If the distribution made in connection with the Spin-Off were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, then a U.S. Holder who received our common stock in the Spin-Off generally would be treated as receiving a distribution in an amount equal to the fair market value of our common stock received. In connection with the Spin-Off, we entered into the Tax Matters Agreement with Honeywell described in Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements.

We presently have, and in the future may have, disputes with Honeywell regarding the allocation of tax related liabilities between us and Honeywell under the Tax Matters Agreement. While we maintain reserves for potential liabilities arising under the Tax Matters Agreement, to the extent we are obligated to indemnify Honeywell for tax related liabilities in respect of matters that are not reserved or in excess of reserved amounts, including upon resolution of any dispute with Honeywell, such payments could have a material adverse effect on our business, financial condition and cash flows.

We have certain business conflicts of interest with Honeywell with respect to our past and ongoing relationships. In addition, the agreements that we entered into with Honeywell in connection with the Spin-Off impose significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests, and we may from time to time have disputes with Honeywell under such agreements that could have a material impact on our business and operations.

Conflicts of interest may or have arisen with Honeywell in a number of areas relating to our past and ongoing relationships, including:

•

labor, tax, employee benefit, indemnification and other matters arising from our separation from Honeywell;

•tax, employee benefit, indemnification and other matters arising from our separation from Honeywell;

intellectual property matters;

•intellectual property matters;

employee recruiting and retention;

•

interpretations of contractual arrangements; and

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•

business combinations involving our Company.

We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with a party other than our former parent company.

The agreements that we entered into with Honeywell in connection with the Spin-Off may impose significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests. As described in more detail in Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements, the Reimbursement Agreement imposes material restrictions on our business and operations, including limitations or impediments on our ability to separate or otherwise divest businesses and modify or waive the terms of certain agreements in a manner that would adversely affect the rights of Honeywell under the Reimbursement Agreement. In addition, the Trademark Agreement is terminable by Honeywell under certain circumstances, including if we fail to comply with all material obligations, including the payment obligations, set forth in the Reimbursement Agreement. The Trademark Agreement also automatically terminates upon the occurrence of a change of control of Resideo that is not approved by Honeywell, and automatically terminates as to any subsidiary of Resideo upon it ceasing to be a wholly-ownedwholly owned subsidiary of Resideo. Any termination of the Trademark Agreement could have a material adverse effect on our business, financial condition, cash flows, and reputation. In addition, the provisions of the Trademark Agreement in respect of a change of control of Resideo or the sale of any interests in any subsidiary of Resideo may impact our ability to enter into transactions that are otherwise in the best interests of our stockholders.

We and Honeywell also have had and may in the future have disputes under the agreements and related exhibits entered into in connection with the Spin-Off. In addition, because of their former positions with Honeywell, certain of our executive officers and directors, including the chairmanChairman of the Board, own equity interests in Honeywell. Continuing ownership of Honeywell sharesstock and equity awards could appear to create potential conflicts of interest if our Company and Honeywell face decisions that could have implications for both our Company and Honeywell.

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The terms of our debt documents may impose restrictions on our business and our operations require substantial capital and we may not be able to obtain additional capital that we need in the future on favorable terms or at all.

The terms of our varied indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in actions that may be in our long-term best interests, including actions such as incurring additional indebtedness, paying dividends, making investments or acquisitions, selling or transferring certain assets and other corporate actions. If market changes, economic downturns, or other negative events occur, our ability to comply with these covenants may be impaired and waivers from our lenders may not be provided. A breach of any of these covenants could result in an event of default under the terms of our indebtedness, giving lenders the right to accelerate the repayment of such debt, which could adversely affect our business, financial condition, results of operations, and cash flows. Additionally, we might not have, or be able to obtain, sufficient funds to make these accelerated payments, and lenders could then proceed against any collateral. Any subsequent replacement of the agreements governing such indebtedness, or any new indebtedness could have similar or greater restrictions. As a result of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to raise additional debt financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities.

Notwithstanding that we recently completed a follow-on equity offering and a refinance of certain of our debt obligations, we

We may require additional capital in the future to finance our growth and development, upgrade and improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing research and development activities, satisfy regulatory and environmental compliance obligations and national approvals requirements, satisfy obligations under the Reimbursement Agreement, fund acquisitions and meet general working capital needs. If our access to capital were to become constrained significantly, or if costs of capital increased significantly, due to lowered credit ratings, increased interest rates, prevailing business conditions, financial leverage, the volatility of the capital markets, decreased investor interest or other factors, our business, financial condition, results of operations and cash flows could be adversely affected and our ability to fund future development and acquisition activities could be impacted.

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We believe that we have adequate capital resources to meet our projected operating needs, capital expenditures and other cash requirements, including payments to Honeywell under the Reimbursement Agreement. However, we may need additional capital resources in the future and if we are unable to obtain sufficient resources for our operating needs, capital expenditures and other cash requirements for any reason, our business, financial condition and results of operations could be adversely affected.

Risks Relating to Our Common Stock and the Securities Market

Our stock price has been volatile; stockholder’s percentage ownership in our Company may be diluted in the future.

Our stock price may be volatile.

The market price of our common stock has been volatile in the past and may be volatile in the future. The market price of our common stock may be significantly affected by the following factors: actual or anticipated fluctuations in our operating results; changes in financial estimates by securities analysts or our failure to perform in line with such estimates; announcements by us or our competitors of significant technical innovations, acquisitions, divestitures, strategic partnerships, joint ventures or capital commitments; the loss of, or decrease in sales to, one or more key customers; global macroeconomic conditions; and departures of key personnel.

A stockholder’s percentage ownership in our Company may be diluted in the future because of common stock-based equity awards that we have granted and expect to grant in the future in accordance with our 2018 Stock Incentive Plan for the benefit of certain employees and other service providers, as well as our equity plan for our non-employee directors. In addition, we may issue additional equity as necessary to finance our ongoing operations.

operations and future acquisitions.

In addition, our Amended and Restated Certificate of Incorporation (our “Certificate”(“our Certificate”) authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock, which may have preferences over our common stock with respect to dividends and distributions, as our Board may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of our common stock. In addition, we may pursue acquisition opportunities for which the consideration thereof may consist partially or entirely of newly issued shares of our common stock and such transactions would dilute the voting power and/or reduce the value of our common stock.

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Certain provisions in our governing documents may discourage takeovers.

Several provisions of our Charter Documentsgoverning documents and Delaware law may discourage, delay or prevent a merger or acquisition. These provisions include, among others, our staggered board that remains in effect until our 2022 annual meeting of stockholders; our stockholders are not permitted to act by written consent; we have established advance notice requirements for stockholder nominations and proposals; we limitlimitations on the persons who may call special meetings of stockholders and we have limitations on our ability to enter into business combinationscombination transactions.

These and other provisions of our Charter Documentsgoverning documents and Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of our Company, including unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price.

We may be required to make significant cash contributions to our defined benefit pension plans.

We sponsor defined benefit pension plans under which certain eligible Company employees will earn pension benefits. We have plans in several countries including the U.S., the terms of which require that such qualified defined benefit pension plans maintain certain capitalization levels. Changes in discount rates and actual asset returns different than our anticipated asset returns can result in significant non-cash actuarial gains or losses. With regard to cash pension contributions, funding requirements for our pension plans are largely dependent upon interest rates, actual investment returns on pension assets and the impact of legislative or regulatory changes related to pension funding obligations. Our pension plan contributions may be material and could adversely impact our

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RESIDEO TECHNOLOGIES, INC.

financial condition, cash flow, and results of operations. We may need to make pension plan contributions in future periods sufficient to satisfy funding requirements.

General Risk Factors

We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could adversely affect our business, financial condition, results of operations, and cash flows.

Due to the complex nature of our business, our future performance is highly dependent upon the continued services of our employees and management who have significant industry expertise, including our engineering and design personnel and trained sales force. Our performance is also dependent on the development of additional personnel and the hiring of new qualified engineering, design, manufacturing, marketing, sales and management personnel for our operations. Competition for qualified personnel in our markets is intense, many locations in which we operate have seen competition for talent and increases in wages, and we may not be successful in attracting or retaining qualified personnel. The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel could negatively affect our business, financial condition, results of operations and cash flows.

Our effective tax rate will be affected by factors including changes in tax rules, and in the interpretation and application of those rules, in the countries in which we operate.

Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, including any changes that may be enacted by the Biden administration to laws or regulations (such as changes to US tax reform regulations enacted during the Trump administration), regulations and judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the accrual balance of the Reimbursement Agreement, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures, and various other governmental enforcement initiatives. Our tax expense includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of our future earnings which could impact the valuation of our deferred tax assets. Changes in tax laws or regulations, including multi-jurisdictional changes enacted in response to the guidelines provided by the Organization for Economic Co-operation and Development to address base erosion and profit shifting will increase tax uncertainty and may adversely impact our provision for income taxes.

For example, the Organization for Economic Co-operation and Development has enacted model rules for a new global minimum tax (“Pillar Two”), and many governments around the world have enacted, or are in the process of enacting, legislation on these rules, which may adversely impact our effective tax rate.

Currency exchange rate fluctuations and financial counterparty risks may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in currency exchange rates. Refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Approximately 24% of our 2023 net revenue was derived outside the U.S., and we expect sales to non-U.S. customers to continue to represent a similar portion of our consolidated net revenue. A significant amount of our payment obligations, including pursuant to the Reimbursement Agreement, Tax Matters Agreement, and our debt obligations are denominated in U.S. dollars, which exposes us to foreign exchange risk. Finally, we generate significant amounts of cash outside of the U.S. that are invested with foreign financial counterparties.
Although we may enter into currency exchange contracts to reduce our risk related to currency exchange fluctuations, changes in the relative fair values of currencies occur from time to time and may, in some instances, have a material impact on our operations. We do not currently, but may in the future, hedge against our currency exposure and, therefore, our business will continue to be susceptible to currency fluctuations. While we employ comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the counterparties with whom we transact business could expose us to financial loss.
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We also translate assets, liabilities, revenue and expenses denominated in non-U.S. dollar currencies into U.S. dollars for our Consolidated Financial Statements based on applicable exchange rates. Consequently, fluctuations in the value of the U.S. dollar compared to other currencies may have a material impact on the value of these items in our Consolidated Financial Statements, even if their value has not changed in their original currency.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

The Sarbanes-Oxley Act of 2002 requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. If we are not able to comply with the requirements of Section 404 thereunder in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares ofour common stock could decline and we could be subject to sanctions or investigations by SEC or other regulatory authorities, which would require additional financial and management resources.

Even if we were to conclude, and our auditors were to concur, that our internal controlscontrol over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP,accounting principles generally accepted in the U.S. (“U.S. GAAP”), because of its inherent limitations, internal control over financial reporting might not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely affect our ability to access the capital markets.

Item 1B.

Unresolved Staff Comments

If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record a significant charge to earnings.

We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements. We review other intangible assets and long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. If the assumptions used in our analysis are not realized or if there was an adverse change in facts and circumstances, it is possible that an impairment expense may need to be recorded in the future. If the fair value of our reporting units falls below their carrying amounts because of reduced operating performance, market declines, changes in the discount rate, or other conditions, expenses for impairment may be necessary. Any such expenses may have a material negative impact on our results of operations. There were no material impairment expenses taken during the years ended December 31, 2023, 2022, and 2021.
We may be required to make significant cash contributions to our defined benefit pension plans.
We sponsor defined benefit pension plans under which certain eligible employees will earn pension benefits. We have plans in several countries including the U.S., the terms of which require that such qualified defined benefit pension plans maintain certain capitalization levels. Changes in discount rates and actual asset returns different than our anticipated asset returns can result in significant non-cash actuarial gains or losses. With regard to cash pension contributions, funding requirements for our pension plans are largely dependent upon interest rates, actual investment returns on pension assets and the impact of legislative or regulatory changes related to pension funding obligations. Our pension plan contributions may be material and could adversely impact our financial condition, cash flows, and results of operations. We may need to make pension plan contributions in future periods sufficient to satisfy funding requirements.
Item 1B. Unresolved Staff Comments
None.


Item 1C. Cybersecurity
We have implemented an Enterprise Risk Management (“ERM”) program, managed by members of senior management, to identify, assess and monitor key risks that are aligned with our strategic and business objectives. Our policies and processes are based on recognized frameworks established by the National Institute of Standards and Technology (“NIST”), the International Organization for Standardization and other applicable industry standards. We apply NIST best practices in how we implement security and privacy controls. We use NIST to define our practice in conducting risk assessments as well as to define our approach in managing internet of things (“IOT”) device security. We have identified various
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RESIDEO TECHNOLOGIES, INC.

Item 2.

Properties

Resideo Technologies, Inc.
cybersecurity risks that could adversely affect our business, results of operations and financial condition, including violation of privacy laws; intellectual property theft; fraud; business interruption or ransomware; harm to customers or employees; and other legal and reputational risks.

Our Chief Information Security Officer (“CISO”) oversees our information security program, leading a team responsible for enterprise-wide cybersecurity strategy, policy, process, standards, and architecture. Our CISO holds an MBA in technology management and has over twenty-five years of technology leadership experience, along with other certifications in efficiency and project management. Beyond the CISO, the security team in charge of incident management has a strong bench of experienced information security practitioners holding diverse degrees in science, technology, computer science and mathematics. Members of the operations team have certifications such as the Certified Information Systems Security Professional (“CISSP”), Certified Information Security Manager (“CISM”), Offensive Security Certified Professional (“OSCP”), Certified Ethical Hacker and many more. They all come from backgrounds that complement professions in security and all of them have at least several years of industry experience.

Internal and external experts regularly evaluate our information security program, with results reported to senior management and our Board of Directors. We actively collaborate with vendors, industry experts, and intelligence and law enforcement communities to continually assess and enhance the effectiveness of our information security policies and procedures.

We follow a structured framework linked to specific security standards and the procedural practices that the security team employs in supporting associated activities. Our information security team works closely with our managed security service provider to triage identified anomalies and alerts that are raised as risks and work across the company to validate the risk and act as deemed appropriate. The global security operations center (“SOC”) within the CISO’s organization is responsible for incident management including identification, assessment of initial threat, notification of key stakeholders, containment, remediation, and recovery. We have a cross-functional team prepared to respond in a timely manner to the incident and assess our obligations when incidents occur.

We use technical safeguards to protect our systems from cybersecurity threats, including firewalls and access controls. As part of our risk management practice, and given the rapidly changing regulatory landscape, we focus on making relevant privacy and cybersecurity training available to all employees, this includes mandatory training for all users on privacy and security best practices, as well as awareness training tied to our phishing campaigns. Topics included in our yearly training include best practices in password hygiene, phishing awareness, data privacy and other focus areas. We periodically test our policies and practices to guard against cybersecurity threats and engage in audits, threat modeling, vulnerability testing and table top exercises.

We have an established practice to oversee and manage third-party service providers in order to protect our interests related to cybersecurity threats. The Contract and Procurement Security Services (“CPSS”) process has several key requirements of third-party vendors who manage or control our electronic information resources to ensure they protect our interests in cybersecurity, including: adherence to cybersecurity best practices, such as the NIST Cybersecurity Framework; completion of a security assessment questionnaire prior to any contract execution; and through application of our GRC (Governance, Risk, and Compliance) Tool, which triggers automatic annual security reviews of vendors. The security compliance team within the CISO’s organization actively reviews and assesses the third party’s responses and takes appropriate actions based on the responses.

We continue to evaluate and enhance our systems, controls, and processes where possible, including in response to actual or perceived threats specific to us or experienced by other companies.

The Board and the committees of the Board oversee our risk profile and exposures relating to matters within the scope of their authority. Among other matters, the Audit Committee is charged with oversight of Resideo’s risks relating to enterprise-wide cybersecurity, including review of the state of the Company’s cybersecurity policies and programs and steps management has taken to monitor and control such exposures. Cybersecurity review with the CISO is a regular standing calendar item of the Audit Committee in connection with its overall ERM program oversight. In addition, our Information and Technology Committee coordinates with Audit Committee on the oversight of our product technology and software cybersecurity program. The Audit Committee and Information and Technology Committee, together with the CISO, provide the full Board with visibility into the risks that impact us and the plans to mitigate them. The CISO’s reports to the committees and the Board include insights on operations, business cyber risks, emerging threats and key strategic
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initiatives driving improved security capabilities, and special topics around what the Company is doing to strengthen Resideo’s security posture.

Item 2. Properties
Our corporate headquarters is located in Austin, Texas.

Scottsdale, Arizona.

The Products &and Solutions segment owns or leases 1620 manufacturing sites.sites and 3 warehouses. The ADI Global Distribution segment owns or leases 195169 stocking locations.locations and 5 warehouses. The Corporate segment leases 3 sites. There are also 5 warehouses shared by both segmentsis 1 warehouse and 55 other sites owned or leased including offices shared by both the Products and Solutions and ADI Global Distribution segments, including offices and engineering, and lab sites used by the Products &and Solutions segment.
The following table shows the regional distribution of these sites:

 

 

Americas

 

 

Asia

Pacific

 

 

EMEA

 

 

India

 

Sites

 

 

145

 

 

 

6

 

 

 

104

 

 

 

16

 

AmericasAsia PacificEMEA
Sites166981

We also sublease 1 lab site and 6 other sites that includeincludes office and engineering space from Honeywell. 29Honeywell, which is included above. In addition, 27 warehouses are operated by third parties. In addition, Honeywell also leases or subleases 34 manufacturing sites and 6 other sites, with office and warehouse space, from us.

We believe our properties are adequate and suitable for our business as presently conducted and are adequately maintained.

Item 3.

Item 3. Legal Proceedings

We are subject to various 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 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 of 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. We do not currently believe that such matters are material to our results of operations.

For further information on our legal proceedings see


Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements.

Item 4.

Mine Safety Disclosures

Item 4. Mine Safety Disclosures

Not applicable.

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Resideo Technologies, Inc.
PART II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “REZI”.“REZI.” On February 19, 2021,2, 2024, there were 37,98734,908 holders of record of our common stock and the closing price of our common stock on the New York Stock Exchange was $27.89$17.10 per share. As of February 19, 2021, 143,139,4752, 2024, approximately 145 million shares of our Common Stock and 0 shares of our preferredcommon stock were outstanding.

As described in Item 1. Business of this Form 10-K, on October 29, 2018, Honeywell completed the separation of Resideo Technologies, Inc. Following the Spin-Off, our authorized capital stock consisted of 700,000,000 shares of common stock, par value $0.001 per share, and 100,000,000 shares of preferred stock, par value $0.001 per share. The Spin-Off is further described in Note 1. Organization, Operations and Basis of Presentation of Notes to the Consolidated and Combined Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.

Dividends

We have never declared or paid any cash dividends on our common stock and we currently do not intend to pay cash dividends. We currently expect to retain any future earnings to fund the operation and expansion of our business, and pay back debt obligations. obligations or to repurchase our common stock. The Board’s decision regarding any future payment of dividends will depend on the consideration of many factors, including our financial condition, earnings, sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth, capital requirements, debt service obligations, obligations under the Reimbursement Agreement, legal requirements, regulatory constraints, and other factors that the Board deems relevant. Additionally, the terms of the indebtedness we incurred in connection with the Spin-Off, obligations under the Reimbursement Agreement and other amounts owed to Honeywell under the Tax Matters Agreement, Trademark License and Patent Cross-License Agreements, will limit our ability to pay cash dividends.
Issuer Purchases of Equity Securities

Stock Performance

Information relating

The following table summarizes information with respect to cumulative total returnsthe purchase of our common stock will be included in our Proxy Statement to be filed pursuant to Regulation 14A within 120 days after our yearduring the three months ended December 31, 20202023.

Share Repurchases (1)
Period
Total Number of Shares Purchased (thousands) (2)
Average Price Paid per Share Excluding CommissionsTotal 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)
October 1, 2023 to October 28, 202312$15.72 12$120 
October 29, 2023 to November 25, 2023550$16.03 550$111 
November 26, 2023 to December 31, 2023157$16.36 157$109 
Total719 $16.15 719 
(1) This table does not include the value of equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards.
(2) Refer to Note 20. Stockholders’ Equity to the Consolidated Financial Statements for information about the share repurchase program.

Stock Performance

The following graph shows a comparison through December 31, 2023 of the cumulative total returns for (i) our common stock, (ii) the S&P Small Cap 600 Total Return Index and (iii) the S&P 400 Industrials assuming an initial investment of $100 in connection with our 2021 Annual Meeting of Stockholders,the stock or the 2021 Proxy Statement,index on December 31, 2018 and is incorporated by reference.

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RESIDEO TECHNOLOGIES, INC.

Item 6.

Selected Financial Data

Selected Historical Consolidated and Combined Financial Data

reinvestment of all dividends. This graph covers the period from December 31, 2018 through December 31, 2023. The following tables present certain selected historical consolidated and combined financial information as of and for each of the yearsreturns in the five-year period ended December 31, 2020. For periods priorgraph are not intended to October 29, 2018, the Company’s historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting recordsforecast or be indicative of Honeywell. Accordingly, for periods prior to October 29, 2018, these financial statements are presented on a combined basis and for periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical financial data for all periods presented are referred to as “Consolidated and Combined Financial Data”).

The selected historical Consolidated and Combined Financial Data presented below should be read in conjunction with possible future performance of our common stock.

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1911
Item 6. [RESERVED]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our historical Consolidated and Combined Financial Statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. In addition, for periods prior to our Spin-Off, our historical consolidated and combined financial information does not reflect changes that we have experienced as a result of our separation from Honeywell, including changes in the financing, operations, cost structure and personnel needs of our business. The financial information included herein may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly traded company during the periods presented. Further, the historical consolidated and combined financial information includes allocations of certain Honeywell corporate expenses, as described in Note 5. Related Party Transactions with Honeywell of Notes to Consolidated and Combined Financial Statements. We believe the assumptions and methodologies underlying the allocation of these expenses are reasonable. However, such expenses may not be indicative of the actual level of expenses that we would have incurred if we had operated as an independent, publicly traded company or of the costs expected to be incurred in the future.

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In millions except share and per share data)

 

Selected Statements of Operations Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

 

$

4,519

 

 

$

4,455

 

Operating profit

 

 

311

 

 

 

258

 

 

 

493

 

 

 

445

 

 

 

495

 

Net income (loss) (1)

 

 

37

 

 

 

36

 

 

 

405

 

 

 

(394

)

 

 

177

 

Selected Balance Sheets Information at Year-End:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,610

 

 

$

5,128

 

 

$

4,972

 

 

$

4,473

 

 

$

4,294

 

Long-term obligations

 

 

2,079

 

 

 

2,032

 

 

 

1,950

 

 

 

723

 

 

 

338

 

Total liabilities

 

 

3,617

 

 

 

3,526

 

 

 

3,439

 

 

 

1,870

 

 

 

1,420

 

Total equity

 

 

1,993

 

 

 

1,602

 

 

 

1,533

 

 

 

2,603

 

 

 

2,874

 

Earnings (Loss) Per Common Share: (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.29

 

 

$

3.31

 

 

$

(3.22

)

 

$

1.44

 

Diluted

 

 

0.29

 

 

 

0.29

 

 

 

3.30

 

 

 

(3.22

)

 

 

1.44

 

Weighted Average Common Shares (in thousands): (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

125,348

 

 

 

122,722

 

 

 

122,499

 

 

 

122,499

 

 

 

122,499

 

Diluted

 

 

126,324

 

 

 

122,238

 

 

 

122,624

 

 

 

122,499

 

 

 

122,499

 

1)

Net income (loss) attributable to Resideo and Earnings (Loss) Per Common Share for 2018 and 2017 were impacted by U.S. Tax Reform. See Note 9. Income Taxes of Notes to Consolidated and Combined Financial Statements for further details regarding the 2018 impact. In 2017, the Company reasonably estimated certain effects of the U.S. Tax Reform and, therefore, recorded provisional amounts, including the deemed repatriation transition tax and withholding taxes on undistributed earnings.

2)

On October 29, 2018, the date of consummation of the Spin-Off, 122,499 shares of our Common Stock were distributed to Honeywell stockholders of record as of October 16, 2018. Basic and Diluted Earnings (Loss) Per Common Share for all periods prior to the Spin-Off reflect the number of distributed shares, or 122,499 shares. For the 2018, 2017 and 2016 year to date calculations, these shares are treated as issued and outstanding from January 1, 2016 for purposes of calculating historical basic earnings per share. No dividends have been paid from October 29, 2018 through December 31, 2020.

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RESIDEO TECHNOLOGIES, INC.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

(In millions, except per share amounts)


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of our operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries (“Resideo” or “the Company”, “we”, “us” or “our”) for the three years ended December 31, 20202023, and should be read in conjunction with the Consolidated and Combined Financial Statements and the notes thereto contained elsewhere in this Form 10-K.


Overview and Business Trends

We are a leading global manufacturer and distributor of technology driventechnology-driven products and solutions that help homeowners and businesses stay connected and in control of their comfort, security and energy use. We are a leader in the home heating, ventilation and air conditioning controls markets, smoke and carbon monoxide detection home safety and fire suppression products, and security markets. We have a global footprint serving commercial and residential end-markets. We manage our business operations through two operating segments, Products &and Solutions and ADI Global Distribution. The Products and Solutions operating segment, consistent with our industry, has a higher gross and operating profit profile in comparison to the ADI Global Distribution operating segment.
Our Products &and Solutions operating segment consists of comfort, security, residential thermal (“RTS”) products and solutions. Our offerings include temperature and humidity control, thermalenergy products and combustion solutions, water and air solutions, as well assmoke and carbon monoxide detection home safety products, security panels, sensors, peripherals, wire and cable, communications devices, video cameras, awarenessother home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.
Our ADI Global Distribution business is thea leading wholesale distributor of low-voltage security products including intrusion, access control, fire detection, security, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, fire, power, audio, ProAV, networking, communications,and wire and cable, enterprise connectivity, and structured wiring products. The Products & Solutions segment, consistent with our industry, has a higher gross and operating profit margin profile in comparison to thecable. Our ADI Global Distribution segment.

During the fourth quarter of 2020, we made a changestrategy is focused on growth in our omni-channel presence, expansion into adjacent markets, and continued enhancements to our reportable segments. Previously we allocated corporate costsvalue-add services to the Products & Solutions segment as well as the ADI Global Distribution segment. We now report corporate costs separately, as Corporate, from the two operating segments. In addition, during the fourth quarter of 2020,support our Chief Operating Decision Maker moved towards making financial decisionsprofessional installers’ efficiency and allocating resources based on Operating profit, rather than Segment Adjusted EBITDA. These changes were designed to better align accountability and authority, give a clearer view into the operational performance of the two segments and increase accountability for management of corporate spending.

profitability.

Our financial performance is influenced by several macromacroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates and bank lending standards, supply chain dynamics, and the overall macromacroeconomic environment. The ongoing uncertainty and volatility in the global outbreak of a novel coronavirus disease (“COVID-19”) created economic disruption. Starting at the end of the first quartermacroeconomic conditions have affected and throughout the second quarter,could continue to affect our visibility toward future performance. While we experienced constrainedbelieve supply chain and slowedlogistics will continue to normalize over 2024, 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, unfavorable foreign currency impacts from a stronger U.S. dollar, and potential market and other disruption from the ongoing conflict between Russia and Ukraine as well as temporary closuresthe Middle East crisis between Hamas and Israel.
Current Period Highlights
•Net revenue of several$6.24 billion in 2023, down 2% from $6.37 billion in 2022
•Gross profit margin of 27.2%, compared to 27.7% in the prior year comparable period
•Income from operations of $547 million, or 8.8% of revenue, compared to $611 million, or 9.6% of revenue in 2022, including restructuring and impairment expenses of $42 million and $35 million in 2023 and 2022, respectively
•Fully diluted earnings per share of $1.42, compared to $1.90 per share in the same period last year
•Cash Flow From Operations was $440 million in 2023 as compared to $152 million in 2022

Outlook
Expectations for key macro trends expected to impact our business in 2024 include residential repair and remodel activity flat to down low-single-digits year-over-year, residential new construction starts expected to grow low to mid-single digits. We expect ADI’s key commercial markets to grow low-single-digits with continued headwinds in the residential security business. We expect these trends to support our 2024 year-over-year revenue outlook of flat to down low single-digits.

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Recent Developments
On January 23, 2023, we acquired 100% of the outstanding equity of BTX Technologies, Inc., a leading distributor of professional audio, video, data communications and broadcast equipment. This acquisition will allow ADI to further expand our ProAV and private brand offerings across North America.
During the third quarter of 2023, we announced a restructuring program to align our cost structure with market conditions. For the twelve months ended December 31, 2023, we recognized restructuring and impairment expenses of $42 million. 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 ADI Global Distribution branches,common stock over an unlimited time period. During the twelve months ended December 31, 2023, we repurchased 2.6 million shares of common stock in the open market at a total cost of $41 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 October 16, 2023, we sold the Genesis Cable business in a cash transaction for $86 million, subject to working capital and other closing adjustments. We recognized a pre-tax gain of $18 million in other expenses, net in our Consolidated Statements of Operations, which includes $5 million of divestiture related costs. The divested business did not represent a strategic shift that adversely impacted business,has a major effect on our operations and financial results, and, as such, it was not presented as discontinued operations.

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Resideo Technologies, Inc.
Results of Operations
This section of the Form 10-K discusses fiscal 2023 and fiscal 2022 items and year-over-year comparisons of these periods. Discussions of fiscal 2021 items and year-over-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in the Company’s 2022 Annual Report on Form 10-K filed February 21, 2023.
The following table represents results of operations on a consolidated basis for the periods indicated:
Years Ended December 31,
(in millions, except per share data and percentages)20232022$ change% change
Net revenue$6,242 $6,370 $(128)(2.0)%
Cost of goods sold4,546 4,604 (58)(1.3)%
Gross profit1,696 1,766 (70)(4.0)%
Gross Profit %27.2 %27.7 %(50) bps
Operating expenses:
Research and development expenses109 111 (2)(1.8)%
Selling, general and administrative expenses960 974 (14)(1.4)%
Intangible asset amortization38 35 3 8.6 %
Restructuring and impairment expenses42 35 7 20.0 %
Total operating expenses1,149 1,155 (6)(0.5)%
Income from operations547 611 (64)(10.5)%
Other expenses, net169 139 30 21.6 %
Interest expense, net65 54 11 20.4 %
Income before taxes313 418 (105)(25.1)%
Provision for income taxes103 135 (32)(23.7)%
Net income210 283 (73)(25.8)%
Earnings per share:
Basic$1.43 $1.94 $(0.52)(26.5)%
Diluted$1.42 $1.90 $(0.49)(25.5)%

Net Revenue

Net revenue for the year ended December 31, 2023 was $6,242 million, a decrease of $128 million, or 2.0%, from the prior year, driven primarily by lower volume of $414 million and overall financial performance. Although there remains uncertainty as tounfavorable foreign exchange fluctuations of $10 million. Partially offsetting these decreases were $153 million from acquisitions and higher selling prices of $143 million across both segments.

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Resideo Technologies, Inc.
Gross Profit

The chart below presents the continuing implications of COVID-19, during the second halfdrivers of the gross profit variance from the year customer demand improved and ongoing cost actions and transformation efforts contributedended December 31, 2022 to the improvementsDecember 31, 2023.

1082
Gross profit dollars decreased in 2023 as noted in the Company’s operations and overall financial performance.

During 2020, the Products & Solutions segment revenue declined 2%chart above. Gross margin of 27.2% was 50 bps lower when compared to 2019, driven by softness in Comfort and RTS product lines offset by strength27.7% in the Security business. Operating profit was positively impacted by cost savings from transformation programs, sourcing productivity, lower charges related to obsolete and surplus inventory, and other cost reduction efforts, offset by lower revenue volumes, unfavorable sales mix, investments to support new product launches, and labor and material inflation.

Our ADI Global Distribution business revenue increased 5% compared to 2019. Throughout 2020, the business continued its strong performance, achieving solid growth in US, including the impact from the 2020 Herman ProAV acquisition, as well as EMEA, and expansion in top product lines. ADI Global Distribution accelerated the adoption of digital tools, which is reflected in strong e-commerce growth. Operating profit was negatively impacted by unfavorable sales mix, commercial investments, acquisition related costs, and other cost inflation of $34 million, partially offset by transformation program cost savings, other expense productivity and cost reduction programs totaling $18 million.

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RESIDEO TECHNOLOGIES, INC.

Current Period Highlights

Net revenues increased $83 million in 2020 compared to 2019,prior year primarily due to increased pricing on certain productslower unit volume and acquisitions, partiallyunfavorable product mix.


Research and Development Expenses

Research and development expenses for the year ended December 31, 2023, were $109 million, a decrease of $2 million as compared to the same period in 2022. The decrease was primarily driven by net cost savings of $5 million offset by volume. Gross profit as a percentadditional research and development costs of net revenues was consistent at 26%. The primary drivers to$3 million from the flat gross profit percentage were a 100 basis point (“bps”) negative impact from unfavorable sales mix changes offset by 100 bps positive impact from transformation program cost savings. Net income for 2020 was $37 million acquisition of First Alert, Inc. in first quarter of 2022.
compared to $36 million for 2019.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $17for the year ended December 31, 2023, were $960 million, in 2020a decrease of $14 million, or 1.4%, as compared to 2019.the same period in 2022. The decrease was driven by transformation program cost savings decrease in Spin-Off related expenses, and other cost reductions totaling $150 million. These decreases were partiallyfrom restructuring actions of $42 million that more than offset by transformation program expenses and related restructuring expenses, labor and other cost inflation, commercial investments, investments to support new product launches, the expense impact of acquisitions, and labor and other expense inflation totaling $133 million.

We ended 2020 with $517$18 million in cashcosts related to the inclusion of First Alert, Inc. and cash equivalents. Net cash provided by operating activities was $244$10 million for the year. At December 31, 2020, accounts receivable were $863 million and inventories were $672 million.

Recent Developments

COVID-19 Pandemic

The World Health Organization (“WHO”) declared COVID-19 a pandemicof transaction costs incurred in March 2020. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain. Starting at the end of the first quarter of 20202022.


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Restructuring and Impairment Expenses

In the fourth quarter of 2022, and throughout 2023, we have taken actions to lower costs, increase margins and position us for growth resulting in restructuring and impairment expenses of $35 million and $42 million, respectively. We expect to fully execute our restructuring initiatives and programs over the second quarter, we experienced constrained supplynext 12 to 24 months.

Restructuring and slowed customer demand,impairment expenses were allocated among our segments as wellfollows:

December 31,
(in millions)20232022
Products and Solutions$27 $29 
ADI Global Distribution12 2 
Corporate3 4 
Restructuring and impairment expenses$42 $35 

Intangible Asset Amortization

Intangible asset amortization increased $3 million for the year ended December 31, 2023, as temporary closurescompared to the same period in 2022 due to the increased amortization costs primarily due to intangibles obtained through acquisition activities. For further information refer to Note 9. Goodwill and Intangible Assets, net to Consolidated Financial Statements.

Other Expenses, Net

Other expenses, net increased $30 million for the year ended December 31, 2023, as compared to the same period in 2022 due to increased Reimbursement Agreement expenses as noted in Note 15. Commitments and Contingencies. Other expenses, net includes $18 million gain recorded in connection with the sale of severalthe Genesis Cable business.

Interest Expense, Net

Interest expense, net increased $11 million for the year ended December 31, 2023 as compared to the same period in 2022, due to higher interest rates in 2023 compared to 2022 and additional borrowings of our $200 million in March 2022 under A&R Credit Agreement.

Tax Expense

Income tax expense of $103 million for the year ended December 31, 2023, includes $16 million of discrete tax benefit. The effective tax rate for the year ended December 31, 2023, excluding discrete tax benefits of $16 million, was 37.9% versus 33.7% for the same period in 2022, which excluded a discrete tax benefit of $6 million.

Income tax expense decreased for the year ended December 31, 2023, primarily due to a decrease in pre-tax earnings and a change in the tax basis of foreign assets. The increase in the overall effective tax rate was primarily driven by non-deductible indemnification costs, other non-deductible expenses, and U.S. taxation of foreign earnings.

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Resideo Technologies, Inc.
Segment Results of Operations

Products and Solutions

The chart below presents net revenue and income from operations for the years ended December 31, 2023 and 2022.
4723
Products and Solutions revenue decreased $111 million, or 4%, mainly due to lower sales volume of $307 million and unfavorable foreign exchange fluctuations of $5 million, partially offset by price increases of $102 million and $99 million of revenue from First Alert, Inc. Income from operations decreased $32 million, or 6.1%, from the same period in 2022, primarily due to lower sales volume of $166 million, restructuring expense of $27 million, and unfavorable price/mix of $38 million from mix shifts to lower priced products. Partially offsetting the unfavorable impacts to income from operations were $97 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

The chart below presents net revenue and income from operations for the years ended December 31, 2023 and 2022.
5409
ADI Global Distribution branches, that adversely impacted business, resultsnet revenue decreased $17 million, or 0.5%, driven by lower volume of $108 million, primarily in sales of residential security and AV categories, and $5 million of unfavorable foreign exchange fluctuations, partially offset by $55 million of revenue due to acquisitions and $41 million from price increases. Income from operations decreased $43 million, or 14%, due to $23 million of higher input costs, primarily material, $17 million of lower sales volume, and overall financial performance. During$12 million of restructuring expenses, slightly offset by other favorable impacts of $7 million.
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Resideo Technologies, Inc.

Corporate

Corporate costs for the second halfyear ended December 31, 2023, were $218 million, a decrease of 2020 customer demand improved and on-going cost actions and transformation efforts contributed to improvements$11 million, or 5%, from $229 million in the Company’s resultssame period of operations and overall financial performance. As there remains uncertainty around the impacts of the COVID-19 pandemic, the Company addresses and evaluates the impacts frequently. See “Item 1A. Risk Factors” of this Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

U.S. and international government responses to the COVID-19 outbreak have included “shelter in place,” “stay at home” and similar types of orders. These orders exempt certain products and services needed to maintain continuity of operations of critical infrastructure sectors as determined by the U.S. federal government and certain other countries globally. Although certain of the Company’s operations are currently considered essential and exempt in the United States, Canada and certain other countries globally, there remain certain jurisdictions where there have been and may continue to be restrictions on manufacturing or operations or other government lockdown mandates or recommendations, under which we have temporarily closed certain manufacturing and sales facilities, and restricted operations in others, including manufacturing in Mexico and restricted operations in certain ADI sales branches, although these facilities have since reopened or remained opened with restricted sales activities. If any of the applicable exemptions are curtailed or revoked in the future, that could adversely impact our business, operating results and financial condition. Furthermore, to the extent these exemptions do not extend to our key suppliers and customers, this could also adversely impact our business, operating results and financial condition. We have also implemented work-from-home policies for a significant percentage of our employees, which could negatively impact productivity, disrupt conduct of our business in the ordinary course and delay our production timelines. Due to the significant remote workforce populations, we may also face informational technology infrastructure and connectivity issues from the vendors that we rely on for certain information technologies to administer, store and support the Company’s multiple business activities. Finally, we are incurring increased costs associated with cleaning and other employee safety measures.

Our visibility toward future performance is more limited than is typical2022. The decrease was primarily due to the uncertainty surroundingcost savings actions offsetting incremental selling, general and administrative costs from the durationacquisition of First Alert, Inc, which totaled $11 million.


Capital Resources and ultimate impactLiquidity
As of COVID-19December 31, 2023, total cash and the mitigation measures that are implementedcash equivalents were $636 million, of which 50% were held by governmental authorities. We also expect business conditionsforeign subsidiaries. Our liquidity is primarily dependent on our ability to remain challenging. In response to these challenges, we will continue to focus on those factors that we can control: closely managinggenerate positive cash flows from operations, supplemented by external sources of capital as needed.

Additional liquidity may also be provided through access to the capital markets and controlling our expenses;

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RESIDEO TECHNOLOGIES, INC.

fivealigning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs; and pursuing further improvements in the productivity and effectiveness of our manufacturing, selling and administrative activities.-

2020 Public Offering of Common Stock

On November 17, 2020, we entered into an underwriting agreement (the “Underwriting Agreement”) which provided for the offer and sale of 17,000,000 shares of common stock at the public offering price of $15.00 per share (the “Offering”). The Offering closed on November 20, 2020. On December 14, 2020 the closing of the exercise of the underwriters’ option to purchase an additional 2,550,000 shares of common stock of the Offering price of $15.00 per share as allowed in the Underwriting Agreement. Net proceeds received were approximately $279 million.

Amended and Restated CreditFacilities

On February 12, 2021, we entered into an amended and restated credit agreement (the “A&R Credit Agreement”). The A&R Credit Agreement provides for (i) a seven-year senior secured term B loan facility in an aggregate principal amount of $950 million (the “A&R Term B Facility”) and (ii) a five-yearyear senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility” and, together with the Term Loan Facilities, the “A&R Senior Credit Facilities”).

Basis of Presentation

Prior to becoming an independent publicly traded company (the “Spin-Off”) on October 29, 2018, our historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of Honeywell International Inc. (“Honeywell”). Accordingly, for periods prior to October 29, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”). The Consolidated and Combined Financial Statements have been prepared in accordance with U.S. GAAP. The historical combined financial information prior to the Spin-Off may not be indicative of our future performance and does not necessarily reflect what our consolidated and combined results of operations, financial condition and cash flows would have been had we operated as a separate, publicly traded company during the periods presented, particularly because of changes that we experienced as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure, and personnel needs of our Company.

The combined financial statements prior to the Spin-Off include certain assets and liabilities that were held at the Honeywell corporate level but were specifically identifiable or otherwise attributable to us. Additionally, Honeywell historically provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on our behalf. The costs of these services were allocated to us on the basis of the proportion of net revenue. Actual costs that would have been incurred if we had been a stand-alone company for the entire period being presented 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 were allocated during the period before the Spin-Off to be a reasonable reflection of the utilization of services provided to or the benefits received by us during the periods presented.

Since the completion of the Spin-Off, we have incurred 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.

Prior to Spin-Off, our environmental expenses for specified Honeywell properties contaminated through historical business operations (“Honeywell Sites”), now subject to the Reimbursement Agreement, were reported within other expense, net in our Consolidated and Combined Statements of Operations, which reflect an estimated liability for resolution of pending and future environmental-related liabilities. Prior to the Spin-Off, this estimated

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RESIDEO TECHNOLOGIES, INC.

liability was calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites. See Environmental Matters and Reimbursement Agreement sections of Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for additional information.

Reclassification

On January 1, 2020, we changed our classification of research and development expenses from Cost of goods sold to Selling, general and administrative expenses, such that research and development expenses are excluded from the calculation of Gross profit. This change had no impact on Net income (loss) and earnings (loss) per share or the Consolidated Balance Sheet, Consolidated and Combined Statements of Cash Flow or Equity. The Company determined the impact on previously issued consolidated and combined annual and interim financial statements was not material. The impact for the years ended December 31, 2019 and 2018, was a decrease in Cost of goods sold and an increase in Gross profit and in Selling, general and administrative expenses of $87 million and $59 million, respectively. The impact of the reclassification for the year ended December 31, 2019 is also reflected in Note 7. Restructuring Charges of Notes to Consolidated and Combined Financial Statements.

In addition, the prior year segment information was recast to present Corporate separately as well as present Operating profit which replaces Segment Adjusted EBITDA. See Note 21. Segment Financial Data of Notes to Consolidated and Combined Financial Statements for additional information. Certain reclassifications have been made to prior period financial statements to conform to the classification adopted in the current period.

Components of Operating Results

Net Revenue

We manage our global business operations through two reportable segments, Products & Solutions and ADI Global Distribution:

Products & Solutions: We generate the majority of our Products & Solutions net revenue primarily from residential end-markets. Our Products & Solutions segment includes traditional products, as well as connected products, which we define as any device with the capability to be monitored or controlled from a remote location by an end-user or service provider. Our products are sold through a network of HVAC, plumbing, security, and electrical distributors including our ADI Global Distribution business, OEMs, and service providers such as HVAC contractors, security dealers and plumbers. We also sell some products via retail and online channels.

ADI Global Distribution: We generate revenue through the distribution of low-voltage electronic and security products, as well as smart home, fire, power, audio and ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products that are delivered through a comprehensive network of professional contractors, distributors and OEMs, as well as major retailers and online merchants. In addition to our own security products, ADI Global Distribution distributes products from industry-leading manufacturers, and also carries a line of private label products. We sell these products to contractors that service non-residential and residential end-users. 14% of ADI Global Distribution’s net revenue is supplied by our Products & Solutions Segment. Management estimates that in 2020 approximately two-thirds of ADI Global Distribution’s net revenue was attributed to non-residential end markets and one-third to residential end markets.

Cost of Goods Sold

Products & Solutions:Cost of goods sold includes costs associated with raw materials, assembly, shipping and handling of those products, costs of personnel-related expenses, including pension benefits, and equipment associated with manufacturing support, logistics and quality assurance, non-research and development engineering costs, and costs of certain intangible assets.

ADI GlobalDistribution: Cost of goods sold consists primarily of inventory-related costs and includes labor and personnel-related expenses.

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RESIDEO TECHNOLOGIES, INC.

Selling, General and Administrative Expense

Selling, general and administrative expense includes trademark royalty expenses, sales incentives and commissions, professional fees, legal fees, promotional and advertising expenses, personnel-related expenses, including stock compensation expense and pension benefits, and research and development expenses. In addition, prior to the Spin-Off, our selling, general and administrative expense included an allocated portion of general corporate expenses.

Other Expense, Net

Other expense, net consists primarily of Reimbursement Agreement expenses (gains) for certain environmental claims related to approximately 230 sites or groups of sites that are undergoing environmental remediation under U.S. federal or state law and agency oversight for contamination associated with Honeywell historical business operations. Prior to the Spin-Off, other expense, net included the environmental expenses related to these same sites. For further information see Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for discussion of environmental and the Reimbursement Agreement. Other expense, net also includes foreign exchange gains and losses.

Interest Expense

Interest expense consists of interest on our short and long-term obligations, including our senior notes, term credit facility, and revolving credit facility. Interest expense on our obligations includes contractual interest, amortization of the debt discount and amortization of deferred financing costs.

Tax Expense (Benefit)

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory tax rates adjusted for U.S. taxation of foreign earnings, non-deductible expenses and other permanent differences.

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RESIDEO TECHNOLOGIES, INC.

Results of Operations for the Years Ended December 31, 2020, 2019 and 2018

The following table sets forth our Consolidated and Combined Statements of Operations for the periods presented:

Consolidated and Combined Statements of Operations

(In millions except share and per share data)

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

Cost of goods sold

 

 

3,758

 

 

 

3,711

 

 

 

3,402

 

Gross profit

 

 

1,313

 

 

 

1,277

 

 

 

1,425

 

Selling, general and administrative expenses

 

 

1,002

 

 

 

1,019

 

 

 

932

 

Operating profit

 

 

311

 

 

 

258

 

 

 

493

 

Other expense, net

 

 

147

 

 

 

118

 

 

 

369

 

Interest expense

 

 

63

 

 

 

69

 

 

 

20

 

Income before taxes

 

 

101

 

 

 

71

 

 

 

104

 

Tax expense (benefit)

 

 

64

 

 

 

35

 

 

 

(301

)

Net income

 

$

37

 

 

$

36

 

 

$

405

 

Weighted Average Number of Common Shares Outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

125,348

 

 

 

122,722

 

 

 

122,499

 

Diluted

 

 

126,324

 

 

 

123,238

 

 

 

122,624

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.29

 

 

$

3.31

 

Diluted

 

$

0.29

 

 

$

0.29

 

 

$

3.30

 

Net Revenue

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

% change compared with prior period

 

 

2

%

 

 

3

%

 

 

 

 

Net revenue increased 2% in 2020 compared to 2019, primarily due to increase in pricing on certain products and acquisitions, partially offset by reduced volume. Net revenue increased 3% in 2019 compared to 2018, primarily due to an increase in volume and pricing on certain products, partially offset by foreign exchange translation.

Further discussion of net revenue by segment can be found in the Review of Business Segments section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cost of Goods Sold

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Cost of goods sold

 

$

3,758

 

 

$

3,711

 

 

$

3,402

 

% change compared with prior period

 

 

1

%

 

 

9

%

 

 

 

 

Gross profit percentage

 

 

26

%

 

 

26

%

 

 

30

%

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RESIDEO TECHNOLOGIES, INC.

2020 compared with 2019

Cost of goods sold for 2020 was $3,758 million, an increase of $47 million, or 1%, from $3,711 million in 2019. This $47 million increase in cost of goods sold was primarily driven by impact of product expenses related to revenue that was attributable to the operations of the 2020 Herman ProAV acquisition, unfavorable changes in sales mix, and material and labor inflation totaling $137 million. The increased costs were partially offset by the favorable impact of sourcing productivity, transformation programs cost savings, lower charges related to obsolete and surplus inventory, lower spin-related costs, and other cost reductions totaling $90 million.

The primary drivers of flat gross profit percentage were a 100 bps negative impact from changes in sales mix, offset by 100 bps favorable impact of transformation programs cost savings.

2019 compared with 2018

Cost of goods sold for 2019 was $3,711 million, an increase of $309 million, or 9%, from $3,402 million in 2018. This $309 million increase in cost of goods sold was primarily driven by higher revenue in the ADI Global Distribution segment, material and labor inflation and increased production costs including charges related to obsolete and surplus inventory, changes in sales mix, increased headquarter allocations in the period prior to the Spin-Off, expenses related to transformation programs and related restructuring costs, and Spin-Off related costs totaling $435 million. The increased costs were partially offset by sourcing productivity, foreign currency translation, lower environmental expense, and savings in other miscellaneous costs of goods sold totaling $126 million.

The primary drivers to the decrease in gross profit percentage were a 200 bps impact from changes in sales mix, 100 bps impact from material and labor inflation and fixed production costs, and 100 bps impact from headquarter allocations previously classified in selling, general and administrative expense in the period prior to the Spin-Off.

Selling, General and Administrative Expense

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Selling, general and administrative expense

 

$

1,002

 

 

$

1,019

 

 

$

932

 

% of revenue

 

 

20

%

 

 

20

%

 

 

19

%

2020 compared with 2019

Selling, general and administrative expense for 2020 was $1,002 million, a decrease of $17 million, from $1,019 million in 2019. The decrease was driven by transformation programs cost savings, decrease in Spin-Off related expenses, and other cost reductions totaling $150 million. These decreases were partially offset by transformation program expenses and related restructuring costs, commercial investments, investments to support new product launches, and the expense impact of acquisitions totaling $133 million.

2019 compared with 2018

Selling, general and administrative expense for 2019 was $1,019 million, an increase of $87 million from $932 million in 2018. The increase was driven by greater Spin-Off related costs, increased research and development spend, increased royalty fees associated with the Trademark License Agreement, transformation program expenses and related restructuring costs, higher legal expenses, the expense impact of acquisitions, and labor and other expense inflation totaling $175 million. These increases were partially offset by reduced headquarter cost allocations, transformation programs cost savings, foreign currency translation, and miscellaneous cost reductions totaling $88 million.

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RESIDEO TECHNOLOGIES, INC.

Other Expense, Net

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Other expense, net

 

$

147

 

 

$

118

 

 

$

369

 

2020 compared with 2019

Other expense, net for 2020 was $147 million, an increase of $29 million from $118 million in 2019. The increase is mainly due to a $38 million increase in expense from the Reimbursement Agreement, and $4 million of increased expense relating to foreign exchange. These increases were offset by $13 million decrease in non-operating pension related expense.

2019 compared with 2018

Other expense, net for 2019 was $118 million, a decrease of $251 million from $369 million in 2018. The decrease is mainly due to lower environmental remediation expense, now subject to and presented as Reimbursement Agreement expense subsequent to the Spin-Off.

Tax Expense (Benefit)

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Tax expense (benefit)

 

$

64

 

 

$

35

 

 

$

(301

)

Effective tax rate

 

 

64

%

 

 

49

%

 

(289)%

 

2020 compared with 2019

The effective tax rate increase in 2020 compared to 2019 was primarily attributable to the mix of earnings across the jurisdictions in which we operate, changes in estimates related to prior years, and non-deductible expenses. A significant driver of the high tax rate in both 2020 and 2019 is that the Reimbursement Agreement is generally non-deductible for U.S. federal income tax purposes.

2019 compared with 2018

The effective tax rate increase in 2019 compared to 2018 was primarily attributable to tax benefits generated in 2018 related to the internal restructuring of Resideo’s business in advance of the Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings, and adjustments to the provisional tax amount related to U.S. Tax Reform, partially offset by decreases in tax expense related to Global Intangible Low Taxed Income (“GILTI”) and non-deductible expenses. A significant driver of the high tax rate in 2019 is that the Reimbursement Agreement is generally non-deductible for U.S. federal income tax purposes.

Review of Business Segments

Products & Solutions

 

 

2020

 

 

2019

 

 

% Change

 

 

2018

 

 

% Change

 

Total revenue

 

$

2,488

 

 

$

2,487

 

 

 

 

 

 

$

2,474

 

 

 

 

 

Less: Intersegment revenue

 

 

367

 

 

 

312

 

 

 

 

 

 

 

305

 

 

 

 

 

External revenue

 

 

2,121

 

 

 

2,175

 

 

 

(2

)%

 

 

2,169

 

 

 

0

%

Operating profit

 

$

407

 

 

$

327

 

 

 

24

%

 

$

591

 

 

 

(45

)%

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RESIDEO TECHNOLOGIES, INC.

2020 compared with 2019

Products & Solutions revenue declined 2% in 2020 compared to 2019, driven by softness in Comfort and RTS product lines offset by strength in the Security business. Operating profit increased from $327 million in 2019 to $407 million in 2020, or 24%. Operating profit was positively impacted by cost savings from transformation programs, sourcing productivity, lower charges related to obsolete and surplus inventory and other cost reduction efforts totaling $210 million. These cost reductions offset lower revenue volumes, unfavorable sales mix, investments to support new product launches, and labor and material inflation totaling $130 million.

2019 compared with 2018

Products & Solutions revenue remained flat in 2019 compared to 2018, driven primarily by strength in the Security business, offset by softness in Comfort and RTS product lines. Operating profit declined from $591 million in 2018 to $327 million in 2019, or 45%. Operating profit was negatively impacted by unfavorable sales mix, increased costs related to transformation program expenses and related restructuring expenses and Spin-Off, increased functional expenses previously captured in corporate costs prior to Spin-Off, increased charges related to obsolete and surplus inventory, increased royalty fee paid to Honeywell associated with the Trademark License Agreement, investments to support new product launches, and labor and material inflation totaling $356 million. Negative impacts were partially offset by increased selling prices, sourcing productivity, lower environmental expense, savings from transformation programs, and miscellaneous cost reductions totaling $92 million.

ADI Global Distribution

 

 

2020

 

 

2019

 

 

% Change

 

 

2018

 

 

% Change

 

External revenue

 

$

2,950

 

 

$

2,813

 

 

 

5

%

 

$

2,658

 

 

 

6

%

Operating profit

 

$

194

 

 

$

210

 

 

 

(8

)%

 

$

205

 

 

 

2

%

2020 compared with 2019

ADI Global Distribution revenue increased 5% in 2020 compared to 2019, highlighted by strong growth in the U.S., including the impact from the 2020 Herman ProAV acquisition, as well as EMEA. Operating profit decreased from $210 million in 2019 to $194 million in 2020, or 8%. Operating profit was negatively impacted by commercial investments, unfavorable sales mix, acquisition related costs, and other cost inflation totaling $34 million. Negative impacts were partially offset by transformation program cost savings, other expense productivity and cost reduction programs totaling $18 million.

2019 compared with 2018

ADI Global Distribution revenue increased 6% in 2019 compared to 2018, driven by increased sales volume growth across all regions. Operating profit increased from $205 million in 2018 to $210 million in 2019, or 2%. Operating profit was positively impacted by increased volume, transformation program cost savings, and other expense productivity and cost reduction programs totaling $38 million. Positive impacts were partially offset by increased functional expenses previously captured in corporate costs prior to Spin-Off, commercial investments, increased expenses related to transformation programs, unfavorable changes in foreign exchange rates, and other cost inflation totaling $33 million.

Corporate

 

 

2020

 

 

2019

 

 

% Change

 

 

2018

 

 

% Change

 

Corporate costs

 

$

(290

)

 

$

(279

)

 

 

4

%

 

$

(303

)

 

 

(8

)%

2020 compared with 2019

Corporate costs for 2020 were $290 million, an increase of $11 million, from $279 million in 2019, or 4%, and were negatively impacted by costs related to transformation programs and related restructuring expenses,

32

RESIDEO TECHNOLOGIES, INC.

increased bonus payouts from improved performance of the business, increase in service cost related to pension, and labor and other inflation totaling $59 million. Negative impacts were partially offset by transformation program cost savings, reduced Spin-Off related costs, other expense productivity and cost reduction programs totaling $48 million.

2019 compared with 2018

Corporate costs for 2019 were $279 million, a decrease of $24 million, from $303 million in 2018, or 8%, and were positively impacted by reduced functional expenses previously captured in corporate costs prior to Spin-Off, transformation program cost savings, decreased bonus payouts related to business performance, and other expense productivity and cost reduction programs totaling $74 million. Positive impacts were partially offset by increased Spin-Off related costs, higher legal expenses, increased costs related to transformation programs and related restructuring expenses, increase in service cost related to pension, and labor and other inflation totaling $50 million.

Restructuring Charges

During 2019, we retained industry-recognized experts in supply chain optimization and organizational excellence to assist in a comprehensive financial and operational review which was focused on product cost and gross margin improvement, and general and administrative expenses simplification. Certain restructuring actions have been implemented under this program as well as previous programs. These restructuring actions generated incremental (net) pre-tax savings of $53 million in 2020. Cash spending related to our restructuring actions was $35 million for the year ended December 31, 2020 and was funded through operating cash flows.

Net restructuring and related expenses were $40 million, $37 million and $5 million for December 31, 2020, 2019 and 2018, respectively, primarily related to severance.

For further discussion of restructuring activities, refer to Note 7. Restructuring Charges of Notes to Consolidated and Combined Financial Statements.

Capital Resources and Liquidity

Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations. Additional liquidity may also be provided through access to the financial capital markets and a committed global credit facility. The following is a summary of our liquidity position:

•

As of December 31, 2020, total cash and cash equivalents were $517 million, of which 22% were held by foreign subsidiaries. At December 31, 2020, there were no borrowings and no letters of credit issued under our $350 million Revolving Credit Facility.

•

Historically, we have delivered positive cash flows from operations. Operating cash flows from continuing operations were $244 million, $23 million and $462 million for the three years ended December 31, 2020, 2019 and 2018, respectively.

Liquidity


Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities. We may enter into acquisitions or strategic arrangements in the future, which also could require us to seek additional equity or debt financing. While we may elect to seek additional funding at any time, we believe our existing cash, cash equivalents and availability under our credit facilities are sufficient to meet our capital requirements through at least the next 12 months although we could be required, or could elect, to seek additional funding prior to that time. and the longer term.

We may enter into acquisitionsfrom time to time take steps to reduce our debt or strategic arrangements in the future which alsootherwise improve our financial position. These actions could require us to seekinclude prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt, raising additional equitycapital or debt financing.

Credit Agreement

On October 25, 2018, we entered into a credit agreement (the “Credit Agreement”), which was subsequently amended on November 26, 2019 (the “Credit Agreement First Amendment”) and on November 16, 2020 (the “Credit Agreement Second Amendment”).divesting certain assets. The Credit Agreement provides for (i) a seven-year senior

33

RESIDEO TECHNOLOGIES, INC.

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 principalprepayments or the amount of $350 million (the “Term A Facility”debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and togetherother considerations. Our affiliates may also purchase our debt from time to time through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the Term B Facility, the “Term Loans or “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”). As of December 31, 2020, there were no borrowings and no Letters of Credit outstanding under the Revolving Credit Facility.

The Senior Credit Facilities were subject to an interest rate and interest period which we will elect. As amended, the margin was 2.25% per annum (for LIBOR loans) and 1.25% per annum (for alternate base rate “ABR” loans) in respectterms of the Term B Loan Facility,debt, and basedwe would continue to reflect the debt as outstanding on our leverage ratio, from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for ABR loans) for the Term A Loan Facility and the Revolving Credit FacilityConsolidated Balance Sheets.


.

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/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 maintenance and coverage covenants. The Credit Agreement contains customary events of default, including with respect to a failure to make payments 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) our Company and (b) substantially all of the direct and indirect wholly owned subsidiaries of our Company that are organized under the laws of the United States, any state thereof or the District of Columbia (collectively, the “Guarantors”). 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 Company 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 Company and each of the Guarantors under the Senior Credit Facilities, subject, in each case, to certain exceptions.


On February 12, 2021, we entered into an amendedAmendment and restated credit agreement (the “A&R Credit Agreement”) which replaced the Senior Secured Credit Facilities and refinanced all amounts that were outstanding under these facilities.

Amended and Restated CreditRestatement Agreement

On February 12, 2021, we entered into an amended and restated credit agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). The A&R Credit Agreement provides for (i) a seven-yearThis agreement effectively replaced our previous senior secured term B loan facility in an aggregate principal amount of $950 million (the “A&R Term B Facility”) and (ii)credit facilities.


On March 28, 2022, we entered into a five-year senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility” and, together with the Term Loan Facilities, the “A&R Senior Credit Facilities”).  

We are obligated to make quarterly principal payments of approximately $2.4 million throughout the term of the A&R Term B Facility according to the amortization provisions in the A&R Credit Agreement. In addition to paying interest on outstanding borrowings under the A&R Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the A&R Revolving Credit Facility. Borrowings underFirst Amendment, which amended the A&R Credit Agreement can be prepaid at our option without premium or penalty other thanto include an additional aggregate principal amount of $200 million in loans.


On June 30, 2023, we entered into 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 A&R Revolving Credit Facility for the issuance of letters of credit to the Company or any of our subsidiaries. Letters of credit are available for issuance underSecond Amendment, which amended the A&R Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce the available funds under the A&R Revolving Credit Facility. 

34

RESIDEO TECHNOLOGIES, INC.

The A&R Senior Credit Facilities are subject to an interest rate and interest period which we will elect. If we choose to make a base rate borrowing on an overnight basis,replace the interest rate will be based on the highest of (1) thereference rate of interest last quoted by The Wall Street Journal asLIBOR with the “prime rate” insecured overnight financing rate (“SOFR”).


Refer to Note 11. Long-Term Debt and Note 12. Derivative Financial Instruments to the United States, (2) the greaterConsolidated Financial Statements for a description of the federal funds effective rateour debt obligations and the overnight bank funding rate, plus 0.5%timing of future principal and (3) the one month adjusted LIBOR rate, plus 1.00% per annum. For the A&R Term Loan B, the applicable LIBOR rate will not be less than 0.50% per annum. The applicable margin for the A&R Term B Facility is 2.25% per annum (for LIBOR loans) and 1.25% per annum (for base rate loans). The applicable margin for the A&R Revolving Credit Facility variesinterest payments, including impacts from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for base rate loans) based on our leverage ratio. Accordingly, the interest rates for the A&R Senior Credit Facilities will fluctuate during the term of the A&R Credit Agreement based on changes in the base rate, LIBOR rate 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. Swap Agreements.

The A&R 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/repurchases, in respect of our and our subsidiaries’ equity interests, to engage in transactions with affiliates or amend certain material documents. In addition, the A&R Revolving Credit Facility also contains certain financial maintenance covenants. The A&R Credit Agreement contains customary events of default, including with respect to a failure to make payments under the A&R Senior Credit Facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. 

All obligations under the A&R Senior Credit Facilities are or will be unconditionally guaranteed jointly and severally, by: (a) our Company and (b) substantially all of the direct and indirect wholly owned subsidiaries of our 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 A&R Credit Agreement concurrently with the effectiveness of the A&R Credit Agreement. Subject to certain limitations, the A&R 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 Company and each Guarantor under the A&R 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 Company and each of the Guarantors under the A&R Senior Credit Facilities, subject, in each case, to certain exceptions. The Company and the Guarantors entered into security documents concurrently with effectiveness of the A&R Credit Agreement. 


Senior Notes

In October of 2018, due 2029


On August 26, 2021, we issued $400$300 million in principal amount of 6.125%4% senior unsecured notes due in 2026 (the “Senior Notes”2029 (“the Senior Notes due 2029”). The Senior Notes guaranteesdue 2029 are unsecured senior debtunsecured obligations of theResideo guaranteed by our existing and future domestic subsidiaries, rank equally with all of our senior unsecured debt, and are senior to all of our subordinated debt.
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Resideo Technologies, Inc.
As of December 31, 2023, we had $1,419 million of long-term debt outstanding under our A&R Credit Agreement and Senior Notes guarantors. The net proceeds from the borrowings under the Senior Credit Facilities and the offeringdue 2029, of the Senior Notes were used as part of financing the Spin-Off.

Interest expense presentedwhich $12 million is due in the Statements of Operations is from the Senior Notes and Senior Credit Facilities, which includes the amortization of debt issuance cost and debt discounts.

next 12 months. Refer to On February 16, 2021 we redeemed $140 million in principal amount of the Senior Notes at a redemption price of 106.125% of par plus accrued interest.Note

Reimbursement Agreement

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 certain Honeywell environmental-liability payments, which include amounts billed, 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 by us in respect of such liabilities arising in any given year is subject to a

35

RESIDEO TECHNOLOGIES, INC.

cap of $140 million. During 2020, we entered into three amendments with Honeywell. See Note 19. Commitments and Contingencies of Notes11. Long-Term Debt to Consolidated and Combined Financial StatementsStatements.


Share Repurchase Program

On August 3, 2023, we announced that our Board of this Form 10-KDirectors authorized a share repurchase program for a further discussionthe repurchase of up to $150 million of our common stock over an unlimited time period. During the Reimbursement Agreement and amendments. The amount paid during the yeartwelve months ended December 31, 2020 was $1402023, we repurchased 2.6 million shares of common stock in the open market at a total cost of $41 million.

On February 12, 2021, As of December 31, 2023, we entered into a fourth amendment with Honeywell. See Note 24. Subsequent eventshad approximately $109 million of Notes to Consolidated and Combined Financial Statements of this Form 10-K for a further discussion of this amendment.

In addition to the sitesauthorized repurchases remaining under the Reimbursement Agreement, we have environmental expense related to sites owned and operated by Resideo (“Resideo Sites”). Prior to the Spin-Off, both of these expenses were combined and were presented as environmental expense. Expenses for environmental matters deemed probable and reasonably estimable were $323 million for the period from January 1, 2018 through October 29, 2018.

Subsequent to the Spin-Off, environmental expense was $1 million for 2020, $2 million for 2019, and $17 million for the period October 30, 2018 through December 31, 2018 and Reimbursement Agreement expense was $108 million for 2019 and $49 million for the period October 30, 2018 through December 31, 2018.

See Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for further discussion.

share repurchase program.


Cash Flow Summary for the Years Ended December 31, 2020, 20192023 and 2018

2022


Our cash flows from operating, investing and financing activities for the years ended December 31, 2020, 20192023 and 2018,2022, as reflected in the audited Consolidated and Combined Financial Statements are summarized as follows:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Cash provided by (used for):

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

244

 

 

$

23

 

 

$

462

 

Investing activities

 

 

(103

)

 

 

(112

)

 

 

(74

)

Financing activities

 

 

253

 

 

 

(53

)

 

 

(167

)

Effect of exchange rate changes on cash

 

 

1

 

 

 

(1

)

 

 

(12

)

Net increase (decrease) in cash and cash equivalents

 

$

395

 

 

$

(143

)

 

$

209

 


2020

Years Ended December 31,
20232022$ change
Cash provided by (used for) operating activities:
Operating activities$440 $152 $288 
Investing activities(44)(764)720 
Financing activities(64)170 (234)
Effect of exchange rate changes on cash(24)(8)(16)
Net increase (decrease) in cash, cash equivalents and restricted cash$308 $(450)$758 

2023 compared with 2019

Cash2022


Net cash provided by operating activities for 2020the year ended December 31, 2023, was $440 million. Compared to the prior year, net cash provided by operating activities increased by $221$288 million primarily due to higher operating profitdecreases in cash flows related to accounts receivable, inventory, and lowerother current assets of $277 million, an increase in cash taxes paid.

Cashflows related to accounts payable and accrued liabilities of $48 million and an increase in other, net of $76 million primarily due to an increase in long-term liabilities. Those amounts were partially offset by a decrease in net income of $73 million.


Net cash used for investing activities for 2020 decreased by $9the year ended December 31, 2023 was $44 million, a decrease of $720 million compared to the prior year, primarily due to a decrease in acquisitions of $25$649 million cash paid forresulting from the First Alert, Inc acquisition occurring in the prior year. During the fourth quarter of 2023, we also received $86 million in proceeds from the sale of Genesis. These amounts were offset by a decrease in capital expenditures of $20 million from 2022 to 2023.

Net cash used for financing activities was $64 million during the year ended December 31, 2023, a decrease of $234 million compared to 2022, primarily due to the $200 million of proceeds from the A&R Credit Agreement to support the First Alert, Inc. acquisition in 2022, partially offset by an increase of $18$41 million cash paid for acquisitions and miscellaneous other items.

Cash provided by financing activities for 2020 increased by $306 million. The increase was primarily due to $279 million of net proceeds from the issuance of common stock a decrease in cash used of $22 million from non-operating obligations with Honeywell and other miscellaneous items.

repurchases under our share repurchase program during 2023.

A detailed discussion of the prior year 2019 to 2018 year-over-year changes are not included herein and can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the 2019 Annual Report on Form 10-K filed February 27, 2020.

36

RESIDEO TECHNOLOGIES, INC.

Contractual Obligations and Probable Liability Payments

Following

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 December 31, 2023, a liability of $652 million was deemed probable and reasonably estimable; however, it is a summarypossible 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
32
Table of Contents
Resideo Technologies, Inc.
deferred payment amounts) has been less than $25 million. During the year ended December 31, 2023, we paid Honeywell $140 million under this agreement.For further discussion on the Reimbursement Agreement refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Environmental Liability

We make environmental liability payments for sites which we own and are directly responsible for. As of December 31, 2023, $22 million was deemed probable and reasonably estimable.

Operating Leases

We have operating lease arrangements for the majority of our significant contractual obligationsmanufacturing sites, offices, engineering and probable liability payments atlab sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2020:

 

 

Payments by Period

 

 

 

Total (1)

 

 

2021

 

 

2022-

2023

 

 

2024-

2025

 

 

Thereafter

 

 

 

(In millions)

 

Long-term debt (2)

 

$

1,180

 

 

$

40

 

 

$

289

 

 

$

451

 

 

$

400

 

Interest payments on long-term debt (3)

 

 

221

 

 

 

44

 

 

 

83

 

 

 

70

 

 

 

24

 

Reimbursement Agreement payments (4)

 

 

591

 

 

 

140

 

 

 

280

 

 

 

171

 

 

 

-

 

Estimated environmental liability payments (5)

 

 

22

 

 

 

2

 

 

 

3

 

 

 

3

 

 

 

14

 

Minimum operating lease payments

 

 

165

 

 

 

40

 

 

 

65

 

 

 

30

 

 

 

30

 

Purchase obligations (6)

 

 

254

 

 

 

225

 

 

 

26

 

 

 

3

 

 

 

-

 

 

 

$

2,433

 

 

$

491

 

 

$

746

 

 

$

728

 

 

$

468

 

1)

The table excludes tax liability payments, including those for unrecognized tax benefits. See Note 9. Income Taxes of Notes to Consolidated and Combined Financial Statements.

2023, we had operating lease payment obligations of $205 million, with $39 million payable within 12 months.

2)

Assumes all long-term debt is outstanding until scheduled maturity. Subsequent to December 31, 2020, the Company entered into the A&R Credit Agreement which modified the contractual obligations related to the Company’s long-term debt as described the Amended and Restated Credit Agreement section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

3)

Interest payments are estimated based on the interest rate applicable as of December 31, 2020.

Purchase Obligations

4)

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of December 31, 2020, $591 million was deemed probable and reasonably estimable, however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million. For further discussion on the Reimbursement Agreement refer to Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements.

5)

Represents estimated environmental liability payments deemed probable and reasonably estimable for sites which we own and are directly responsible for.

We enter into purchase obligations with various vendors in the normal course of business. As of December 31, 2023, we had purchase obligations of $342 million, with $142 million payable within 12 months.

6)

Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

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.


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 revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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RESIDEO TECHNOLOGIES, INC.


Critical Accounting PoliciesEstimates

The preparation of our

Our Consolidated and Combined Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America is based on the selection and application of accounting policies thatU.S. GAAP, which require us to make significant estimates and assumptions aboutthat affect the effectsreported amounts of matters that are inherently uncertain.assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We review our critical accounting policies throughout the year. We consider the accounting policies discussed below to be critical to the understanding of our Consolidated and Combined Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be materialassumptions. Refer to our Consolidated and Combined Financial Statements. As there remains uncertainty around the impacts of the COVID-19 pandemic, we intend to address and evaluate the impacts frequently. See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements.

Goodwill

We review the carrying values of goodwill and Combined Financial Statements of this Form 10-K for a discussionidentifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually, on the first day of the accounting policies most likely affectedfourth quarter. If the carrying value of a reporting unit exceeds its fair value, we record a goodwill impairment loss as the amount by which the COVID-19 pandemic.

Revenue carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Refer to — ProductNote 9. Goodwill and service revenuesIntangible Assets, net to Consolidated Financial Statements.


Warranties and Guarantees

Expected warranty costs for products sold are recognized when orbased on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the Company transfers controlcustomer’s cost of the promisedrecall, including labor to remove and replace the recalled part, are accrued as part of the warranty accrual at the time an obligation becomes probable and can be reasonably estimated. We periodically adjust these
33
Resideo Technologies, Inc.
provisions to reflect actual experience and other facts and circumstances that impact the status of existing claims. Refer to Note 15. Commitments and Contingencies for additional information.

Revenue

We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or services to the customer,less in an amount the Company expects to receive in exchange for transferring goods or providing services. Each distinct performance obligation within a contract is identified, and aduration. A contract’s transaction price is then allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We recognize the majority of our revenue from performance obligations outlined in contracts with our customers that are satisfied at a point in time, generally when the product has shipped from our facility and control has transferred to the customer. For certain products, it is industry practice that customers take title to products upon delivery, at which time revenue is then recognized. Allowances for cash discounts, volume rebates and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume rebates and other customer incentive programs are based upon certain percentages agreed upon with various customers, which are typically earned by the customer over an annual period.

In

Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale of products,date and the terms of a contract orreturn date, while also factoring in any new business conditions that might impact the historical business practice can give rise to variable consideration due to, but not limited to, discounts, rebates, and the rightanalysis such as new product introduction. Measurement of return. The Company estimates variable consideration at the most likely amount that will be received from customers and reduces revenues recognized accordingly. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable considerationreviewed by management periodically and determination of whetherrevenue is adjusted accordingly. We do not have significant financing components. Refer to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available Note 5. Revenue Recognition to the Company.

Consolidated Financial Statements.


Reimbursement Agreement—

In connection with the Spin-Off, we entered into the Reimbursement Agreement, further describedpursuant to which we have an obligation to make cash payments to Honeywell in the Capital Resources and Liquidity section.

Through the Reimbursement Agreement, we are subjectamounts equal to a number90% 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. We continually assess the likelihood of any adverse judgments or outcomes relatedclaims, in each case, including consequential damages (the liabilities) in respect to specified Honeywell properties contaminated through historical business operations prior to the Spin-Off (Honeywell Sites), 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 is subject to a cap of $140 million. Reimbursement Agreement as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a thorough analysis of each matter with the assistance of outside legal counsel and Honeywell, and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future claims related to the sites covered by the Reimbursement Agreement, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, we do not currently possess sufficient information to reasonably estimate the amounts of the Reimbursement Agreement liabilities to be recorded upon future completion of studies, litigations or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined. Expenses related to the indemnificationexpenses are presented within Otherother expense, net in the Consolidated and Combined Statements of Operations. See Operations and within other accrued liabilities payable under Indemnification Agreements in the Consolidated Balance Sheets. Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for a discussion of management’s judgment applied in the recognition and measurement of our environmental liabilities.

Goodwill Statements.

—
We perform goodwill impairment testing annually on the first day of the fourth quarter of each year or more frequently if indicators of potential impairment exist. The goodwill impairment test is performed at the reporting unit level. We have two reporting units, Products & Solutions and ADI Global Distribution. In determining if goodwill is impaired, we compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value provided the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.

For the 2020 annual impairment test, we determined the fair value of each reporting unit using a weighting of fair values derived from the income approach and the market approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of operating results, taking into consideration industry and market conditions. The

38

RESIDEO TECHNOLOGIES, INC.

discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and management’s expectations. Under the market approach, we estimate the fair value based on market multiples of cash flow and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

We believe the estimates and assumptions used in the calculations are reasonable. In addition, the extent to which COVID-19 may adversely impact our business depends on future developments, which are uncertain and unpredictable, depending upon the severity and duration of the outbreak, and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be reasonably estimated at this time but may adversely affect our business and financial results. It is likely that into 2021, macroeconomic conditions may have unexpected impacts on our business. If there was an adverse change in facts and circumstances, then an impairment charge may be necessary in the future. Should the fair value of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its reporting units to determine if there is an indicator of potential impairment.

Income Taxes
—
Our provision for income tax expense is based on our income, the statutory tax rates and other provisions of the tax laws applicable to us in each of the various jurisdictions in which we conduct business. These laws are complex, and their application to our facts is at times open to interpretation. The process of determining our consolidated and 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 of our assets 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 specific 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 establishestablished 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, we, along with our 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.

39

RESIDEO TECHNOLOGIES, INC.

Pension Refer to — We have defined benefit plans covering certain employees. The benefits are accrued over the employees’ service periods. We use actuarial methods and assumptions in the valuationNote 17. Income Taxes to Consolidated Financial Statements.


34
Table of defined benefit obligations and the determination of net periodic pension income or expense. Differences between actual and expected results or changes in the value of defined benefit obligations and plan assets, if any, are not recognized in earnings as they occur but rather systematically over subsequent periods when net actuarial gains or losses are in excess of 10% of the greater of the fair value of plan assets or the plan’s projected benefit obligation.Contents

A 25 basis point increase in the discount rate would result in a decrease of approximately $5.8 million to the net periodic benefit cost for 2020, while a 25 basis point decrease in the discount rate would result in an increase of approximately $12.7 million. The resulting impact on the pension benefit obligation would be a decrease of $21.6 million and an increase of $23.9 million, respectively.

Resideo Technologies, Inc.
Other Matters


Litigation, Environmental Matters and the Reimbursement Agreement

See


Refer to Note 19.15. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for a discussion of environmental and other litigation matters.

Statements.


Recent Accounting Pronouncements

See


Refer to Note 2. Summary of Significant Accounting Policies of Notes to Consolidated and Combined Financial Statements for a discussion of recent accounting pronouncements.

Statements.


Cautionary Statement Concerning Forward-Looking Statements


This Annual Report on Form 10-K 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 10-K includes industry and market data that we obtained from various third-party sources, including forecasts based upon such data. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-K are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

•

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

•

our ability to successfully develop new technologies and products and develop and protect the intellectual property related to the same and to defend against IP threats of others;

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

our inability to maintain intellectual property agreements necessary to our business;

•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 ability to recruit and retain qualified personnel;

•our reliance on certain suppliers;

our ability to retain or expand relationships with significant customers;

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

changes in prevailing global and regional economic conditions;

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

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

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

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

•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;

•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;

inability to obtain necessary product components, production equipment or replacement parts;

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

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

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

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

40

RESIDEO TECHNOLOGIES, INC.

•

economic, political, regulatory, foreign exchange and other risks of international operations, including the impact of tariffs;

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

changes in legislation or government regulations or policies;

•the failure to increase productivity through sustainable operational improvements;

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

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

the failure to increase productivity through sustainable operational improvements;

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

the operational constraints and financial distress of third parties;

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

our ability to borrow funds and access capital markets;

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

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

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

our reliance on Honeywell for the Honeywell Home trademark;

•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;

potential material environmental liabilities;

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

potential material costs as a result of warranty claims, including product recalls, and product liability actions that may be brought against us;

•

35

potential material litigation matters; including the shareholder litigation described in this Form 10-K;

•

unforeseen U.S. federal income tax and foreign tax liabilities; and

Resideo Technologies, Inc.

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

certain factors discussed elsewhere in this Form 10-K.

•our ability to recruit and retain qualified personnel;
•currency exchange rate fluctuations; and
•certain factors discussed elsewhere in this Form 10-K.

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

41

RESIDEO TECHNOLOGIES, INC.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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


Interest Rate Risk


As of December 31, 2020, $7802023, $1,119 million of our total$1,419 million outstanding debt, of $1,180 millionexcluding unamortized deferred financing costs, and carried variable interest rates, includingrates. In March 2021, we entered into eight interest rate swap agreements (“Swap Agreements”) with several financial institutions for a combined notional value of $560 million. The Swap Agreements were entered into to reduce the effectconsolidated interest rate risk associated with variable rate, long-term debt.

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

On June 23, 2023, we amended the Swap Agreements to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. Under the amended Swap Agreements, we convert a portion of our variable interest rate swaps, if any. obligations based on Term SOFR with a minimum rate of 0.39% per annum to a base fixed weighted average rate of 1.13% over the remaining terms. For more information on the Swap Agreements, refer to Note 12. Derivative Financial Instruments to Consolidated Financial Statements.

The fair market valuesvalue of our fixed-rate financial instruments and Swap Agreements are sensitive to changes in interest rates. AtAs of December 31, 2020,2023, an increase or decrease ofin interest rate by 100 basis points on our Term Loans would have approximately an $10approximate $6 million impact on our annual interest expense on long-term debt.expense.

Foreign Currency Exchange Rate Risk


We are exposed to market risks from changes in currency exchange rates. While we primarily transact with customers and suppliers in the U.S. Dollar,dollar, we also transact in foreign currencies, primarily including the Euro, Mexican Peso, British Pound, Canadian Dollar, Indian Rupee, Canadian Dollar and Mexican Peso.Polish Zloty. 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 from transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. We rely primarily on natural offsets to address our exposures and may supplement this approach from time to time by entering into forward and option hedging contracts. As of December 31, 2020,2023, we have no outstanding foreign currency hedging arrangements.


Commodity Price Risk


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


36
Item 8. Financial Statements and Supplementary Data


Index to Financial Statements

Item 8.Page

38
39
40
41
42
43
76


37

Resideo Technologies, Inc.
Consolidated Balance Sheets
December 31,
(in millions, except par value)20232022
ASSETS
Current assets:
Cash and cash equivalents$636 $326 
Accounts receivable, net973 1,002 
Inventories, net941 975 
Other current assets193 199 
Total current assets2,743 2,502 
Property, plant and equipment, net390 366 
Goodwill2,705 2,724 
Intangible assets, net461 475 
Other assets346 320 
Total assets$6,645 $6,387 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$905 $894 
Current portion of long-term debt12 12 
Accrued liabilities608 640 
Total current liabilities1,525 1,546 
Long-term debt1,396 1,404 
Obligations payable under Indemnification Agreements609 580 
Other liabilities366 328 
Total liabilities3,896 3,858 
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity
Common stock, $0.001 par value: 700 shares authorized, 151 and 145 shares issued and outstanding at December 31, 2023, respectively, and 148 and 146 shares issued and outstanding at December 31, 2022, respectively— — 
Additional paid-in capital2,226 2,176 
Retained earnings810 600 
Accumulated other comprehensive loss, net(194)(212)
Treasury stock at cost(93)(35)
Total stockholders’ equity2,749 2,529 
Total liabilities and stockholders’ equity$6,645 $6,387 
Refer to accompanying Notes to the Consolidated Financial Statements.

38
Resideo Technologies, Inc.
Consolidated Statements of Operations
Years Ended December 31,
(in millions, except per share data)202320222021
Net revenue$6,242 $6,370 $5,846 
Cost of goods sold4,546 4,604 4,262 
Gross profit1,696 1,766 1,584 
Operating expenses:
Research and development expenses109 111 86 
Selling, general and administrative expenses960 974 909 
Intangible asset amortization38 35 30 
Restructuring and impairment expenses42 35 — 
Total operating expenses1,149 1,155 1,025 
Income from operations547 611 559 
Other expenses, net169 139 159 
Interest expense, net65 54 47 
Income before taxes313 418 353 
Provision for income taxes103 135 111 
Net income$210 $283 $242 
Earnings per share:
Basic$1.43 $1.94 $1.68 
Diluted$1.42 $1.90 $1.63 
Weighted average number of shares outstanding:
Basic147146144
Diluted148149148
Refer to accompanying Notes to the Consolidated Financial Statements.
39
Resideo Technologies, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31,
(in millions)202320222021
Comprehensive income:
Net income$210 $283 $242 
Other comprehensive income (loss), net of tax:
Foreign exchange translation gain (loss)47 (74)(57)
Pension liability adjustments(12)(9)32 
Changes in fair value of effective cash flow hedges(17)36 6 
Total other comprehensive income (loss), net of tax18 (47)(19)
Comprehensive income$228 $236 $223 

Refer to accompanying Notes to the Consolidated Financial Statements.
40
Resideo Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
(in millions)202320222021
Cash Flows From Operating Activities:
Net income$210 $283 $242 
Adjustments to reconcile net income to net cash in operating activities:
Depreciation and amortization98 94 88 
Restructuring and impairment expenses42 35 — 
Stock-based compensation expense44 50 39 
Deferred income taxes(28)(3)6 
Other, net(14)6 44 
Changes in assets and liabilities, net of acquired companies:
Accounts receivable, net19 (72)(30)
Inventories, net32 (122)(73)
Other current assets6 (26)27 
Accounts payable18 (43)(42)
Accrued liabilities(34)(21)14 
Other, net47 (29)— 
Net cash provided by operating activities440 152 315 
Cash Flows From Investing Activities:
Capital expenditures(105)(85)(63)
Proceeds from sale of business86 — — 
Acquisitions, net of cash acquired(16)(665)(11)
Other investing activities, net(9)(14)9 
Net cash used in investing activities(44)(764)(65)
Cash Flows From Financing Activities:
Common stock repurchases(41)— — 
Proceeds from issuance of A&R Term B Facility— 200 1,250 
Repayments of long-term debt(12)(12)(1,188)
Other financing activities, net(11)(18)(42)
Net cash (used in) provided by financing activities(64)170 20 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(24)(8)(8)
Net increase (decrease) in cash, cash equivalents and restricted cash308 (450)262 
Cash, cash equivalents and restricted cash at beginning of year329 779 517 
Cash, cash equivalents and restricted cash at end of year$637 $329 $779 
Supplemental Cash Flow Information:
Interest paid$80 $54 $39 
Taxes paid, net of refunds$123 $159 $107 
Capital expenditures in accounts payable$14 $21 $14 
Refer to accompanying Notes to the Consolidated Financial Statements.
41
Resideo Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
Common StockAccumulatedTreasury Stock
(in millions, except shares in thousands)SharesAmountAdditional
Paid-In
 Capital		Retained
Earnings		Other
Comprehensive
Loss		SharesAmountTotal Stockholders’ Equity
January 1, 2021143,059$— $2,070 $75 $(146)900$(6)$1,993 
Net income——— 242 — — 242 
Other comprehensive income, net of tax——— — (19)—— (19)
Common stock issuance, net of shares withheld for taxes1,749—12 — — 540(15)(3)
Stock-based compensation expense——39 — — —— 39 
Balance at December 31, 2021144,808$— $2,121 $317 $(165)1,440$(21)$2,252 
Net income——— 283 — —— 283 
Other comprehensive loss, net of tax——— — (47)—— (47)
Common stock issuance, net of shares withheld for taxes1,414— 5 — — 610(14)(9)
Stock-based compensation expense——50 — — —— 50 
Balance at December 31, 2022146,222$— $2,176 $600 $(212)2,050$(35)$2,529 
Net income——— 210 — —— 210 
Other comprehensive income, net of tax——— — 18 —— 18 
Common stock issuance, net of shares withheld for taxes1,726—6 — — 927(17)(11)
Stock-based compensation expense——44 — — —— 44 
Common stock repurchases(2,559)— — — — 2,559(41)(41)
Balance at December 31, 2023145,389$— $2,226 $810 $(194)5,536$(93)$2,749 
Refer to accompanying Notes to the Consolidated Financial Statements.
42
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

Note 1. Nature of Operations and Basis of Presentation
Nature of Operations
Resideo is a leading manufacturer and developer of technology-driven products that provide critical comfort, energy, smoke and carbon monoxide detection home safety products, and security solutions to homes globally. We are also a leading wholesale distributor of low-voltage security products including access control, fire detection, fire suppression, security, and video products, and participate significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. Our global footprint serves both commercial and residential end markets.
Basis of Consolidation and Reporting
The accompanying Consolidated Financial Statements include the accounts of the Company and our wholly-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All intercompany accounts, transactions and profits arising from consolidated entities have been eliminated in consolidation.
We report financial information on a fiscal quarter basis using a modified four-four-five week calendar. Our fiscal calendar begins on January 1 and ends on December 31. We have elected the first, second and third quarters to end on a Saturday in order to not disrupt business processes. The effects of this election are generally not significant to reported results for any quarter and only exist within a reporting year.
Reclassification
For the purposes of comparability, certain prior period amounts have been reclassified to conform to current period classification.
Subsequent Events
None

Note 2. Summary of Significant Accounting Policies
We consider the following policies to be beneficial in understanding the judgment involved in the preparation of our Consolidated Financial Statements and the uncertainties that could impact our financial condition, results of operations and cash flows.
(a) Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. Estimates are used for, but not limited to, provisions for expected credit losses and inventory reserves, accounting for business combinations and dispositions, valuation of reporting units for purposes of assessing goodwill for impairment, valuation of long-lived asset groups for impairment testing, accruals for employee benefits, stock-based compensation, pension benefits, indemnification liabilities, deferred taxes, warranties and certain contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows, and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
(b) Cash, Cash Equivalents and Restricted Cash—Cash and cash equivalents may consist of cash on hand, money market instruments, time deposits and highly liquid investments. All highly liquid investments with original maturities of three months or less are considered cash equivalents. Cash and cash equivalents that are restricted as to the withdrawal or use under terms of certain contractual agreements are recorded in other current assets on the Consolidated Balance Sheets and primarily relate to collateral to support certain bank guarantees. Restricted cash for the periods presented were not material. Cash, cash equivalents and restricted cash are carried at cost, which approximates fair value.

(c) Accounts Receivable and Allowance for Doubtful Accounts—Accounts receivable are recorded at the invoiced amount, presented net of allowance for doubtful accounts and do not bear interest. We review the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical collection trends and aging of receivables. Management also periodically evaluates individual customer’s financial condition, credit history and the current economic
43
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
conditions to make adjustments in the allowance when it is considered necessary. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Allowance for doubtful accounts was not material as of December 31, 2023 and 2022, respectively.
(d) Inventories—Inventories are stated at lower of cost or net realizable value and valued by the first-in-first-out method. Inventory reserves are maintained for obsolete and surplus items.

The following tables summarize the details of our inventory, net:
December 31,
(in millions)20232022
Raw materials$221 $251 
Work in process18 25 
Finished products702 699 
Total inventories, net$941 $975 

(e) Property, Plant and Equipment—Property, plant and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes the straight-line method of depreciation is used over the estimated useful lives. Leasehold improvements are capitalized and amortized using the straight-line method over the shorter of their estimated useful lives or the term of the underlying lease. Depreciation is recognized in cost of sales, research and development, and selling, general and administrative expenses based on the nature and use of the underlying assets.

The following table summarizes the details of our property, plant and equipment, including useful lives:

December 31,
(in millions)20232022Useful Lives
Machinery and equipment$659 $647 3-16 years
Buildings and improvements314 303 10-50 years
Construction in progress85 80 NA
Land10 9 NA
Gross property, plant and equipment1,068 1,039 
Accumulated depreciation(678)(673)
Total property, plant and equipment, net$390 $366 
NA = Not applicable; assets categorized as construction in progress and land are not depreciated.

Depreciation expense was $59 million, $59 million and $58 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(f) Impairment of Long-Lived Assets—We assess the recoverability of the carrying amount of property, plant and equipment if events or changes in circumstances indicate that the carrying amount or related group of assets may not be recoverable. If the expected undiscounted cash flows are less than the carrying amount of the asset an impairment loss is recognized.

(g) Goodwill and Intangible Assets—We review the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually, on the first day of the fourth quarter. If the carrying value of a reporting unit exceeds its fair value, we record a goodwill impairment loss as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Refer to Note 9. Goodwill and Intangible Assets, net to Consolidated Financial Statements.

(h) Restructuring—We enter into various restructuring initiatives, optimization projects, strategic transactions, and other business activities that may include the recognition of exit or disposal costs. Exit or disposal costs are typically costs of termination benefits, such as severance and costs associated with the closure or consolidation of operating facilities.
44
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Impairment of property and equipment and other current or long-term assets as a result of a restructuring initiative is recognized as a reduction of the appropriate asset. Refer to Note 6. Restructuring to Consolidated Financial Statements.

(i) Derivatives—Our interest rate swap agreements effectively modify our exposure to interest rate risk by converting floating rate debt to a fixed rate for the term of the swap agreements, reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

Our interest rate swap agreements are designated as cash flow hedges with effectiveness of the hedges assessed at inception and quarterly thereafter. To the extent the hedging relationship is highly effective, the unrealized gains or losses on the swaps are recorded in accumulated other comprehensive loss and reclassified into earnings within interest expense, net when the payments occur. We classify our cash flows related to interest rate swap agreements as operating activities in the Consolidated Statements of Cash Flows.

The fair values of the interest rate swaps are reflected as an other asset or liability in the Consolidated Balance Sheets and the change in fair value is reported in accumulated other comprehensive loss. The fair values of the interest rate swaps are estimated as the net present value of projected cash flows based upon forward interest rates at the balance sheet date. We do not offset fair value amounts recognized in our Consolidated Balance Sheets for presentation purposes. Refer to Note 12. Derivative Financial Instruments to Consolidated Financial Statements.
(j) Warranties and Guarantees—Expected warranty costs for products sold are recognized based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the warranty accrual at the time an obligation becomes probable and can be reasonably estimated. We periodically adjust these provisions to reflect actual experience and other facts and circumstances that impact the status of existing claims. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

(k) Leases—Included in our Consolidated Balance Sheets are certain operating leases that are reported as a component of other assets and other liabilities. The leased assets represent our right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. An incremental borrowing rate is used to calculate the present value of the remaining lease payments.

Each contract is reviewed at inception to determine if it contains a lease and whether the lease qualifies as an operating or financing lease. For short-term leases (leases with a term of 12 months or less), right-of-use assets or lease liabilities are not recognized in the Consolidated Balance Sheets. Operating leases are expensed on a straight-line basis over the term of the lease. In determining the lease term, we consider the probability of exercising renewal or early termination options. In addition to the monthly base rent, we are often charged separately for common area maintenance, utilities and taxes, which are considered a non-lease component. These non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities.

Right-of-use assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with our long-lived asset impairment assessment policy. Refer to Note 10. Leases to Consolidated Financial Statements.

(l) Revenue Recognition—We enter into contracts that pertain to products, which are accounted for as separate performance obligations and are typically one year or less in duration. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation. Revenue is measured as the amount of consideration expected to be received in exchange for our products. We recognize the majority of our revenue from performance obligations outlined in contracts with our customers that are satisfied at a point in time, generally when the product has shipped from our facility and control has transferred to the customer. For certain products, it is industry practice that customers take title to products upon delivery, at which time revenue is then recognized. Allowances for cash discounts, volume rebates and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume rebates and other customer incentive programs are based upon certain percentages agreed upon with various customers, which are typically earned by the customer over an annual period.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale date and the return date, while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components.

Sales, use and value added taxes collected and remitted to various government authorities were not recognized as revenue and are reported on a net basis. Shipping and handling fees billed to customers are included in cost of goods sold. Refer to Note 5. Revenue Recognition to Consolidated Financial Statements.

(m) Royalty—In connection with the Spin-Off, we entered into a 40-year Trademark License Agreement (the “Trademark Agreement”) with Honeywell that authorizes our use of certain licensed trademarks in the operation of Resideo’s business for the advertising, sale and distribution of certain licensed products. In exchange, we pay a royalty fee of 1.5% of net revenue of the licensed products to Honeywell, which is recorded in selling, general and administrative expense on the Consolidated Statements of Operations. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

(n) Reimbursement Agreement—In connection with the Spin-Off we entered into a Reimbursement Agreement, pursuant to which we have 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 Honeywell properties contaminated through historical business operations prior to the Spin-Off (Honeywell Sites), 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 is subject to a cap of $140 million. Reimbursement Agreement expenses are presented within other expense, net in the Consolidated Statements of Operations and within obligations payable under Indemnification Agreements in the Consolidated Balance Sheets. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

(o) Environmental—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 costs for our owned sites are presented within cost of goods sold for operating sites in the Consolidated Statements of Operations. Refer to Note 15. Commitments and Contingencies.

(p) Tax Indemnification Agreement—The Tax Matters Agreement provides that Resideo is required to indemnify Honeywell for any taxes (and reasonable expenses) 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 (a) breaches of covenants and representations we make and agree to in connection with the Spin-Off, (b) the application of certain provisions of U.S. federal income tax law to these transactions or (c) any other action taken or omission made (other than actions expressly required or permitted by the Separation and Distribution Agreement, the Tax Matters Agreement or other ancillary agreements) after the consummation of the Spin-Off that gives rise to these taxes. As of December 31, 2023 and 2022, we had an indemnity outstanding to Honeywell for past and potential future tax payments of $97 million and $106 million, respectively. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

(q) Research and Development—We conduct research and development activities, which consist primarily of the development of new products and solutions as well as enhancements and improvements to existing products that substantially change the product. Research and development costs primarily relate to employee compensation and consulting fees, which are charged to expense as incurred.

(r) Defined Contribution Plans—We sponsor various defined contribution plans with varying terms depending on the country of employment. For the years ended December 31, 2023, 2022 and 2021, we recognized compensation expense related to the defined contribution plans of $22 million, $22 million, and $19 million, respectively.
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

(s) Stock-Based Compensation Plans—The principal awards issued under our stock-based compensation plans, which are described in Note 8. Stock-Based Compensation Plans, are restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. Some awards are issued with a market condition, which are valued on the grant date utilizing a Monte Carlo simulation model. Stock options are also issued under our stock-based compensation plans and are valued on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model and the Monte Carlo simulation model require estimates of future stock price volatility, expected term, risk-free interest rate and forfeitures.

For all stock-based compensation, the fair value of the award is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in selling, general and administrative expenses in the Consolidated Statements of Operations. Our time-based restricted stock awards are typically subject to graded vesting over a service period; while our performance or market based awards are typically subject to cliff vesting at the end of the service period.

(t) Pension—We disaggregate the service cost component of net benefit costs and report those costs in the same line item or items in the Consolidated Statements of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other non-service components of net benefit costs are required to be presented separately from the service cost component and outside of income from operations.

We have recorded the service cost component of pension expense in costs of goods sold and selling, general and administrative expenses based on the classification of the employees it relates to. The remaining components of net benefit costs within pension expense, primarily interest costs and expected return on plan assets, are recorded in other expense, net. We recognize net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the “corridor”) annually in the fourth quarter of each year. This adjustment is reported in other expense, net in the Consolidated Statements of Operations. Refer to Note 7. Pension Plans to Consolidated Financial Statements.

(u) Foreign Currency Translation—Assets and liabilities of operations outside the U.S. with a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Revenue, costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss.

(v) Income Taxes—Significant judgment is required in evaluating tax positions. We established 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, the Company and our 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. Refer to Note 17. Income Taxes to Consolidated Financial Statements.

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

Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. This guidance may be applied prospectively to contract modifications made and hedging relationships entered into or
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
evaluated on or before December 31, 2024. We adopted these ASUs during the second quarter of 2023. The impact of the adoption of this standard on our financial statements and related disclosures, including accounting policies, processes, and systems, was not material. Refer to Note 11. Long-Term Debt and Note 12. Derivative Financial Instruments to Consolidated Financial Statements.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires entities to disclose, on an annual and interim basis, significant segment expenses that are regularly reviewed by the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. The ASU also requires disclosure of the name and title of the CODM. The guidance is effective for fiscal years beginning after December 15, 2023. We are currently assessing the impact of adoption on our Consolidated Financial Statements and related disclosures.

Note 3. Acquisitions and Divestitures

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

2023

Genesis Cable—On October 16, 2023, we sold the Genesis Cable business in a cash transaction for $86 million, subject to working capital and other closing adjustments. We recognized a pre-tax gain of $18 million in other expenses, net in our Consolidated Statements of Operations, which includes $5 million of divestiture related costs. The divested business did not represent a strategic shift that has a major effect on our operations and financial results, and, as such, it was not presented as discontinued operations.

Sfty AS—On August 9, 2023, we acquired 100% of the outstanding equity of Sfty AS, a developer of cloud-based services providing alerts to multifamily homes and property managers with smoke, carbon monoxide and water leak detection products. We report Sfty AS’s results within the Products and Solutions segment. We completed the accounting for the acquisition during the fourth quarter of 2023, which did not result in any material adjustments.

BTX Technologies, Inc.—On January 23, 2023, we acquired 100% of the outstanding equity of BTX Technologies, Inc., (“BTX”) a leading distributor of professional audio, video, data communications, and broadcast equipment. We report BTX’s results within the ADI Global Distribution segment. We completed the accounting for the acquisition during the fourth quarter of 2023, which did not result in any material adjustments.

2022

Teknique Limited—On December 23, 2022, we acquired 100% of the outstanding equity of Teknique Limited, a developer and producer of edge-based, artificial intelligence-enabled video camera solutions. We report Teknique Limited’s results within the Products and Solutions segment. Purchase consideration included cash and a note payable with the former owner. We completed the accounting for the acquisition during the fourth quarter of 2023, which did not result in any material adjustments.

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

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

Arrow Wire and Cable, Inc.—On February 14, 2022, we acquired 100% of the outstanding equity of Arrow Wire and Cable, Inc., a leading regional distributor of data communications, connectivity and security products. The business is included within the ADI Global Distribution segment and is expected to strengthen our global distribution portfolio in the
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
data communications category with an assortment of copper and fiber cabling and connectivity, connectors, racking solutions, and network equipment. We completed the accounting for the acquisition during the first quarter of 2023, which did not result in any adjustments.

Note 4. Segment Financial Data

The Company’s segment information is evaluated by our Chief Executive Officer, who is also the CODM and is consistent with how management reviews and assesses the performance of the business as well as makes investing and resource allocation decisions. We monitor our operations through our two reportable segments: Products and Solutions and ADI Global Distribution, and report Corporate separately.

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

Products and Solutions—The Products and Solutions business is a leading global manufacturer and developer of technology-driven products and components that provide critical comfort, energy management, and safety and security solutions to over 150 million homes globally. Our offerings include temperature and humidity control, thermal water and air solutions, as well as security panels, sensors, peripherals, communications devices, video cameras, other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.

ADI Global Distribution—The ADI Global Distribution business is a leading wholesale distributor of low-voltage security products including security and life safety, access control and video products and participates significantly in the broader related markets of smart home, power, audio, ProAV, networking, communications, wire and cable, and data communications.

Corporate—Corporate expenses include expenses related to the corporate office as well as supporting the operating segments, but do not relate directly to revenue-generating activities primarily including unallocated stock-based compensation expenses, unallocated pension expense, restructuring expenses, acquisition-related costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, IT, strategy, communications, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as Reimbursement Agreement expense, interest income, interest expense, and other income (expense). The Reimbursement Agreement is further described in Note 15. Commitments and Contingencies to Consolidated Financial Statements.

The following tables represent summary financial data attributable to the segments:

Years Ended December 31,
(in millions)202320222021
Net revenue
Products and Solutions$2,672 $2,783 $2,468 
ADI Global Distribution3,570 3,587 3,378 
Total net revenue$6,242 $6,370 $5,846 

Years Ended December 31,
(in millions)202320222021
Income from operations
Products and Solutions$495 $527 $541 
ADI Global Distribution270 313 268 
Corporate(218)(229)(250)
Total income from operations$547 $611 $559 

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31,
(in millions)202320222021
Depreciation and amortization
Products and Solutions$71 $69 $65 
ADI Global Distribution18 14 11 
Corporate9 11 12 
Total depreciation and amortization$98 $94 $88 

Years Ended December 31,
(in millions)202320222021
Capital expenditures
Products and Solutions$77 $55 $37 
ADI Global Distribution26 29 24 
Corporate2 1 2 
Total capital expenditures$105 $85 $63 

The Company’s CODM does not use segment assets information to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.

Note 5. Revenue Recognition
Disaggregated Revenue
We have two operating segments, Products and Solutions and ADI Global Distribution. Disaggregated revenue information for Products and Solutions is presented by product grouping, while ADI Global Distribution is presented by region. Beginning January 1, 2022, the Products and Solutions operating segment further disaggregated the Comfort product grouping into Air and Water and Residential Thermal Solutions is now referenced as Energy. As of April 1, 2022, the First Alert business is included in the Security and Safety grouping.
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation. We recognize the majority of our revenue from performance obligations outlined in contracts with our customers that are satisfied at a point in time. Approximately 2% of our revenue is satisfied over time. As of December 31, 2023 and 2022, contract assets and liabilities were not material.
The timing of satisfaction of 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 it recognizes revenue in proportion to the amount it has the right to invoice for services performed.
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following table presents revenue by business line and geographic location, as we believe this presentation best depicts how the nature, amount, timing, and uncertainty of net revenue and cash flows are affected by economic factors:
Years Ended December 31,
(in millions)202320222021
Products and Solutions
Air$862 $953 $858 
Safety and Security965 913 667 
Energy525 595 594 
Water320 322 349 
Total Products and Solutions2,672 2,783 2,468 
ADI Global Distribution
U.S. and Canada3,085 3,087 2,814 
EMEA (1)
485 474 523 
APAC (2)
— 26 41 
Total ADI Global Distribution3,570 3,587 3,378 
Total net revenue$6,242 $6,370 $5,846 
(1)EMEA represents Europe, the Middle East and Africa.
(2)APAC represents Asia and Pacific countries.

Note 6. Restructuring

In the fourth quarter of 2022 and during 2023, we took 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. Restructuring and impairment expense was $42 million and $35 million for the years ended December 31, 2023 and 2022, respectively. During 2021, there were no new restructuring programs or restructuring and impairment charges.

The following table represents restructuring and impairment expense attributable to the segments:

Years Ended December 31,
(in millions)20232022
Products and Solutions$27 $29 
ADI Global Distribution12 2 
Corporate3 4 
Restructuring and impairment expenses$42 $35 

Restructuring and impairment expense, net is presented in the Consolidated Statements of Operations and relate to workforce reductions as well as the impairment of certain long-lived assets. We expect to fully execute our restructuring initiatives and programs over the next 12 to 24 months, and we may incur future additional restructuring expenses associated with these plans. We are unable at this time to make a good faith determination of cost estimates, or ranges of cost estimates, associated with future phases of the plans or the total costs we may incur in connection with these plans.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the status of our restructuring expenses included within accrued liabilities on the Consolidated Balance Sheets.

December 31,
(in millions)202320222021
Beginning of year$27 $9 $24 
Charges34 26 — 
Usage (1)
(31)(5)(11)
Other— (3)(4)
End of year$30 $27 $9 
(1) Usage primarily relates to cash payments associated with employee termination costs.

Note 7. Pension Plans

We sponsor multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of our U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. We also sponsor defined benefit pension plans that cover non-U.S. employees, in certain jurisdictions, principally Germany, Switzerland, the Netherlands, Belgium, India, Austria, and France.

We triggered settlement accounting and performed a remeasurement of our U.S. qualified defined benefit pension plan as a result of a voluntary lump sum window offering and the purchase of a group annuity contract that transferred a portion of the assets and liabilities to an insurance company during the first quarter of 2023. Non-cash pension settlement losses of $6 million was recognized within other expense, net in the Consolidated Statements of Operations for the year ended December 31, 2023. The corresponding remeasurement of our U.S. qualified defined benefit pension plan resulted in decreases of $83 million in plan assets and $78 million in liabilities for the year ended December 31, 2023. Additionally, there was a curtailment of the non-U.S. defined benefit pension plans as a result of our restructuring activities which resulted in a $2 million gain recognized within other expense, net in the Consolidated Statements of Operations for the year ended December 31, 2023.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the balance sheet impact, including the benefit obligations, assets and funded status associated with the pension plans:

U.S. PlansNon-U.S. Plans
(in millions)202320222021202320222021
Change in benefit obligation:
Benefit obligation at beginning of year$281 $348 $374 $96 $141 $161 
Service cost3 7 7 4 5 7 
Interest cost13 11 10 3 2 1 
Actuarial losses (gains)23 (66)(20)8 (45)(18)
Net benefits paid(3)(18)(5)4 — — 
Settlements and curtailments(83)(1)(18)(13)— (1)
Other— — — 1 1 1 
Foreign currency translation— — — 5 (8)(10)
Benefit obligation at end of year234 281 348 108 96 141 
Change in plan assets:
Fair value of plan assets at beginning of year262 342 340 27 32 28 
Actual return on plan assets20 (62)25 1 (6)2 
Employer contributions— 1 — 2 3 3 
Net benefits paid(3)(18)(5)4 — 1 
Settlements and curtailments(83)(1)(18)(11)— (1)
Other1 — — 1 (1)— 
Foreign currency translation— — — 2 (1)(1)
Fair value of plan assets at end of year197 262 342 26 27 32 
Funded status of plans (non-current)$(37)$(19)$(6)$(82)$(69)$(109)

The amounts recognized in accrued liabilities on the Consolidated Balance Sheets were $2 million at December 31, 2023 and 2022. The amounts recognized in other liabilities on the Consolidated Balance Sheets were $117 million and $86 million at December 31, 2023 and 2022, respectively.

The benefit obligation generated a global net actuarial loss of $31 million for the year ended December 31, 2023. The main driver of this loss was experience losses of $20 million. The loss was also driven by changes in actuarial assumptions that resulted in losses of $11 million.

Actual return on plan assets for the year ended December 31, 2023 was $21 million. The gain was primarily related to the U.S. and the Netherlands, which experienced gains of $20 million and $1 million, respectively.

Amounts recognized in accumulated other comprehensive loss associated with pension plans at December 31, 2023 and 2022 are as follows:

U.S. PlansNon-U.S. Plans
(in millions)2023202220232022
Prior service cost$— $— $2 $2 
Net actuarial loss (gain)20 13 — (8)
Net amount recognized$20 $13 $2 $(6)
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

The estimated actuarial losses and prior service costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year are immaterial.

The components of net periodic benefit (income) cost for the years ended December 31, 2023, 2022 and 2021 are as follows:

U.S. PlansNon-U.S. Plans
(in millions)202320222021202320222021
Net periodic benefit cost (income)
Service cost$3 $7 $7 $4 $5 $7 
Interest cost13 11 10 3 2 1 
Expected return on plan assets(11)(17)(16)(1)(1)(1)
Amortization of prior service credit(1)(1)(1)— — — 
Amortization of actuarial losses (gains)2 — — — (33)(3)
Settlement and curtailment losses (gains)6 — — (2)— — 
Net periodic benefit cost (income)$12 $— $— $4 $(27)$4 

The components of net periodic benefit cost (income) other than the service cost are included in other expense, net in the Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 are as follows:

U.S. PlansNon-U.S. Plans
(in millions)202320222021202320222021
Other changes in plan assets and benefits obligations recognized in other comprehensive (income) loss
Actuarial losses (gains)$14 $(66)$(20)$9 $(45)$(18)
Prior service costs arising during the year— — — — 2 — 
Excess return on plan assets(1)
— 79 (9)— 6 — 
Actuarial (losses) gains recognized during the year(8)— — — 33 3 
Other1 — 1 (1)— (1)
Total recognized in other comprehensive (income) loss7 13 (28)8 (4)(16)
Total recognized in net periodic benefit cost (income) and other comprehensive (income) loss$19 $13 $(28)$12 $(31)$(12)
(1)Represents actual return on plan assets in excess of the expected return.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit cost (income) for benefit plans are presented in the following table as weighted averages.

U.S. PlansNon-U.S. Plans
202320222021202320222021
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate5.2 %3.1 %3.0 %3.4 %1.2 %1.2 %
Interest crediting rate6.0 %6.0 %6.0 %2.5 %1.5 %1.5 %
Expected annual rate of compensation increase3.5 %3.2 %3.2 %2.6 %2.4 %2.4 %
Actuarial assumptions used to determine net periodic benefit cost (income) for the year ended December 31:
Discount rate - benefit obligation5.0 %5.2 %2.7 %3.0 %3.4 %0.7 %
Interest crediting rate6.0 %6.0 %6.0 %2.2 %2.5 %1.5 %
Expected rate of return on plan assets5.3 %5.3 %4.7 %3.4 %1.3 %2.3 %
Expected annual rate of compensation increase3.5 %3.5 %3.5 %2.7 %2.6 %2.4 %

The discount rate for the U.S. pension plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31. To determine discount rates for the U.S. pension plans, we use a modeling process that involves matching the expected cash outflows of its benefit plans to a yield curve constructed from a portfolio of high-quality, fixed income debt instruments. We use the single weighted-average yield of this hypothetical portfolio as a discount rate benchmark.

The expected rate of return on U.S. plan assets of 5.3% is a long-term rate based on historical plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations. We review the expected rate of return on an annual basis and revise it as appropriate. For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each country.

The following amounts relate to pension plans with accumulated benefit obligations exceeding the fair value of plan assets at December 31, 2023 and 2022.

U.S. PlansNon-U.S. Plans
(in millions)2023202220232022
Projected benefit obligation$234 $281 $106 $96 
Accumulated benefit obligation$230 $278 $96 $86 
Fair value of plan assets$197 $262 $25 $27 

The following amounts relate to pension plans with projected benefit obligations exceeding the fair value of the plan assets at December 31, 2023 and 2022.

U.S. PlansNon-U.S. Plans
(in millions)2023202220232022
Projected benefit obligation$234 $281 $108 $96 
Accumulated benefit obligation$230 $278 $98 $87 
Fair value of plan assets$197 $262 $26 $27 
We utilized a third-party investment management firm to serve as our Outsourced Chief Investment Officer; however, we have appointed an internal investment committee that monitors adherence to the investment guidelines the firm will follow.
55
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
We employ an investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Other assets such as real estate and hedge funds may be used to improve portfolio diversification. The non-U.S. investment policies are different for each country as local regulations, funding requirements, and financial and tax considerations are part of the funding and investment allocation process in each country.

A majority of the U.S. pension plan assets as of December 31, 2023 do not have published pricing and are valued using Net Asset Value (“NAV”), which approximates fair value. NAV and fair value by asset category are as follows for December 31, 2023 and 2022:

U.S. Plans NAV
(in millions)20232022
Cash and cash equivalents$3 $6 
Equity64 45 
Government bonds14 21 
Corporate bonds58 132 
Real estate / property24 29 
Other34 29 
Total assets at fair value$197 $262 

The fair values of the non-U.S. pension plan assets by asset category are as follows for December 31, 2023 and 2022:

Non-U.S. Plans
20232022
(in millions)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Equity$7 $7 $— $— $1 $1 $— $— 
Government bonds6 — 6 — 1 — 1 — 
Insurance contracts7 — — 7 6 — — 6 
Other6 — — 6 19 — — 19 
Total assets at fair value$26 $7 $6 $13 $27 $1 $1 $25 

Refer to Note13. Fair Value to Consolidated Financial Statements.
56
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

The following table summarizes changes in the fair value of Level 3 assets for Non-U.S. plans:

(in millions)Non-U.S. Plans
Balance at January 1, 2021$26 
Return on plan assets1 
Purchases, sales and settlements, net4 
Other(1)
Balance at December 31, 202130 
Return on plan assets(3)
Other(2)
Balance at December 31, 202225 
Return on plan assets1 
Purchases, sales and settlements, net(14)
Other1 
Balance at December 31, 2023$13 

Government bonds and Corporate bonds held as of December 31, 2023 and 2022 are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity risks. Real estate, insurance contracts, and other investments as of December 31, 2023 and 2022 and are classified as Level 3 as there are neither quoted prices nor other observable inputs for pricing. Insurance contracts are issued by insurance companies and are valued at cash surrender value, which approximates the contract fair value. Other investments consist of a collective pension foundation that is valued and allocated by the plan administrator.

We utilize the services of retirement and investment consultants to actively manage the assets of our pension plans. We have established asset allocation targets and investment guidelines based on the guidance of the consultants. Our target allocations are 37% fixed income investments, 33% global equity investments, 12% global real estate investments and 18% cash and other investments.

Our general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2023, we were not required to make contributions to the U.S. pension plans, however we made immaterial contributions. There is not a requirement to make any contributions to the U.S. pension plans in 2024. In 2023, contributions of $3 million were made to the non-U.S. pension plans to satisfy regulatory funding requirements. In 2024, we expect to make contributions of cash and/or marketable securities of approximately $3 million to the non-U.S. pension plans to satisfy regulatory funding standards. Contributions for both the U.S. and non-U.S. pension plans do not reflect benefits paid directly from our assets.

Benefit payments, including amounts to be paid from our assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

(in millions)U.S. PlansNon-U.S. Plans
2024$19 $3 
2025$19 $3 
2026$19 $3 
2027$19 $3 
2028$19 $4 
2029-2033$86 $26 
57
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Note 8. Stock-Based Compensation Plans

The Stock Incentive Plan, which consists of the Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates and the 2018 Stock Incentive Plan for Non-Employee Directors of Resideo Technologies, Inc., provides for the grant of stock options, stock appreciation rights, restricted stock units, restricted stock and other stock-based awards.

During the second quarter of 2023, the Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates was further amended to increase the number of shares of our common stock available for issuance by 3.5 million shares for an aggregate of 19.5 million shares with no more than 7.5 million shares being available for grant in the form of stock options. At December 31, 2023, 12 million shares of our common stock are available to be granted under the Stock Incentive Plan.
Summary of Stock-Based Compensation Expense

Our stock-based compensation expense, net of tax was $43 million, $48 million and $36 million for the years ended December 31, 2023, 2022 and 2021.
Restricted Stock Unit Activity

Restricted stock units (“RSUs”) are issued to certain key employees and to non-employee directors. These awards entitle the holder to receive one share of our common stock for each unit upon vesting. RSUs typically become fully vested over a three-year period following the grant date. RSU awards issued to our non-employee directors have a one-year service period. We measure stock-based compensation expense at the grant date based on the estimated fair value of the award.

Performance stock units (“PSUs”) are issued to certain key employees. These awards entitle the holder to receive a specified number of our common stock, dependent on our financial metrics or market conditions, for each unit upon vesting. PSUs typically become vested at the end of a three-year period and are payable in our common stock. PSUs granted in 2023 were issued with the shares awarded per unit being based on the difference in performance between the total stockholders’ return of our common stock against that of the S&P 600 Industrials Index. PSUs granted prior to 2023 were issued with the shares awarded per unit being based on the difference in performance between the total stockholders’ return of our common stock against that of the S&P 400 Industrials Index.

The fair values estimated from the Monte Carlo simulation for PSUs issued during the years ended December 31, 2023, 2022 and 2021 were calculated using the following assumptions:

Years Ended December 31,
202320222021
Expected volatility63.37 %59.01 %47.43 %
Risk-free interest rate %4.24 %1.58 %0.20 %
Expected term (in years)2.882.892.86
Dividend yield (1)
— %— %— %
(1) We have never declared or paid any cash dividends on our common stock and we currently do not intend to pay cash dividends.

58
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following table summarizes activity related to the Stock Incentive Plan for employees and non-employee directors:

PSUsRSUs
(in whole dollars)Number of
Performance
Stock Units		Weighted
Average Grant
Date Fair Value
Per Share		Number of
Restricted
Stock Units		Weighted
Average Grant
Date Fair Value
Per Share
Non-vested as of January 1, 20231,722,380$27.23 3,410,962$20.57 
Granted553,07129.89 2,298,93618.79 
Vested(611,631)27.03 (1,615,111)18.35 
Forfeited(69,954)38.47 (238,291)21.88 
Non-vested as of December 31, 20231,593,866$35.80 3,856,496$20.16 

As of December 31, 2023, unrecognized compensation cost related to unvested awards granted to employees and non-employee directors under the Stock Incentive Plan is as follows:

(in millions)Unrecognized Compensation CostWeighted-Average Period
RSUs$48 1 year, 9 months
PSUs20 1 year, 2 months
Total unrecognized compensation cost$68 
The fair value of shares vested follows:

Years Ended December 31,
(in millions)202320222021
RSUs$29 $36 $48 
PSUs14 $4 NA
Total$43 $40 $48 

Stock Option Activity

Stock option awards entitle the holder to purchase shares of our common stock at a specific price when the options vest. Stock options typically vest over 3 years from the date of grant and expire 7 years from the grant date.

There were no stock options granted to employees during the years ended December 31, 2023 and 2022. The fair value of stock options granted during the year ended December 31, 2021 was calculated using the following assumptions in the Black-Scholes model:

Year Ended December 31,
2021
Expected stock price volatility34%
Expected term of options5 years
Expected dividend yield (1)
—%
Risk-free interest rate0.77%
(1) We have never declared or paid any cash dividends on our common stock and we currently do not intend to pay cash dividends.

The aggregate intrinsic value disclosed below represents the total intrinsic value (the difference between the fair market value of our common stock as of December 31, 2023 and the exercise price, multiplied by the number of in-the-money service-based common stock options) that would have been received by the option holders had all option holders exercised
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
their options on December 31, 2023. This amount is subject to change based on changes to the fair market value of our common stock.

The following table summarizes stock option activity related to the Stock Incentive Plan:

Stock Options
(in whole dollars)Number of
Stock
Options		Weighted
Average
Exercise
Price		Weighted
Average
Contractual
Life		Aggregate
Intrinsic
Value
Stock Options outstanding as of January 1, 20231,317,649$15.25 4.0 years$6 
Granted— —  
Forfeited— —  
Expired(96,692)24.35 
Exercised— — — 
Stock Options outstanding as of December 31, 20231,220,957$14.52 3.2 years$8 
Vested and expected to vest at December 31, 20231,220,957 $14.52 3.2 years$8 
Exercisable at December 31, 20231,070,957 $12.99 2.9 years$8 

For the year ended December 31, 2023, there was an immaterial amount of total unrecognized compensation cost related to non-vested stock options granted under the Stock Incentive Plan, which is expected to be recognized over a weighted-average period of approximately 1 year. Cash received from stock options exercised during the years ended December 31, 2023 and 2022 was not material as there were no options exercised. Cash received from stock options exercised during the year ended December 31, 2021 was $9 million.

Note 9. Goodwill and Intangible Assets, net

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

(in millions)Products and SolutionsADI Global DistributionTotal
Balance at January 1, 2022$2,010 $651 $2,661 
Acquisitions94 15 109 
Divestiture— (4)(4)
Impact of foreign currency translation(32)(10)(42)
Balance at December 31, 20222,072 652 2,724 
Acquisitions7 3 10 
Divestitures(46)— (46)
Adjustments(5)— (5)
Impact of foreign currency translation17 5 22 
Balance at December 31, 2023$2,045 $660 $2,705 

60
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following table summarizes the net carrying amount of intangible assets:

December 31,
(in millions)20232022
Intangible assets subject to amortization$281 $295 
Indefinite-lived intangible assets180 180 
Total intangible assets$461 $475 

Intangible assets subject to amortization consisted of the following:

December 31, 2023
(in millions)Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Useful LivesWeighted Average Amortization
Patents and technology$64 $(26)$38 7 - 10 years10 years
Customer relationships319 (138)181 7 - 15 years14 years
Trademarks9 (8)1 5 - 10 years10 years
Software193 (132)61 2 - 7 years5 years
Total intangible assets$585 $(304)$281 

December 31, 2022
(in millions)Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Useful LivesWeighted Average Amortization
Patents and technology$65 $(28)$37 3 - 10 years10 years
Customer relationships313 (117)196 7 - 15 years14 years
Trademarks14 (8)6 10 years10 years
Software175 (119)56 2 - 7 years6 years
Total intangible assets$567 $(272)$295 

Intangible assets are amortized on a straight-line basis or a basis consistent with the expected future cash flows over their expected useful lives. Intangible assets amortization expense was $38 million, $35 million and $30 million during the years ended December 31, 2023, 2022 and 2021, respectively.

The estimated aggregate amortization on these intangible assets for each of the next five years as of December 31, 2023, follows:

(in millions)Amortization Expense
2024$38 
2025$40 
2026$35 
2027$29 
2028$26 

Note 10. Leases

We are party to operating leases for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment.Certain real estate leases include variable rental payments, which adjust periodically based on inflation. Other variable amounts paid under operating leases, such as taxes and common area maintenance, are charged to selling, general and administrative expenses as incurred. Generally, lease agreements do not contain any material residual value guarantees or material restrictive covenants.
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

Payments arising from operating lease activity, as well as variable and short-term lease payments not included within the operating lease liability, are included as operating activities of our Consolidated Statements of Cash Flows. Operating lease payments representing costs to ready an asset for its intended use (i.e., leasehold improvements) are represented within investing activities within our Consolidated Statements of Cash Flows.

The operating lease expense follows:

Years Ended December 31,
(in millions)202320222021
Operating lease cost:
Selling, general and administrative expenses$57 $50 $46 
Cost of goods sold20 19 17 
Total operating lease costs$77 $69 $63 

Total operating lease costs include variable lease costs of $22 million, $19 million and $17 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The following table summarizes the carrying amounts of our operating leased assets and liabilities along with key inputs used to discount our lease liabilities:

December 31,
(in millions, except weighted-average data)Financial Statement Line Item20232022
Operating lease assetsOther assets$192 $191 
Operating lease liabilities - currentAccrued liabilities$39 $37 
Operating lease liabilities - non-currentOther liabilities$166 $166 
Weighted-average remaining term6.32 years6.81 years
Weighted-average incremental borrowing rate6.12 %5.78 %

The following table summarizes our future minimum lease payments under our non-cancelable leases as of December 31, 2023:

(in millions)Commitments
2024$46 
202544 
202640 
202734 
202827 
Thereafter58 
Total lease payments249 
Less: Imputed interest44 
Present value of operating lease liabilities$205 
62
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

Supplemental cash flow information related to operating leases follows:

Years Ended December 31,
(in millions)202320222021
Cash paid for operating lease liabilities$36 $33 $33 
Non-cash activities: operating lease assets obtained in exchange for new operating lease liabilities (1)
$39 $97 $46 
(1) The year ended December 31, 2022 includes $25 million of operating lease assets acquired from the First Alert acquisition.

As of December 31, 2023, we have additional operating leases that have not yet commenced. Obligations under these leases are not material. Additionally, as a lessor, we lease all or a portion of certain owned properties. Rental income for the years ended December 31, 2023, 2022 and 2021 was not material.

Note 11. Long-Term Debt

Long-term debt is comprised of the following:
December 31,
(in millions)20232022
4.000% senior notes due 2029$300 $300 
Variable rate A&R Term B Facility1,119 1,131 
Gross debt1,419 1,431 
Less: current portion of long-term debt(12)(12)
Less: unamortized deferred financing costs(11)(15)
Total long-term debt$1,396 $1,404 

Aggregate required principal payments on long-term debt outstanding at December 31, 2023, follows:

(in millions)Payments
2024$12 
202512 
202612 
202712 
20281,073 
Thereafter300 
Total$1,419 

A&R Senior Credit Facilities

On February 12, 2021, we entered into an A&R Credit Agreement with JP Morgan Chase Bank N.A. as administrative agent. This agreement effectively replaced our previous senior secured credit facilities. The A&R Credit Agreement provides for an (i) initial seven-year senior secured Term B loan facility in an aggregate principal amount of $950 million, which was further amended on March 28, 2022 to include an additional aggregate principal amount of $200 million in term loans (the “A&R Term B Facility”), (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility” and, together with the A&R Term B Facility, the “A&R Senior Credit Facilities”).

We are obligated to make quarterly principal payments throughout the term of the A&R Term B Facility according to the amortization provisions in the A&R Credit Agreement.

In addition to paying interest on outstanding borrowings under the A&R Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the A&R Revolving Credit Facility. Borrowings under the
63
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
A&R Credit Agreement can be prepaid at our option without premium or penalty. Up to $75 million may be utilized under the A&R Revolving Credit Facility for the issuance of letters of credit to us or any of our subsidiaries.

The A&R Senior Credit Facilities contain customary LIBOR replacement language, including, but not limited to, the use of rates based on SOFR, which is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement market and is administered by the Federal Reserve Bank of New York. On June 30, 2023, we modified the calculation of interest under the A&R Senior Credit Facilities from being calculated based on LIBOR to being calculated based on SOFR. Therefore, the A&R Senior Credit Facilities bears interest at a rate per annum of Term SOFR plus a credit spread adjustment of 10 basis points for the A&R Revolving Credit Facility and varying credit spread adjustments for the A&R Term B Facility, based on the tenor of each individual borrowing. No other material terms of the A&R Senior Credit Facilities were amended.

The A&R Credit Agreement contains certain financial maintenance covenants and affirmative and negative covenants customary for financings of this type. All obligations under the A&R Senior Credit Facilities are unconditionally guaranteed jointly and severally by us and substantially all of the direct and indirect wholly owned subsidiaries of ours that are organized under the laws of the U.S. (collectively, the “Guarantors”). The A&R Senior Credit Facilities are secured on a first priority basis by the equity interests of each direct subsidiary of ours, as well as the tangible and intangible personal property and material real property of ours and each of the Guarantors.

At December 31, 2023 and 2022, the weighted average interest rate for the A&R Term B Facility, excluding the effect of the interest rate swaps, was 7.72% and 6.78%, respectively and there were no borrowings and no letters of credit issued under the A&R Revolving Credit Facility. As of December 31, 2023, we were in compliance with all covenants related to the A&R Credit Agreement and Senior Notes due 2029.

We entered into certain interest rate swap agreements in March 2021, which were amended in June 2023, to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows. These interest rate swap agreements effectively convert a portion of our variable-rate debt to fixed rate debt. Refer to Note 12. Derivative Financial Instruments to Consolidated Financial Statements.

Senior Notes due 2029

On August 26, 2021, we issued $300 million in principal amount of 4.00% Senior Notes due 2029. The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by Resideo’s existing and future domestic subsidiaries and rank equally with all of Resideo’s senior unsecured debt and senior to all of Resideo’s subordinated debt.

We may, at our option, redeem the Senior Notes due 2029 in whole (at any time) or in part (from time to time), at varying prices based on the timing of the redemption.

The Senior Notes due 2029 limit us and our restricted subsidiaries’ ability to, among other things, incur additional secured indebtedness and issue preferred stocks; enter into certain sale and leaseback transactions; incur liens; and consolidate, merge or sell 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 together with a ratings downgrade, the holders of the Senior Notes due 2029 have the right to require us to offer to repurchase the Senior Notes due 2029 at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, to (but not including) the date of purchase.

Senior Notes Redemptions

As a result of the redemption of the 6.125% senior unsecured notes (the “Senior Notes due 2026”) and the execution of the A&R Credit Agreement, debt extinguishment costs of $41 million were incurred and recorded in other expense, net for the year ended December 31, 2021.

Note 12. Derivative Financial Instruments

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

64
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
In March and April 2023, we modified two of the eight Swap Agreements, each with a notional value of $70 million that matures in May 2024 as follows: (i) the original interest rate swap agreements were cancelled for no termination payment and (ii) we simultaneously entered into new pay-fixed interest rate swap agreements with a notional amount of $70 million each, effectively blending the asset positions of the original interest rate swap agreements into new interest swap agreements and extending the term of our hedged positions to February 2027. In connection with these transactions, no cash was exchanged between us and the counterparty. The new pay-fixed interest rate swap agreements qualify as a hybrid instrument in accordance with Accounting Standards Codification 815, Derivatives and Hedging, consisting of financing components and embedded at-market derivatives that were designated as cash flow hedges. The amounts remaining in accumulated other comprehensive loss for the modified interest rate swap agreements as of December 31, 2023 were approximately $2 million in aggregate and are being amortized as a reduction to interest expense over the effective period of the original interest rate swap agreements, or May 2024. The financing components are accounted for at amortized cost over the life of the swap while the embedded at-market derivatives are accounted for at fair value.

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

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

The following table summarizes the fair value and presentation of derivative instruments in the Consolidated Balance Sheets as well as the pre-tax gain (loss) recorded in accumulated other comprehensive loss:

Fair Value of Derivative Assets
December 31,
(in millions)Financial Statement Line Item20232022
Derivatives designated as hedging instruments
Interest rate swapsOther current assets$20 $23 
Interest rate swapsOther assets10 22 
Total derivative assets designated as hedging instruments$30 $45 
Unrealized gainAccumulated other comprehensive loss$25 $42 
Unrealized gains expected to be reclassified from accumulated other comprehensive loss in the next 12 months are estimated to be $22 million as of December 31, 2023.

65
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The following tables summarize the effect of derivative instruments designated as cash flow hedges in other comprehensive income (loss) and the Consolidated Statements of Operations:

Years Ended December 31,
(in millions)Financial Statement Line Item20232022
Gains recorded in accumulated other comprehensive loss, beginning of year$42 $6 
Current period gain (loss) recognized in/reclassified from other comprehensive incomeInterest expense, net25 42 
(Gains) losses reclassified from accumulated other comprehensive loss to net incomeInterest expense, net(42)(6)
Gains recorded in accumulated other comprehensive loss, end of year$25 $42 

Note 13. Fair Value
The estimated fair value of our financial instruments held, and when applicable, issued to finance our operations, is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that we would realize upon disposition nor do they indicate our intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at fair value are required to be classified and disclosed in one of the following three categories:

Level 1—quoted market prices in active markets for identical assets and liabilities
Level 2—observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3—unobservable inputs that are not corroborated by market data

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no changes in the methodologies used in our valuation practices as of December 31, 2023 and 2022.

The fair values of long-term debt instruments were determined using quoted market prices in inactive markets or discounted cash flows based upon current observable market interest rates and therefore were classified as Level 2 measurements in the fair value hierarchy.

The following table provides a summary of the carrying amount and fair value of outstanding debt:

December 31, 2023December 31, 2022
(in millions)Carrying ValueFair ValueCarrying ValueFair Value
Debt
4.000% Senior Notes due 2029$300 $266 $300 $242 
Variable rate A&R Term B Facility1,119 1,122 1,131 1,125 
Total debt$1,419 $1,388 $1,431 $1,367 

As of December 31, 2023 and 2022, there were no borrowings and no letters of credit issued under the A&R Revolving Credit Facility. Refer to Note 11. Long-Term Debt to Consolidated Financial Statements.

Credit and Market Risk—Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted. Market risk represents our exposure to changes associated with our international operations as we generate revenue and incur expenses in various currencies. We continually monitor the creditworthiness of our customers to which we grant credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. Management does not believe we are exposed to any significant concentrations of credit risk that arise from cash and cash equivalent investments, derivatives or accounts receivable.

66
Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Foreign Currency Risk Management—We conduct business on a multinational basis in a wide variety of foreign currencies. We are exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. The exposure to market risk for changes in foreign currency exchange rates arises from transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. We rely on natural offsets to address the exposures. As of December 31, 2023 and 2022, we had no forward or option hedging contracts.

Interest Rate Risk—We have exposure to movements in interest rates associated with cash and borrowings. We may enter into various interest rate protection agreements in order to limit the impact of movements in interest rates.

The following table provides a summary of the carrying amount and fair value of our interest rate swaps:

December 31, 2023December 31, 2022
(in millions)Carrying ValueSignificant other
observable inputs
(Level 2)		Carrying ValueSignificant other
observable inputs
(Level 2)
Assets:
Interest rate swaps$30 $30 $45 $45 

There are no Level 1 or Level 3 assets or liabilities for the periods presented. The fair values of derivative financial instruments have been determined based on market value equivalents at the balance sheet date, taking into account the current interest rate environment and therefore were classified as Level 2 measurements in the fair value hierarchy. Refer to Note 12. Derivative Financial Instruments to Consolidated Financial Statements.

The fair value calculated during the annual goodwill and indefinite-lived intangible asset impairment test uses the market approach in combination with the income approach for the reporting units and the relief from royalty method for the indefinite-lived intangible assets, respectively. The fair value is a Level 3 valuation based on certain unobservable inputs including estimated future cash flows and discount rates aligned with market-based assumptions, that would be utilized by market participants in valuing these assets or prices of similar assets. In addition, for long-lived assets, we performed an impairment test for certain location level assets. We utilize primarily the replacement cost method (a Level 3 valuation method) for the fair value of property, plant and equipment, and the income method to estimate the fair value of right-of-use assets, which incorporates Level 3 inputs such as internal business plans, real estate market capitalization and rental rates, and discount rates. Refer to Note 2. Summary of Significant Accounting Policies and Note 10. Leases to Consolidated Financial Statements.

The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued and other liabilities approximate fair value because of the short-term maturity of these amounts.

Note 14. Accrued Liabilities

Accrued liabilities consist of the following:
December 31,
(in millions)20232022
Obligations payable under Indemnification Agreements$140 $140 
Compensation, benefit and other employee-related110 108 
Customer rebate reserve104 98 
Restructuring30 27 
Product warranties24 40 
Current operating lease liability39 37 
Taxes payable34 38 
Other (1)
128 152 
Total accrued liabilities$608 $640 
(1) Other includes accruals for advertising, legal and professional reserves, freight, royalties, interest, and other miscellaneous items.
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements

The Indemnification Agreements are further described in Note 15. Commitments and Contingencies.

Note 15. Commitments and Contingencies

Environmental Matters

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

Environment-related expenses for sites owned and operated by us are presented within cost of goods sold for operating sites. For the years ended December 31, 2023, 2022, and 2021, environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $22 million for the years ended December 31, 2023 and 2022.

Obligations Payable Under Indemnification Agreements

The Reimbursement Agreement and the Tax Matters Agreement (collectively, the “Indemnification Agreements”) are further described below.

Reimbursement Agreement

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 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 amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million under the Reimbursement Agreement, the estimated liability for resolution of pending and future environmental-related liabilities recorded on our balance sheets are calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites.

Payments in respect of the liabilities arising in a given year will be made quarterly throughout such year on the basis of an estimate of the liabilities and recoveries provided by Honeywell. Following the end of any such year, Honeywell will provide us with a calculation of the amount of payments and the recoveries actually received.

Payment amounts under the Reimbursement Agreement will be deferred to the extent that a specified event of default has occurred and is continuing under certain indebtedness, including under the A&R Credit Agreement, or the payment thereof causes us not to be compliant with certain financial covenants in certain indebtedness, including the A&R Credit Agreement on a pro forma basis, including the maximum total leverage ratio (ratio of consolidated debt to consolidated EBITDA, which excludes any amounts owed to Honeywell under the Reimbursement Agreement), and the minimum interest coverage ratio.

The obligations under the Reimbursement Agreement will continue 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.

In 2021 and 2020, several amendments were executed with respect to the Reimbursement Agreement. These amendments included modifications of certain covenants in Exhibit G to conform to the amended covenants included in the Credit Agreement First Amendment, deferment of certain payments under the Reimbursement Agreement to later in the year, and amendment of Exhibit G to, among other things, permit a sale and leaseback transaction. An aggregate amount of up to $150 million would be permitted thereunder so long as the same conditions that are applicable under the Credit Agreement are satisfied. On February 12, 2021, the covenants in Exhibit G of the Reimbursement Agreement were amended and
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
restated in their entirety to substantially conform to the affirmative and negative covenants contained in the A&R Credit Agreement.

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 the Reimbursement and Tax Matter Agreements’ liabilities:

(in millions)Reimbursement AgreementTax Matters AgreementTotal
Beginning balance, January 1, 2022$597 $128 $725 
Accruals for liabilities deemed probable and reasonably estimable (1)
157 (2)155 
Payments to Honeywell(140)(20)(160)
Balance as of December 31, 2022614 106 720 
Accruals for liabilities deemed probable and reasonably estimable (1)
178 (9)$169 
Payments to Honeywell(140)— $(140)
Balance as of December 31, 2023$652 $97 $749 
(1) Reimbursement Agreement liabilities deemed probable and reasonably estimable, however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million.

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

Years Ended December 31,
(in millions)20232022
Accrued liabilities$140 $140 
Obligations payable under Indemnification Agreements609 580 
Total indemnification liabilities$749 $720 

For the years ended December 31, 2023, 2022 and 2021, net expenses related to the Reimbursement Agreement were $178 million, $157 million, and $146 million respectively, and are recorded in other expense, net.

We do not currently possess sufficient information to reasonably estimate the amounts of indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with such indemnification liability payments can be determined although they could be material to our 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.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
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 exchange, we pay Honeywell a royalty fee of 1.5% based on net revenue related to such licensed products, which is recorded in selling, general and administrative expense in the Consolidated Statements of Operations. For the years ended December 31, 2023, 2022, and 2021, royalty fees were $18 million, $23 million, and $21 million, respectively.

Other Matters

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

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 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. The U.S. District Court for the District of Minnesota issued an order granting final approval of the settlement, judgment was entered on January 9, 2024 and the action was dismissed with prejudice. The parties filed a joint stipulation and proposed order of dismissal for the Delaware Chancery action, which the court approved. The settlement liability is included in the other accrued liabilities in the Consolidated Balance Sheets, 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, civil penalties,
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
attorneys’ fees and costs in an unknown amount. The Company answered the Tredo Lawsuit in which it asserted a general denial of plaintiff’s allegations and asserted various defenses.

We are investigating the allegations and defenses. At the request of plaintiff’s counsel, the parties have agreed to postpone mediation from January 2024 to May 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. At this stage we are unable to estimate the total costs to defend the matter or the potential liability to us in the event that we are not successful in our defense.
Warranties and Guarantees

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

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

December 31,
(in millions)202320222021
Beginning balance$48 $23 $22 
Accruals for warranties/guarantees issued during the year24 30 22 
Adjustment of pre-existing warranties/guarantees— (2)(3)
Settlement of warranty/guarantee claims(38)(17)(18)
Reserve of acquired company at date of acquisition— 14 — 
Ending balance$34 $48 $23 

Purchase Commitments

Our unconditional purchase obligations include purchase commitments with suppliers and other obligations entered into during the normal course of business regarding the purchase of goods and services. For the years ended December 31, 2023, 2022, and 2021, purchases related to these obligations were $91 million, $41 million and $22 million, respectively.

Aggregate payments on these obligations at December 31, 2023, follows:

(in millions)Payments
2024$142 
2025113 
202685 
20272 
2028 and thereafter— 
Total$342 

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Note 16. Other Expense, net
Other expenses, net consists of the following:
Years Ended December 31,
(in millions)202320222021
Reimbursement Agreement expense$178 $157 $146 
Return on pension assets9 (39)(9)
Other, net(18)21 22 
Total other expenses, net$169 $139 $159 

The Reimbursement Agreement is further described in Note 15. Commitments and Contingencies to the Consolidated Financial Statements.

Note 17. Income Taxes
Income tax expense is based on pretax financial accounting income. Deferred income taxes are recognized for the temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts for income tax purposes.
The following is a summary of the components of income before provision for income taxes:
Years Ended December 31,
(in millions)202320222021
U.S.$76 $124 $79 
Non-U.S.237 294 274 
Total$313 $418 $353 
The components of the provision for income taxes consisted of the following:
Years Ended December 31,
(in millions)202320222021
Current:
U.S.$80 $95 $60 
Non-U.S.51 43 45 
Total current$131 $138 $105 
Deferred:
U.S.$(6)$(13)$5 
Non-U.S.(22)10 1 
Total deferred$(28)$(3)$6 
Total provision$103 $135 $111 
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
The reconciliation of income tax computed at the U.S. federal statutory tax rate to the effective income tax rate is as follows:
Years Ended December 31,
202320222021
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Impact of foreign operations(0.9)(1.6)(0.2)
U.S. state income taxes4.4 3.0 3.6 
Non-deductible indemnification costs10.9 7.7 8.4 
Executive compensation over $1 million1.6 1.0 0.9 
Other non-deductible expenses0.3 (0.6)0.4 
U.S. taxation of foreign earnings2.8 1.0 1.4 
Tax credits(0.8)(0.5)(0.7)
Change in tax basis in foreign assets (1)
(6.5)— — 
All other items, net(0.2)1.3 (3.5)
Effective income tax rate32.7 %32.3 %31.3 %
(1) The 2023 impact represents the initial recognition of a step-up in the tax basis of intangible assets recorded under Switzerland tax reform, net of valuation allowance.
Deferred income taxes reflect the net impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The tax effects of the temporary differences as of December 31, 2023 and 2022 are as follows:
Years Ended December 31,
(in millions)20232022
Deferred tax assets:
Pension$21 $16 
Intangibles (2)
28 — 
Other asset basis differences51 54 
Operating lease liabilities44 43 
Employee compensation and benefits23 17 
Inventory costing and related reserves11 15 
Capitalized research and development13 6 
Other accruals and reserves19 33 
Net operating and capital losses55 49 
Other11 1 
Gross deferred tax assets276 234 
Valuation allowance(75)(63)
Total deferred tax assets$201 $171 
Deferred tax liabilities:
Intangibles$(42)$(41)
Property, plant and equipment(16)(24)
Operating lease assets(41)(40)
Other(6)(7)
Total deferred tax liabilities$(105)$(112)
Net deferred tax asset$96 $59 
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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
(2) A valuation allowance brings the net deferred tax effect of the allowed step-up of intangible assets recorded under Switzerland tax reform to the amount more likely than not to be realized.
Valuation allowance
In assessing the need for a valuation allowance, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing the relative impact of all the available positive and negative evidence regarding our forecasted taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of certain types of future taxable income during the periods in which those temporary differences become deductible. In making this assessment, we consider the scheduled reversal of deferred tax liabilities, our ability to carry back the deferred tax asset, projected future taxable income, and tax planning strategies. A valuation allowance is recorded in each jurisdiction when it is more likely than not that the deferred income tax asset will not be realized. Changes in deferred tax asset valuation allowances typically impact income tax expense.

We maintain a valuation allowance of $75 million against a portion of deferred tax assets. Valuation allowances principally relate to foreign net operating loss carryforwards. As of December 31, 2023, we have deferred tax assets relating to foreign net operating loss carryforwards of $52 million. These tax losses can be carried forward to offset the income tax liabilities on future income in these countries. Cumulative tax losses of $46 million can be carried forward indefinitely, while the remaining $9 million of tax losses must be used during tax years 2023 to 2043.

The rollforward of the valuation allowance on deferred taxes is as follows for the periods indicated:
Years Ended December 31,
(in millions)202320222021
Beginning balance$63 $63 $60 
Additions / (Subtractions)12 — 3 
Ending balance$75 $63 $63 

As of December 31, 2023, our total undistributed earnings of foreign affiliates were $2.0 billion, of which $625 million was not considered indefinitely reinvested. While these earnings would not be subject to incremental U.S. tax, if we were to actually distribute these earnings, they could be subject to additional foreign income taxes and/or withholding taxes payable in foreign jurisdictions. Thus, we provide for foreign income taxes payable upon future distributions of the earnings not considered indefinitely reinvested annually. For the year ended December 31, 2023, the tax charge related to earnings that are not considered indefinitely reinvested is not material. Determination of the unrecognized deferred foreign income tax liability related to these undistributed earnings is not practicable due to the complexities associated with this hypothetical calculation.
Uncertain tax positions

The table below sets forth the changes to our gross unrecognized tax benefit as a result of uncertain tax positions, excluding interest and penalties for the years ended December 31, 2023, 2022 and 2021. We do not anticipate that the total unrecognized tax benefits will change significantly within the next twelve months.
Years Ended December 31,
(in millions)202320222021
Unrecognized tax benefits at beginning of year$22 $16 $10 
Decreases related to positions taken on items from prior years(1)— — 
Increases related to positions taken in the current year5 6 6 
Decreases due to expiration of statutes of limitations(4)— — 
Unrecognized tax benefits at end of year$22 $22 16 

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Included in the balance of unrecognized tax benefits as of December 31, 2023 and December 31, 2022, are potential benefits of $22 million and $22 million, respectively, that if recognized would affect the effective tax rate.

We report accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the year ended December 31, 2023, we recognized no net expense for interest and penalties for unrecognized tax benefits and had net accumulated accrued interest and penalties of $2 million as of December 31, 2023. For the year ended December 31, 2022, we recognized a net expense for interest and penalties of $1 million relating to unrecognized tax benefits and had net accumulated accrued interest and penalties of $3 million as of December 31, 2022.

Open tax periods

We file income tax returns in the U.S. federal jurisdiction, all states, and various local and foreign jurisdictions. Our U.S. federal tax returns are no longer subject to income tax examinations for taxable years before 2020. With limited exception, state, local, and foreign income tax returns for taxable years before 2019 are no longer subject to examination.

Note 18. Earnings Per Share

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

Years Ended December 31,
(in millions)202320222021
Numerator for basic and diluted earnings per share:
Net income$210 $283 $242 
Denominator for basic and diluted earnings per share:
Weighted average basic number of common shares outstanding147146144
Plus: dilutive effect of common stock equivalents1 34
Weighted average diluted number of common shares outstanding148149148
Earnings per share:
Basic$1.43 $1.94 $1.68 
Diluted$1.42 $1.90 $1.63 

Diluted earnings per share is computed based upon the weighted average number of shares of common stock outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period. For the years ended December 31, 2023, 2022 and 2021, average options and other rights to purchase approximately 1.5 million, 0.1 million and 0.2 million shares of our common stock, respectively, were outstanding and anti-dilutive, and therefore excluded from the computation of diluted earnings per share. In addition, an average of 1.2 million, 0.6 million and 0.6 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the years ended December 31, 2023, 2022 and 2021, respectively, as the contingency has not been satisfied.

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Resideo Technologies, Inc.
Notes to Consolidated Financial Statements
Note 19. Geographic Areas - Financial Data

Revenue and long-lived assets by geography are as follows:

Net Revenue (1)
Long-lived Assets (2)
Years Ended December 31,December 31,
(in millions)202320222021202320222021
U.S.$4,720 $4,795 $4,181 $332 $347 $244 
Europe1,065 1,111 1,196 143 131 139 
Other International457 464 469 107 79 46 
Total$6,242 $6,370 $5,846 $582 $557 $429 
(1)Net revenue between geographic areas approximate market and is not significant. Net revenue is classified according to their country of origin. Included in U.S. net revenue are export sales of $41 million, $38 million, and $26 million for the years ended December 31, 2023, 2022, and 2021, respectively.
(2)Long-lived assets are comprised of property, plant and equipment, net and right-of-use lease assets.

Note 20. Stockholders’ Equity

On August 3, 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period (the “Share Repurchase Program”). Under the Share Repurchase Program, we may repurchase common stock from time-to-time through various methods, including in open market transactions, block trades, accelerated share repurchases, privately negotiated transactions, derivative transactions or otherwise, certain of which may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in compliance with applicable state and federal securities laws. The Share Repurchase Program can be modified or terminated by our Board of Directors at any time.

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

During the twelve months ended December 31, 2023, we repurchased 2.6 million shares of common stock in the open market at a total cost of $41 million. As of December 31, 2023, the Company had approximately $109 million of authorized repurchases remaining under the Share Repurchase Program. Common stock repurchases are recorded at cost and presented as a deduction from stockholders’ equity.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Resideo Technologies, Inc.

Inc.


Opinion on Internal Control over Financial Reporting


We have audited the internal control over financial reporting of Resideo Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2020,2023, based on criteria established in Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established inInternal Control –— Integrated Framework (2013)issued by COSO.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated and combined financial statements as of and for the year ended December 31, 2020,2023, of the Company and our report dated February 25, 2021,14, 2024, expressed an unqualified opinion on those consolidated and combined financial statements and included explanatory paragraphs relating to expense allocations for certain corporate functions historically provided by Honeywell International, Inc. and the Company’s adoption of Accounting Standards Update No. 2016-02, statements.
Leases (Topic 842)
.

Basis for Opinion


The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
76
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Deloitte & Touche LLP

Dallas, Texas  


Minneapolis, Minnesota
February 25, 2021

14, 2024


77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and the Board of Directors of Resideo Technologies, Inc.

Inc


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Resideo Technologies, Inc.Inc (the “Company”"Company") as of December 31, 20202023 and 2019,2022, the related consolidated and combined statements of operations, comprehensive income, cash flow,flows, and stockholders’ equity, for each of the three years in the period ended December 31, 2020,2023, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021,14, 2024, expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.

Emphasis of Matter

As described in Note 1 to the financial statements, prior to the Spin-Off, the accompanying financial statements were derived from the separate records maintained by Honeywell International, Inc. (“Honeywell”). The financial statements also include expense allocations for certain corporate functions historically provided by Honeywell. These allocations may not be reflective of the actual expense that would have been incurred had the Company operated as a separate entity apart from Honeywell. A summary of transactions with related parties is included in Note 5 to the financial statements.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company adopted Accounting Standard Update No. 2016-02,

Leases (Topic 842)
, effective January 1, 2019, and applied the changes prospectively as of the adoption date.

Basis for Opinion


These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


Critical Audit Matter


The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion


on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


Honeywell Reimbursement Agreement—Agreement — Refer to Note 1915 to the financial statements


Critical Audit Matter Description


In connection with the Spin-Off, the Company entered into the Honeywell Reimbursement Agreement (the “Reimbursement Agreement”), pursuant to which the Company has an obligation to make cash payments to Honeywell with respect to certain environmental claims associated with specified properties contaminated through historical business operations. The Company’s obligation is equal to 90% of payments for certain Honeywell environmental liability payments, less 90% of Honeywell’s net insurance receipts, plus certain other recoveries relating to such liabilities, as defined by the Reimbursement Agreement. The amount payable by the Company under this agreement is subject to an annual limit of $140 million.


The Company records its obligation under the Reimbursement Agreement based on the underlying environmental remediation liabilities of specified Honeywell sites which are recorded when a remediation liability is determined to be probable, and the related costs can be reasonably estimated. The determination of the amount of future costs associated
78
with environmental remediation requires judgments and estimates by management. Furthermore, information the Company uses to evaluate the estimates is obtained from Honeywell under the terms of the Reimbursement Agreement.


Given the subjectivity in estimating the remediation costs for environmental matters and judgments made by management related to those estimates, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions requires a high degree of auditor judgment.


How the Critical Audit Matter Was Addressed in the Audit


Our audit procedures related to the Company’s obligation under the Reimbursement Agreement and evaluation of the Company’s evidence supporting its estimates included the following, among others:

•

We tested the effectiveness of controls related to remediation costs for environmental matters, including management’s controls over the recording of and changes to the liability for the Company’s obligations under the Reimbursement Agreement.

•

We read the Reimbursement Agreement and evaluated the Company’s compliance with it to the extent it has the potential to affect the Company’s related liability.

•We tested the effectiveness of controls related to remediation costs for environmental matters, including management’s controls over the recording of and changes to the liability for the Company’s obligations under the Reimbursement Agreement.

We performed searches of third-party sources to identify potential liabilities related to the specified sites that may not have been included in the estimates.

•We read the Reimbursement Agreement and evaluated the Company’s compliance with it to the extent it has the potential to affect the Company’s related liability.

We tested the completeness and accuracy of the recognition of the Company’s liability for obligations under the Reimbursement Agreement through the following procedures:

–

For a selection of incremental charges•We performed searches of third-party sources to identify potential liabilities related to the specified sites that may not have been included in the Honeywell Environmental liability (increases), obtained supporting documentation related to the valuation of the liability from management, including, but not limited to, regulatory records of decision, feasibility studies, and third-party engineering estimates.

–•We tested the completeness and accuracy of the recognition of the Company’s liability for obligations under the Reimbursement Agreement through the following procedures:

For a selection of payments related to the Honeywell Environmental liability (decreases), obtained supporting documentation related to the original invoice and proof of payment.

–For a selection of incremental charges to the Honeywell Environmental liability (increases), obtained supporting documentation related to the valuation of the liability from management, including, but not limited to, regulatory records of decision, feasibility studies, and third-party engineering estimates.

Made inquiries of internal and external legal counsel regarding environmental matters.

–For a selection of payments related to the Honeywell Environmental liability (decreases), obtained supporting documentation related to the original invoice and proof of payment.

Performed searches of public domain sources to identify new remediation sites attributable to the Company or any additional remediation activities required by federal, state, or international authorities that may not have been included in the estimates.

–Made inquiries of internal and external legal counsel regarding environmental matters.
–Performed searches of public domain sources to identify new remediation sites attributable to the Company or any additional remediation activities required by federal, state, or international authorities that may not have been included in the estimates.

/s/ Deloitte & Touche LLP

Dallas, Texas


Minneapolis, Minnesota
February 25, 2021

14, 2024


We have served as the Company’sCompany's auditor since 2018.

45

79

Table of Contents
RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(In millions except share and per share data)

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

Cost of goods sold

 

 

3,758

 

 

 

3,711

 

 

 

3,402

 

Gross profit

 

 

1,313

 

 

 

1,277

 

 

 

1,425

 

Selling, general and administrative expenses

 

 

1,002

 

 

 

1,019

 

 

 

932

 

Operating profit

 

 

311

 

 

 

258

 

 

 

493

 

Other expense, net

 

 

147

 

 

 

118

 

 

 

369

 

Interest expense

 

 

63

 

 

 

69

 

 

 

20

 

Income before taxes

 

 

101

 

 

 

71

 

 

 

104

 

Tax expense (benefit)

 

 

64

 

 

 

35

 

 

 

(301

)

Net income

 

$

37

 

 

$

36

 

 

$

405

 

Weighted Average Number of Common Shares Outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

125,348

 

 

 

122,722

 

 

 

122,499

 

Diluted

 

 

126,324

 

 

 

123,238

 

 

 

122,624

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.29

 

 

$

3.31

 

Diluted

 

$

0.29

 

 

$

0.29

 

 

$

3.30

 

The Notes to Consolidated and Combined Financial Statements are an integral part of these statements.

46

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED AND COMBINED

STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net income

 

$

37

 

 

$

36

 

 

$

405

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

63

 

 

 

(2

)

 

 

(77

)

Pension actuarial loss

 

 

(15

)

 

 

(3

)

 

 

(7

)

Total other comprehensive income (loss), net of tax

 

 

48

 

 

 

(5

)

 

 

(84

)

Comprehensive income

 

$

85

 

 

$

31

 

 

$

321

 

The Notes to Consolidated and Combined Financial Statements are an integral part of these statements.

47

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except number of shares which are reflected in thousands and par value)

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

517

 

 

$

122

 

Accounts receivable – net

 

 

863

 

 

 

817

 

Inventories – net

 

 

672

 

 

 

671

 

Other current assets

 

 

173

 

 

 

175

 

Total current assets

 

 

2,225

 

 

 

1,785

 

Property, plant and equipment – net

 

 

318

 

 

 

316

 

Goodwill

 

 

2,691

 

 

 

2,642

 

Other assets

 

 

376

 

 

 

385

 

Total assets

 

$

5,610

 

 

$

5,128

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

936

 

 

$

920

 

Current maturities of debt

 

 

7

 

 

 

22

 

Accrued liabilities

 

 

595

 

 

 

552

 

Total current liabilities

 

 

1,538

 

 

 

1,494

 

Long-term debt

 

 

1,155

 

 

 

1,158

 

Obligations payable under Indemnification Agreements

 

 

590

 

 

 

594

 

Other liabilities

 

 

334

 

 

 

280

 

COMMITMENTS AND CONTINGENCIES (Note 19)

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 700,000 shares authorized, 143,959 and 143,059 shares issued and outstanding as of December 31, 2020, 123,488 and 122,873 shares issued and outstanding as of December 31, 2019, respectively

 

0

 

 

 

0

 

Additional paid-in capital

 

 

2,070

 

 

 

1,761

 

Treasury stock, at cost

 

 

(6

)

 

 

(3

)

Retained earnings

 

 

75

 

 

 

38

 

Accumulated other comprehensive loss

 

 

(146

)

 

 

(194

)

Total equity

 

 

1,993

 

 

 

1,602

 

Total liabilities and equity

 

$

5,610

 

 

$

5,128

 

The Notes to Consolidated and Combined Financial Statements are an integral part of these statements.

48

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOW

(In millions)

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Cash flows provided by (used for) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

37

 

 

$

36

 

 

$

405

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

86

 

 

 

80

 

 

 

66

 

Stock compensation expense

 

 

29

 

 

 

25

 

 

 

20

 

Deferred income taxes

 

 

22

 

 

 

(25

)

 

 

(323

)

Other

 

 

21

 

 

 

18

 

 

 

22

 

Changes in assets and liabilities, net of acquired companies:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(27

)

 

 

7

 

 

 

(62

)

Inventories – net

 

 

19

 

 

 

(44

)

 

 

(172

)

Other current assets

 

 

5

 

 

 

(53

)

 

 

(27

)

Other assets

 

 

-

 

 

 

(15

)

 

 

(4

)

Accounts payable

 

 

(1

)

 

 

(38

)

 

 

231

 

Accrued liabilities

 

 

31

 

 

 

28

 

 

 

61

 

Obligations payable under Indemnification Agreements

 

 

(4

)

 

 

(35

)

 

 

24

 

Other liabilities

 

 

26

 

 

 

39

 

 

 

221

 

Net cash provided by operating activities

 

 

244

 

 

 

23

 

 

 

462

 

Cash flows (used for) provided by for investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for property, plant, equipment and other intangibles

 

 

(70

)

 

 

(95

)

 

 

(81

)

Cash paid for acquisitions, net of cash acquired

 

 

(35

)

 

 

(17

)

 

 

-

 

Other

 

 

2

 

 

 

-

 

 

 

7

 

Net cash used for investing activities

 

 

(103

)

 

 

(112

)

 

 

(74

)

Cash flows provided by (used for) financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock through public offering, net of issuance cost

 

279

 

 

 

-

 

 

 

-

 

Proceeds from long-term debt

 

 

-

 

 

 

-

 

 

 

1,225

 

Payment of debt facility issuance and modification costs

 

 

-

 

 

 

(4

)

 

 

(29

)

Repayment of long-term debt

 

 

(22

)

 

 

(22

)

 

 

-

 

Distribution to Honeywell in connection with Spin-Off

 

 

-

 

 

 

-

 

 

 

(1,415

)

Net increase in invested equity

 

 

-

 

 

 

-

 

 

 

39

 

Non-operating obligations from Honeywell, net

 

 

(2

)

 

 

(24

)

 

 

26

 

Other

 

 

(2

)

 

 

(3

)

 

 

(13

)

Net cash provided by (used for) financing activities

 

 

253

 

 

 

(53

)

 

 

(167

)

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

1

 

 

 

(1

)

 

 

(12

)

Net increase (decrease) in cash and cash equivalents

 

 

395

 

 

 

(143

)

 

 

209

 

Cash and cash equivalents at beginning of period

 

 

122

 

 

 

265

 

 

 

56

 

Cash and cash equivalents at end of period

 

$

517

 

 

$

122

 

 

$

265

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

57

 

 

$

72

 

 

$

-

 

Income taxes paid (net of refunds)

 

$

32

 

 

$

86

 

 

$

28

 

The Notes to Consolidated and Combined Financial Statements are an integral part of these statements.

49

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(In millions, shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Shares

 

 

Treasury

Shares

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Additional

Paid-

In Capital

 

 

Retained

Earnings

 

 

Invested

Equity

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Equity

 

Balance at January 1, 2018

 

 

-

 

 

 

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2,703

 

 

$

(100

)

 

$

2,603

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

403

 

 

 

-

 

 

 

405

 

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(84

)

 

 

(84

)

Change in invested equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,398

)

 

 

-

 

 

 

(1,398

)

Issuance of common stock and reclassification of invested equity

 

 

122,499

 

 

 

468

 

 

 

-

 

 

 

-

 

 

 

1,713

 

 

 

-

 

 

 

(1,708

)

 

 

(5

)

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

Balance at December 31, 2018

 

 

122,499

 

 

 

468

 

 

 

-

 

 

 

-

 

 

 

1,720

 

 

 

2

 

 

 

-

 

 

 

(189

)

 

 

1,533

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

36

 

 

 

-

 

 

 

-

 

 

 

36

 

Other comprehensive (loss), net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5

)

 

 

(5

)

Issuance of common stock under stock-based compensation plans, net of shares withheld for employee taxes

 

 

374

 

 

 

147

 

 

 

-

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25

 

Adjustments due to Spin-Off

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16

 

Balance at December 31, 2019

 

 

122,873

 

 

 

615

 

 

 

-

 

 

 

(3

)

 

 

1,761

 

 

 

38

 

 

 

-

 

 

 

(194

)

 

 

1,602

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

37

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48

 

 

 

48

 

Issuance of common stock under stock-based compensation plans, net of shares withheld for employee taxes

 

 

636

 

 

 

285

 

 

 

-

 

 

 

(3

)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29

 

Issuance of common stock through public offering, net of issuance costs

 

 

19,550

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

279

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

279

 

Balance at December 31, 2020

 

 

143,059

 

 

 

900

 

 

$

-

 

 

$

(6

)

 

$

2,070

 

 

$

75

 

 

$

-

 

 

$

(146

)

 

$

1,993

 

The Notes to Consolidated and Combined Financial Statements are an integral part ofthese statements.

50

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(In millions, unless otherwise noted)

Note 1. Organization, Operations and Basis of Presentation

Business Description

Resideo Technologies, Inc. (“Resideo” or “the Company”), is a leading manufacturer and distributor of technology-driven products that provide critical comfort, residential thermal and security solutions to homes globally. The Company is also the leading wholesale distributor of low-voltage security products including intrusion, access control and video products and participates significantly in the broader related markets of smart home, fire, power, audio, ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products. The Company has a global footprint serving commercial and residential end markets.

Separation from Honeywell

The Company was incorporated in Delaware on April 24, 2018. On October 29, 2018, the Company separated from Honeywell International Inc. (“Honeywell”) becoming an independent publicly traded company as a result of a pro rata distribution of the Company’s common stock to shareholders of Honeywell (the “Spin-Off”). The Company began trading “regular way” under the ticker symbol “REZI” on the New York Stock Exchange on October 29, 2018.

In connection with the separation, Resideo and Honeywell entered into a Reimbursement Agreement (as defined in Note 2. Summary of Significant Accounting Policies), a Separation and Distribution Agreement, an Employee Matters Agreement, a Tax Matters Agreement, a Transition Services Agreement, a Trademark License Agreement and a Patent Cross-License Agreement. The agreements govern the relationship between Resideo and Honeywell following the separation and provide for the allocation of various assets, liabilities, rights, and obligations. These agreements also include arrangements for transition services provided by Honeywell to Resideo and by Resideo to Honeywell.

Basis of Presentation

Prior to the Spin-Off, the Company’s historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 29, 2018, these financial statements are presented on a combined basis and for the periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”). The Consolidated and Combined Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

All intracompany transactions have been eliminated for all periods presented. As described in Note 5. Related Party Transactions with Honeywell, all significant transactions between the Company and Honeywell occurring prior to the Spin-Off have been included in these Consolidated and Combined Financial Statements.

51

RESIDEO TECHNOLOGIES, INC.

While the Company was owned by Honeywell, a centralized approach to cash management and financing was used. Prior to the consummation of the Spin-Off, the majority of the Company’s cash was transferred to Honeywell daily and Honeywell funded the Company’s operating and investing activities as needed.

The combined financial statements prior to the Spin-Off include certain assets and liabilities that have historically been held at Honeywell corporate level but were specifically identifiable or otherwise attributable to the Company. The cash and cash equivalents held by Honeywell at the corporate level were not specifically identifiable to the Company and therefore were not attributed. Honeywell third-party debt and the related interest expense were not allocated as Honeywell’s borrowings were not directly attributable to the company. In periods subsequent to the Spin-Off, the Company made adjustments to balances transferred at the Spin-Off, including adjustments to the classification of assets or liabilities transferred. Any such adjustments are recorded directly to equity in Adjustments due to the Spin-Off and are considered immaterial.

Prior to the Spin-Off, Honeywell 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 net revenue. The Company and Honeywell consider these allocations to be a reasonable reflection of the benefits received by the Company. However, the financial information presented in these Consolidated and Combined Financial Statements may not reflect the consolidated and combined financial position, operating results and cash flows of the Company had the Company been a separate stand-alone entity during the periods presented. 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 Resideo 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. After the Spin-Off, a number of the above services have continued under a Transition Service Agreement with Honeywell, which the Company expenses as incurred based on the contractual pricing terms.

The Company reports financial information on a fiscal quarter basis using a “modified” 4-4-5 calendar (modified in that the fiscal year always begins on January 1 and ends on December 31) that requires its businesses to close their first, second and third quarter books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on business processes. The effects of this practice are generally not significant to reported results for any quarter and only exist within a reporting year.

52

RESIDEO TECHNOLOGIES, INC.

Reclassification

On January 1, 2020, the Company changed its classification of research and development expenses in the Consolidated and Combined Statements of Operations from Cost of goods sold to Selling, general and administrative expenses, such that research and development expenses are excluded from the calculation of Gross profit. This change had no impact on Net income and earnings per share or the Consolidated Balance Sheet, Consolidated and Combined Statements of Cash Flow or Equity. The Company determined the impact on previously issued consolidated and combined annual and interim financial statements was not material. The impact for the years ended December 31, 2019 and 2018 was a decrease in Cost of goods sold, an increase in Gross profit and in Selling, general and administrative expenses of $87 million and $59 million, respectively. The impact of the reclassification for the year ended December 31, 2019 is also reflected in Note 7. Restructuring Charges and Note 23. Unaudited Quarterly Financial Information.

In addition, the prior year segment information was recast to present Corporate separately. See Note 21. Segment Financial Data for additional information. Certain reclassifications have been made to the prior period financial statements to conform to the classification adopted in the current period.

Issuance of Common Stock through Public Offering

On November 17, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) which provided for the offer and sale by the Company of 17,000,000 shares of common stock of the Company at the public offering price of $15.00 per share (the “Offering”). The Offering closed on November 20, 2020. On December 14, 2020, the Company completed the closing of the exercise of the underwriters’ option to purchase an additional 2,550,000 shares of common stock of the Offering price of $15.00 per share as allowed in the Underwriting Agreement. The Company received net proceeds of approximately $279 million, after deducting underwriting discounts of $13 million and offering expenses payable by the Company of $1 million.

Note 2. Summary of Significant Accounting Policies

The World Health Organization (“WHO”) declared the novel coronavirus disease ("COVID-19") a pandemic in March 2020. Starting at the end of the first quarter and throughout the second quarter, the Company experienced constrained supply and slowed customer demand that adversely impacted the Company’s business, results of operations and overall financial performance. Although there remains uncertainty as to the continuing implications of COVID-19, during the second half of 2020 customer demand improved and on-going cost actions and transformation efforts contributed to improvements in the Company’s results of operations and overall financial performance. As there remains uncertainty around the impacts of the COVID-19 pandemic, the Company addresses and evaluates the impacts frequently. At December 31, 2020, the Company believes that the accounting policies most likely affected by the COVID-19 pandemic are the use of estimates and goodwill policies.

Accounting Principles—The financial statements and accompanying notes are prepared in accordance with U.S. GAAP. The following is a description of Resideo’s significant accounting policies.

Principles of Consolidation—The Consolidated and Combined Financial Statements include the accounts of Resideo Technologies, Inc. and all of its subsidiaries in which a controlling interest is maintained. All intercompany transactions and balances are eliminated in consolidation.

Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and highly liquid investments having an original maturity of three months or less.

Accounts Receivables and Allowance for Doubtful Accounts—Trade accounts receivable are recorded at the invoiced amount as a result of transactions with customers. The Company maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. The Company estimates anticipated losses from doubtful accounts based on days past due as measured from the contractual due date and historical collection history. The Company also takes into consideration changes in economic conditions that may not be reflected in historicaltrends, for example customers in bankruptcy, liquidation or reorganization. Receivables are written-off against the allowance for doubtful accounts whenthey are determined to be uncollectible. Such determination includes analysis and consideration of the particular conditions of the account, including time

53

RESIDEO TECHNOLOGIES, INC.

intervals since last collection, customer performance against agreed upon payment plans, solvency of customer and any bankruptcy proceedings.

Inventories—Inventories in the Products & Solutions business are stated at the lower of cost or net realizable value, determined on a first-in, first-out basis, including direct material costs and direct and indirect manufacturing costs, or net realizable value. Inventories in the ADI Global Distribution business are stated at average cost. Reserves are maintained for obsolete and surplus items.

Property, Plant and Equipment—Property, plant and equipment are recorded at cost, less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 50 years for buildings and improvements, 3 to 16 years for machinery and equipment and 3 to 10 years for tooling equipment.

Goodwill—The Company performs goodwill impairment testing annually, on the first day of the fourth quarter each year or more frequently if indicators of potential impairment exist. The goodwill impairment test is performed at the reporting unit level. The Company has 2 reporting units, Products & Solutions and ADI Global Distribution. The Company performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value provided the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. For the 2020 annual impairment test, the Company used a weighting of fair values derived from the income approach and market approach. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. The income approach requires the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value, and appropriate discount rates. Under the market approach, the Company utilizes the public company guideline method.

The Company believes the estimates and assumptions used in the calculations are reasonable. In addition, the extent to which COVID-19 may adversely impact the Company’s business depends on future developments, which are uncertain and unpredictable, depending upon severity and duration of the outbreak, and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be estimated reasonably at this time but may adversely affect the Company’s business and financial results. It is likely that into 2021, macroeconomic conditions may have unexpected impacts on the Company’s business. If there were an adverse change in facts and circumstances, then an impairment charge may be necessary in the future. Should the fair value of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its reporting units to determine if there is an indicator of potential impairment.

Other Intangible Assets and Long-lived Assets—Other intangible assets with determinable lives consist of customer lists, technology, patents and trademarks and software intangibles and are amortized over their estimated useful lives, ranging from 3 to 15 years. They are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of long-lived assets are measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

Warranties and Guarantees—Expected warranty costs for products sold are recognized based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the warranty accrual at the time an obligation becomes probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and circumstances that impact the status of existing claims.

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RESIDEO TECHNOLOGIES, INC.

Leases—Effective January 1, 2019, arrangements containing leases are evaluated as an operating or finance lease at lease inception. For operating leases, the Company recognizes an operating right-of-use asset and operating lease liability at lease commencement based on the present value of lease payments over the lease term.

Since an implicit rate of return is not readily determinable for the Company’s leases, an incremental borrowing rate is used in determining the present value of lease payments and is calculated based on information available at the lease commencement date. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar term. The Company references a market yield curve consistent with the Company’s credit rating which is risk-adjusted to approximate a collateralized rate in the currency of the lease. These rates are updated on a quarterly basis for measurement of new lease obligations.Most leases include renewal options; however, generally it is not reasonably certain that these options will be exercised at lease commencement. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recognized on the Company’s balance sheet. The Company does not separate lease and non-lease components for its real estate and automobile leases.

Revenue Recognition—Product and service revenues are recognized when or as the Company transfers control of the promised products or services to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

In the sale of products, the terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, discounts and rebates. The Company estimates variable consideration at the most likely amount that will be received from customers and reduces revenues recognized accordingly. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company.

Sales, use and value added taxes collected by the Company and remitted to various government authorities were not recognized as revenues and are reported on a net basis.

Shipping and handling fees billed to customers were included in Cost of goods sold.

Royalty—In connection with the Spin-Off, the Company and Honeywell entered into a 40-year Trademark License Agreement (“the Trademark Agreement”) that authorizes the Company’s use of certain licensed trademarks in the operation of Resideo’s business for the advertising, sale and distribution of certain licensed products. In exchange, the Company pays a royalty fee of 1.5% of net revenue of the licensed products to Honeywell which is recorded in Selling, general and administrative expense on the Consolidated and Combined Statements of Operations.

Reimbursement Agreement—In connection with the Spin-Off the Company entered into an Indemnification and Reimbursement Agreement with Honeywell (the “Reimbursement Agreement”) on October 14, 2018, pursuant to which it 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 Honeywell properties contaminated through historical business operations prior to the Spin-Off (“Honeywell Sites”), 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 is subject to a cap of $140 million. Reimbursement Agreement expenses are presented within Other expense, net in the Consolidated and Combined Statements of Operations and within Accrued liabilities and Obligations payable under Indemnification Agreements in the Consolidated Balance Sheets. For additional information, see Note 19. Commitments and Contingencies.

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RESIDEO TECHNOLOGIES, INC.

Environmental—The Company accrues costs related to environmental matters when it is probable that it has incurred a liability related to a contaminated site and the amount can be reasonably estimated. Environmental costs for the Company’s owned sites are presented within Cost of goods sold for operating sites. Prior to the Spin-off, sites now under the Reimbursement Agreement were presented within Other expense, net in the Consolidated and Combined Statements of Operations. For additional information, see Note 19. Commitments and Contingencies.

Tax Indemnification Agreement—The Tax Matters Agreement provides that Resideo is required to indemnify Honeywell for any taxes (and reasonable expenses) 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 (a) breaches of covenants and representations the Company makes and agrees to in connection with the Spin-Off, (b) the application of certain provisions of U.S. federal income tax law to these transactions or (c) any other action taken or omission made (other than actions expressly required or permitted by the Separation and Distribution Agreement, the Tax Matters Agreement or other ancillary agreements) after the consummation of the Spin-Off that gives rise to these taxes. As of December 31, 2020 and 2019, the Company had an indemnity outstanding to Honeywell of $139 million and $149 million, respectively. See Note 19. Commitments and Contingencies.

Research and Development—The Company conducts research and development activities, which consist primarily of the development of new products as well as enhancements and improvements to existing products that substantially change the product. Research and development costs primarily relate to employee compensation and consulting fees which are charged to expense as incurred. Such costs are included in Selling, general and administrative expenses and amount to$77 million, $87 million and $59 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Advertising Costs—The Company expenses advertising costs as incurred. Advertising costs totaled $25 million and $46 million for the years ended December 31, 2020 and 2019, respectively. Prior to the Spin-Off, advertising costs were allocated from Honeywell as described in Note 5. Related Party Transactions with Honeywell. Advertising costs are included within Selling, general and administrative expense.

Defined Contribution Plans—The Company sponsors various defined contribution plans with varying terms depending on the country of employment. The Company recognized compensation expense of $18 million for both years ended December 31, 2020 and 2019 related to employer contributions to these plans. Prior to the Spin-Off, costs were allocated from Honeywell as described in Note 5. Related Party Transactions with Honeywell.

Stock-Based Compensation Plans—The principal awards issued under Resideo’s stock-based compensation plans, which are described in Note 18. Stock-Based Compensation Plans, are restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. Some awards are issued with a market condition which are valued on the grant date utilizing a Monte Carlo simulation model. Stock options are also issued under Resideo’s stock-based compensation plans and are valued on the grant date using the Black-Scholes option pricing model.

The Black-Scholes option pricing model and the Monte Carlo simulation model require estimates of future stock price volatility, expected term, risk-free interest rate and forfeitures.

For all stock-based compensation, the fair value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on historical forfeiture rates.

Pension—The Company disaggregates the service cost component of net benefit costs and reports those costs in the same line item or items in the Consolidated and Combined Statements of Operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other non-service components of net benefit costs are required to be presented separately from the service cost component and outside of income from operations.

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RESIDEO TECHNOLOGIES, INC.

The Company has recorded the service cost component of pension expense in Costs of goods sold and Selling, general and administrative expenses based on the classification of the employees it relates to. The remaining components of net benefit costs within pension expense, primarily interest costs and expected return on plan assets, are recorded in Other expense, net. The Company recognizes net actuarial gains or losses in excess of 10% of the greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth quarter each year. This adjustment known as the mark to market adjustment is reported in Other expense, net.

Foreign Currency Translation—Assets and liabilities of operations outside the United States with a functional currency other than U.S. Dollars are translated into U.S. Dollars using year-end exchange rates. Revenue, costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of Accumulated other comprehensive loss.

Income Taxes—Significant judgment is required in evaluating tax positions. The Company establishes 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, the Company and its subsidiaries are examined by various federal, state and foreign tax authorities. The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of its provision for income taxes. The Company continually assesses the likelihood and amount of potential adjustments and adjusts 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.

Earnings Per Share—Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.For additional information, see Note 3. Earnings Per Share.

Use of Estimates—The preparation of the Company’s Consolidated and Combined Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated and Combined Financial Statements and related disclosures in the accompanying notes. Actual resultscould differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of changes are reflected in the Consolidated and Combined Financial Statements in the period they are determined to be necessary. Estimates are used when accounting for stock-based compensation, pension benefits, indemnification liabilities, goodwill and intangible assets, and valuation allowances for accounts receivable, inventory, deferred tax assets, and the amounts of revenue and expenses reported during the period. The Company has used information available to identify potential impacts cause by the COVID-19 pandemic at December 31, 2020 in these estimates.

Recent Accounting Pronouncements—The Company considers the applicability and impact of all recent accounting standardsupdates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed anddetermined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated and combined financial position or results ofoperations.

The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, and applied the changes prospectively as of the adoption date. As permitted by the new guidance, the Company elected the package of practical expedients, which, among other things, allowed historical lease classification to be carried forward.

Upon adoption of ASU No. 2016-02, the Company recognized an aggregate lease liability of $115 million, calculated based on the present value of the remaining minimum lease payments for qualifying leases as of January 1, 2019, with a corresponding right-of-use asset of $112 million. The cumulative-effect adjustment recognized to opening retained earnings was not material. The adoption of the new guidance did not impact the Company’s Consolidated and Combined Statements of Operations or Cash Flows.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for an entity to elect to reclassify, to retained earnings, the

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RESIDEO TECHNOLOGIES, INC.

one-time income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”). An entity that elects to make this reclassification must consider all items in AOCI that have tax effects stranded as a result of the tax rate change and must disclose the reclassification of these tax effects as well as the entity’s policy for releasing income tax effects from AOCI. The ASU may be applied either retrospectively or as of the beginning of the period of adoption. The Company adopted the standard on January 1, 2019 using the aggregate portfolio accounting policy for recognizing the disproportionateincome tax effects in AOCI and has elected not to reclassify the stranded income tax effects of U.S. Tax Reform from AOCI to retained earnings.

In August 2018, the FASB issued ASU No. 2018-14, Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans and allows for the removal of certain disclosures, while adding certain new disclosure requirements. The Company adopted the standard effective January 1, 2020 and the adoption did not have a material financial statement impact.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combinations that result in a step-up in the tax basis of goodwill. The Company early adopted the provisions of this guidance on January 1, 2020. Adoption of this guidance did not have a material financial statement impact.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which is optional guidance related to reference rate reform that provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s Term Loans and Revolving Credit Facility, which use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. Refer to Note 15. Long-term Debt and Credit Agreement for further details on the Company’s Term Loans and Revolving Credit Facility. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

Note 3. Earnings Per Share

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

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

37

 

 

$

36

 

 

$

405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic earnings per share

 

 

125,348

 

 

 

122,722

 

 

 

122,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of common stock equivalents

 

 

976

 

 

 

516

 

 

 

125

 

Shares used in computing diluted earnings per share

 

 

126,324

 

 

 

123,238

 

 

 

122,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

0.29

 

 

$

3.31

 

Diluted

 

$

0.29

 

 

$

0.29

 

 

$

3.30

 

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RESIDEO TECHNOLOGIES, INC.

On October 29, 2018, the date of consummation of the Spin-Off, 122,499 shares of the Company’s Common Stock, par value $0.001 per share, were distributed to Honeywell shareholders of record as of October 16, 2018. For the 2018 year to date calculation, these shares are treated as issued and outstanding from January 1, 2018 for purposes of calculating historical basic earnings per share. For December 31, 2020 and 2019, this calculation excludes 900 and 615 treasury shares, respectively.

Diluted Earnings Per Share is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of the Company’s common stock for the period. For the year ended December 31, 2018, the average market price of the Company’s common stock was calculated from the Spin-Off date to December 31, 2018. In periods where the Company has a net loss, 0 dilutive common shares are included in the calculation for diluted shares as they are considered anti-dilutive. For the year ended December 31, 2020, average options and other rights to purchase approximately 2.5 million shares of common stock were outstanding, all of which were anti-dilutive during the year ended December 31, 2020, and therefore excluded from the computation of diluted earnings per common share. Additionally, an average of approximately 0.5 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the year ended December 31, 2020 as the contingency has not been satisfied at December 31, 2020. For the year ended December 31, 2019, average option and other rights to purchase approximately 2.8 million shares of common stock were outstanding, all of which were anti-dilutive during the year ended December 31, 2019, and therefore excluded from the computation of diluted earnings per common share. Additionally, an average of approximately 0.2 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the year ended December 31, 2019 as the contingency has not been satisfied at December 31, 2019.

Note 4. Acquisitions

During the year ended December 31, 2020, the Company completed 1 acquisition which has been integrated into the ADI Global Distribution segment. On February 10, 2020, the Company completed the acquisition of privately held Herman ProAV, a leading provider and distributer of professional audio-visual products, procurement services and labor resources to systems integrators in the commercial audio-visual industry. The purchase price paid for this acquisition was approximately $36 million. In connection with this acquisition, the Company recognized goodwill and intangible assets of $4 million and $18 million, respectively. This acquisition was integrated into and builds upon ADI Global Distribution’s product portfolio and expands its presence in the pro-AV market. The Herman ProAV acquisition agreements include deferred payments for certain individuals that are contingent upon employment as well as financial performance. The Company determined that these deferred payments are accounted for as compensation expense over the requisite service period.

During the year ended December 31, 2019, the Company completed 3 acquisitions which have been integrated into the Products & Solutions segment. On March 28, 2019, the Company acquired all of the capital stock of Buoy Labs primarily to obtain the technology assets. Buoy provides innovative Wi-Fi enabled solutions that track the amount of water used in a home, integrating smart software and hardware that can help consumers identify potential leaks and allow consumers to act to prevent them through its subscription-based app services. On May 21, 2019, the Company acquired certain assets relating to innovative energy efficiency from Whisker Labs. The acquired technology creates a thermodynamic model of a home to accurately predict home heating and air conditioning run time and energy use to enable a homeowner to use less energy while maintaining comfort. On June 27, 2019, the Company acquired all of the membership interests of LifeWhere. LifeWhere uses machine learning and analytics to predict potential failure on critical home appliances, such as water heaters, furnaces, and air conditioners. This service provides the detailed analytics required for professional contractors to dispatch technicians with the right skills to quickly repair the appliance before it causes catastrophic failure. The aggregate purchase price paid for these acquisitions was $17 million. In connection with these acquisitions, the Company recognized goodwill and intangible assets of $10 million and $7 million, respectively.

These acquisitions have an immaterial financial statement impact on both an individual basis and when considered in the aggregate. Pro-forma disclosures are not provided as the acquisitions have an immaterial financial statement impact.

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RESIDEO TECHNOLOGIES, INC.

Note 5. Related Party Transactions with Honeywell

Prior to the Spin-Off, the Consolidated and Combined Financial Statements were derived from the unaudited Consolidated Financial Statements and accounting records of Honeywell.

Prior to the Spin-Off, Honeywellwas a related party that provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Company. The costs of these services were allocated to the Company on the basis of the proportion of net revenue. The Company and Honeywell consider the allocations to be a reasonable reflection of the benefits received by the Company.

During the period from January 1, 2018 until October 29, 2018, the Company was allocated $228 million of general corporate expenses incurred by Honeywell and such amounts are included within Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. As certain expenses reflected in the Consolidated and Combined Financial Statements include allocations of corporate expenses from Honeywell, these statements could differ from those that would have been prepared had the Company operated on a stand-alone basis.

All significant intercompany transactions between the Company and Honeywell have been included in these Consolidated and Combined Financial Statements. During the period from January 1, 2018 until October 29, 2018, sales to Honeywell, Cost of goods sold to Honeywell, and purchases from Honeywell were $24 million, $19 million, and $212 million, respectively. The total net effect of the settlement of these intercompany transactions is reflected in the Consolidated and Combined Statements of Cash Flows as a financing activity.

Prior to the consummation of the Spin-Off, Honeywell managed the Company’s hedging activity which included centrally hedging its exposure to changes in foreign exchange rates principally with forward contracts. Certain contracts were specifically designated to and entered on behalf of the Company with Honeywell as a counterparty and were used to hedge known or probable anticipated foreign currency sales and purchases. The Company designated these hedges as cash flow hedges and the impact to the financial statements for 2018 was not material.

While the Company was owned by Honeywell, a centralized approach to cash management and financing of operations was used. Prior to consummation of the Spin-Off, the Company’s cash was transferred to Honeywell daily and Honeywell funded the Company’s operating and investing activities as needed. Net transfers to and from Honeywell are included within Invested equity on the Consolidated and Combined Statements of Equity. The components of the net transfers to and from Honeywell as of December 31, 2018 are as follows:

 

 

December 31,

 

 

 

2018

 

General financing activities

 

$

(383

)

Distribution to Honeywell in connection with Spin-Off

 

 

(1,415

)

Net contribution of assets and liabilities upon Spin-Off

 

 

81

 

Unbilled corporate allocations

 

 

228

 

Purchases from Honeywell

 

 

161

 

Mandatory transition tax

 

 

(85

)

Other

 

 

15

 

Net decrease in invested equity

 

$

(1,398

)

Subsequent to the Spin-Off on October 29, 2018, transactions with Honeywell were not considered related party transactions.

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RESIDEO TECHNOLOGIES, INC.

Note 6. Revenue Recognition

Disaggregated Revenue

Revenues by channel are as follows for the years ended December 31:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Comfort

 

$

1,079

 

 

$

1,103

 

 

$

1,114

 

Security

 

 

538

 

 

 

520

 

 

 

479

 

Residential Thermal Solutions

 

 

504

 

 

 

552

 

 

 

576

 

Products & Solutions

 

 

2,121

 

 

 

2,175

 

 

 

2,169

 

U.S. and Canada

 

 

2,427

 

 

 

2,294

 

 

 

2,147

 

EMEA (1)

 

 

480

 

 

 

459

 

 

 

456

 

APAC (2)

 

 

43

 

 

 

60

 

 

 

55

 

ADI Global Distribution

 

 

2,950

 

 

 

2,813

 

 

 

2,658

 

Net revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

(1)

EMEA represents Europe, the Middle East and Africa.

(2)

APAC represents Asia and Pacific countries.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation. The Company recognizes the majority of its revenue from performance obligations outlined in contracts with its customers that are satisfied at a point in time. Approximately 3% of the Company’s revenue is satisfied over time. As of December 31, 2020 and December 31, 2019, contract assets and liabilities were not material.

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

The Company has 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 it recognizes revenue in proportion to the amount it has the right to invoice for services performed.

Note 7. Restructuring Charges

During 2019, the Company retained industry-recognized experts in supply chain optimization and organizational excellence to assist in a comprehensive financial and operational review which was focused on product cost and gross margin improvement, and general and administrative expenses simplification. Certain restructuring actions have been implemented under this program as well as previous programs. Product & Solutions segment restructuring expenses for the years ended December 31, 2020, 2019, and 2018 were $19 million, $26 million, and $5 million, respectively. ADI Global Distribution segment restructuring expenses for the years ended December 31, 2020, 2019, and 2018 were $6 million, $4 million, and $0 million, respectively. Corporate restructuring expenses for the years ended December 31, 2020, 2019 and 2018 were $15 million, $7 million, and $0 million, respectively. Restructuring expenses for all periods are primarily related to severance.

The Company’s restructuring expenses for the years ended December 31, 2020, 2019 and 2018 are as follows:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Cost of goods sold

 

$

9

 

 

$

13

 

 

$

4

 

Selling, general and administrative expenses

 

 

31

 

 

 

24

 

 

 

1

 

 

 

$

40

 

 

$

37

 

 

$

5

 

61

RESIDEO TECHNOLOGIES, INC.

The following table summarizes the status of total restructuring reserves related to severance cost included in Accrued liabilities in the Consolidated Balance Sheets:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Beginning of year

 

$

19

 

 

$

13

 

 

$

22

 

Charges

 

 

40

 

 

 

38

 

 

 

5

 

Usage

 

 

(35

)

 

 

(31

)

 

 

(9

)

Other

 

 

-

 

 

 

(1

)

 

 

(5

)

End of year

 

$

24

 

 

$

19

 

 

$

13

 

Note 8. Other Expense, Net

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Environmental expense

 

$

-

 

 

$

-

 

 

$

323

 

Reimbursement Agreement expense

 

 

146

 

 

 

108

 

 

 

49

 

Other, net

 

 

1

 

 

 

10

 

 

 

(3

)

 

 

$

147

 

 

$

118

 

 

$

369

 

Refer to Note 19. Commitments and Contingencies for further details on environmental and Reimbursement Agreement expense.

NoteItem 9. Income Taxes

Prior to the consummation of the Spin-Off, Resideo’s operating results were included in Honeywell’s various consolidated U.S. federal and state income tax returns, as well as non-U.S. filings. For the purposes of the Company’s Consolidated and Combined Financial Statements for periods prior to the Spin-Off, Income tax expense and deferred tax balances have been recorded as if the Company filed tax returns on a standalone basis separate from Honeywell. The Separate Return Method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise prior to the separation from Honeywell.

Income before taxes

 

 

Years Ended December 31,

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

U.S.

 

$

(93

)

 

 

$

(83

)

 

 

$

(169

)

Non-U.S.

 

 

194

 

 

 

 

154

 

 

 

 

273

 

 

 

$

101

 

 

 

$

71

 

 

 

$

104

 

62

RESIDEO TECHNOLOGIES, INC.

Income tax expense (benefit)

 

 

Years Ended December 31,

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Tax expense (benefit) consists of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

21

 

 

 

$

23

 

 

 

$

(26

)

Non-U.S.

 

 

21

 

 

 

 

37

 

 

 

 

48

 

 

 

$

42

 

 

 

$

60

 

 

 

$

22

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

11

 

 

 

$

(11

)

 

 

$

(15

)

Non-U.S.

 

 

11

 

 

 

 

(14

)

 

 

 

(308

)

 

 

 

22

 

 

 

 

(25

)

 

 

 

(323

)

 

 

$

64

 

 

 

$

35

 

 

 

$

(301

)

 

 

Years Ended December 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

The U.S. federal statutory income tax rate is reconciled to the Company’s effective income tax rate as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. federal statutory income tax rate

 

 

21.0

 

%

 

 

21.0

 

%

 

 

21.0

 

%

Impact of foreign operations

 

 

(5.4

)

 

 

 

(10.2

)

 

 

 

(11.6

)

 

U.S. state income taxes

 

 

6.4

 

 

 

 

6.6

 

 

 

 

6.4

 

 

U.S. Tax Reform and related items

 

 

-

 

 

 

 

-

 

 

 

 

(385.1

)

 

Non-deductible indemnification costs

 

 

29.0

 

 

 

 

28.0

 

 

 

 

75.4

 

 

Executive compensation over $1 million

 

 

2.5

 

 

 

 

0.6

 

 

 

 

-

 

 

Other non-deductible expenses

 

 

3.7

 

 

 

 

2.9

 

 

 

 

-

 

 

U.S. taxation of foreign earnings

 

 

3.5

 

 

 

 

5.3

 

 

 

 

6.0

 

 

Tax credits

 

 

(0.2

)

 

 

 

(2.6

)

 

 

 

(2.1

)

 

Change in tax rates

 

 

1.3

 

 

 

 

1.7

 

 

 

 

-

 

 

All other items – net

 

 

1.8

 

 

 

 

(4.7

)

 

 

 

0.6

 

 

 

 

 

63.6

 

%

 

 

48.6

 

%

 

 

(289.4

)

%

63

RESIDEO TECHNOLOGIES, INC.

Deferred tax assets (liabilities)

The tax effects of temporary differences and tax carryforwards which give rise to future income tax benefits and payables are as follows:

 

 

Years Ended December 31,

 

 

 

2020

 

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

 

Pension

 

$

37

 

 

 

$

27

 

Other asset basis differences

 

 

70

 

 

 

 

70

 

Operating lease liabilities

 

 

34

 

 

 

 

33

 

Accruals and reserves

 

 

61

 

 

 

 

61

 

Net operating and capital losses

 

 

47

 

 

 

 

32

 

Other

 

 

-

 

 

 

 

6

 

Gross deferred tax assets

 

 

249

 

 

 

 

229

 

Valuation allowance

 

 

(60

)

 

 

 

(32

)

Total deferred tax assets

 

$

189

 

 

 

$

197

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

 

Other intangible assets

 

$

(44

)

 

 

$

(42

)

Property, plant and equipment

 

 

(25

)

 

 

 

(22

)

Operating lease assets

 

 

(32

)

 

 

 

(32

)

Other

 

 

(13

)

 

 

 

(12

)

Total deferred tax liabilities

 

 

(114

)

 

 

 

(108

)

Net deferred tax asset

 

$

75

 

 

 

$

89

 

Deferred tax assets:

The Company maintains a valuation allowance of $60million against a portion of the non-U.S. gross deferred tax assets. Valuation allowances principally relate to foreign net operating loss carryforwards where the future potential benefits do not meet the more-likely-than-not realization test. Changes in valuation allowance positions related to historic losses resulted in increases of $20 million and $3 million to tax expense in 2020Disagreements With Accountants on Accounting and 2019, respectively. The remaining changes in valuation allowances relate primarily to current year net operating losses on entities from which the company already maintains valuation allowancesFinancial Disclosure

None.
Item 9A. Controls and does not expect to receive tax benefits. In the event the Company determines that it will not be able to realize its net deferred tax assets in the future, it will reduce such amounts through an increase to tax expense in the period such determination is made. Conversely, if the Company determines that it will be able to realize net deferred tax assets in excess of the carrying amounts, it will decrease the recorded valuation allowance through a reduction to tax expense in the period that such determination is made.

The Company has not provided deferred taxes on unremitted earnings of its foreign affiliates that exist at December 31, 2020 as the earnings are considered permanently reinvested. Accordingly, 0 deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of the Company’s approximately $1.6 billion of undistributed earnings from foreign subsidiaries to the United States. It is impracticable to calculate the tax cost of repatriating the Company’s unremitted earnings which are considered indefinitely reinvested.

As of December 31, 2020, the Company has federal tax credit carryforwards of $1 million, federal net operating loss carryforwards of $2 million, and foreign net operating loss carryforwards of $196 million. The federal tax credit carryforwards expire in 2029. The federal net operating loss carryforwards expire in 2027. $178 million of foreign net operating losses can be carried forward indefinitely with the remainder expiring between 2021 and 2030.

Many jurisdictions impose limitations on the timing and utilization of net operating loss carryforwards. In those instances where the net operating loss or tax credit carryforward will not be utilized in the carryforward period due to the limitation, the deferred tax asset and amount of the carryforward have been reduced.

64

RESIDEO TECHNOLOGIES, INC.

As of December 31, 2020, 2019, and 2018 there were $10 million, $6 million, and $2 million of unrecognized tax benefits, respectively, that if recognized would be recorded as a component of Income tax expense. The change in unrecognized tax benefits resulted in increases (decreases) of $4 million, $4 million, and ($18) million to tax expense in 2020, 2019, and 2018, respectively. The decrease in 2018 was primarily driven by the reclassification of unrecognized tax benefits attributable to periods prior to the consummation of the Spin-Off to the indemnity payable to Honeywell under the terms of the Tax Matters Agreement.

As of December 31, 2020, 2019 and 2018 there were 0 unrecognized tax benefits related to examinations in progress. An immaterial amount of estimated interest and penalties related to the underpayment of income taxes is included in the liability for unrecognized tax benefits, both of which are included as a component of Income tax expense in the Consolidated and Combined Statements of Operations. The Company does not anticipate significant changes in total unrecognized tax benefits during the next twelve months.

The Company files income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. The Company’s US federal returns are no longer subject to income tax examinations for taxable years before 2016. With limited exception, state, local, and foreign income tax returns for taxable years before 2015 are no longer subject to examination.

On December 22, 2017, the U.S. government enacted U.S. Tax Reform, which included changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The U.S. Tax Reform also included a permanent reduction in the corporate tax rate, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates.

As described in the Combined Financial Statements for the year ended December 31, 2017, the Company 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 year ended December 31, 2018, the Company recorded an adjustment to the provisional tax amount related to the deemed repatriation transition tax and taxes on undistributed earnings of $(85.4) million and $(234.7) million, respectively. This adjustment resulted in a decrease to the effective tax rate for the year ended December 31, 2018 of 307.8%. The adjustment reflects the revised determination of the fair value of assets and liabilities of legal entities included in the Company’s business. The accounting for the income tax effects of the U.S. Tax Reform was complete as of December 31, 2018.

Note 10. Accounts Receivable — Net

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accounts receivable

 

$

875

 

 

$

834

 

Allowance for doubtful accounts

 

 

(12

)

 

 

(17

)

 

 

$

863

 

 

$

817

 

Note 11. Inventories — Net

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

127

 

 

$

121

 

Work in process

 

 

19

 

 

 

17

 

Finished products

 

 

526

 

 

 

533

 

 

 

$

672

 

 

$

671

 

The expense related to inventory was $31 million, $56 million and $10 million for the years ended December 31, 2020, 2019 and 2018, respectively.

65

RESIDEO TECHNOLOGIES, INC.

Note 12. Property, Plant and Equipment — Net

 

 

December 31,

 

 

 

2020

 

 

2019

 

Machinery and equipment

 

$

598

 

 

$

562

 

Buildings and improvements

 

 

289

 

 

 

260

 

Construction in progress

 

 

46

 

 

 

57

 

Others

 

 

14

 

 

 

16

 

 

 

 

947

 

 

 

895

 

Accumulated depreciation

 

 

(629

)

 

 

(579

)

 

 

$

318

 

 

$

316

 

Depreciation expense was $56 million, $50 million and $45 million in 2020, 2019 and 2018, respectively.

Note 13. Goodwill and Other Intangible Assets — Net

Goodwill as of December 31, 2020 and 2019 for Products & Solutions was $2,037 million and $2,004 million, respectively. The increase relates to foreign currency translation adjustments. Goodwill as of December 31, 2020 and 2019 for ADI Global Distribution was $654 million and $639 million, respectively.The carrying value of goodwill increased by $4 million due to an acquisition during the year. The remainder of the increase relates to foreign currency translation adjustments.

Other intangible assets with finite lives are comprised of:

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Patents and technology

 

$

37

 

 

$

(23

)

 

$

14

 

 

$

35

 

 

$

(19

)

 

$

16

 

Customer relationships

 

 

192

 

 

 

(122

)

 

 

70

 

 

 

170

 

 

 

(106

)

 

 

64

 

Trademarks

 

 

15

 

 

 

(8

)

 

 

7

 

 

 

9

 

 

 

(7

)

 

 

2

 

Software

 

 

146

 

 

 

(102

)

 

 

44

 

 

 

139

 

 

 

(94

)

 

 

45

 

 

 

$

390

 

 

$

(255

)

 

$

135

 

 

$

353

 

 

$

(226

)

 

$

127

 

Other intangible assets amortization expense was $31 million, $30 million and $21 million in 2020, 2019 and 2018, respectively. Estimated intangible asset amortization expense for each of the next five years approximates $28 million in 2021, $22 million in 2022, $19 million in 2023, $17 million in 2024 and $16 million in 2025.

Note 14. Accrued Liabilities

 

 

December 31,

 

 

 

2020

 

 

2019

 

Obligations payable under Indemnification Agreements

 

$

140

 

 

$

140

 

Taxes payable

 

 

62

 

 

 

66

 

Compensation, benefit and other employee-related

 

 

105

 

 

 

66

 

Customer rebate reserve

 

 

91

 

 

 

78

 

Other

 

 

197

 

 

 

202

 

 

 

$

595

 

 

$

552

 

Refer to Note 19. Commitments and Contingencies for further details on Obligations payable under Indemnification Agreements.

66

RESIDEO TECHNOLOGIES, INC.

Note 15. Long-term Debt and Credit Agreement

The Company’s debt at December 31, 2020 and December 31, 2019 consisted of the following:

 

 

December 31,

 

 

 

2020

 

 

2019

 

6.125% notes due 2026

 

$

400

 

 

$

400

 

Five-year variable rate term loan A due 2023

 

 

315

 

 

 

333

 

Seven-year variable rate term loan B due 2025

 

 

465

 

 

 

470

 

Unamortized deferred financing costs

 

 

(18

)

 

 

(23

)

Total outstanding indebtedness

 

 

1,162

 

 

 

1,180

 

Less: Amounts expected to be paid within one year

 

 

7

 

 

 

22

 

Total long-term debt due after one year

 

$

1,155

 

 

$

1,158

 

Scheduled principal repayments under the Senior Credit Facilities (defined below) and Senior Notes (defined below) subsequent to December 31, 2020 are as follows:

 

 

December 31,

 

 

 

2020

 

2021

 

$

40

 

2022

 

 

57

 

2023

 

 

232

 

2024

 

 

5

 

2025

 

 

446

 

Thereafter

 

 

400

 

 

 

 

1,180

 

Amounts expected to be paid within one year

 

 

7

 

 

 

$

1,173

 

Subsequent to December 31, 2020, the Company entered into a refinancing agreement which modified the scheduled principal repayments related to the Company’s long-term debt as described in Note 24. Subsequent Events. Among other changes, the refinancing agreement resulted in a reduction of principal repayments to be made in 2021 to $7 million which represents the Current maturities of debt in the Consolidated Balance Sheet as of December 31, 2020.

At December 31, 2020 and 2019, the interest rate for the Term Loans (defined below) was 2.51% and 4.36%, respectively. At December 31, 2020, there were 0 borrowings and 0 letters of credit issued under the $350 million Revolving Credit Facility (defined below).Interest expense presented in the Statements of Operations is from the Senior Notes and Senior Credit Facilities, which includes the amortization of debt issuance cost and debt discounts.

Senior Notes

In October of 2018, the Company issued $400 million in principal amount of 6.125% senior unsecured notes due in 2026 (the "Senior Notes"). The Senior Notes are senior unsecured and unsubordinated obligations of Resideo and rank equally with all of Resideo’s existing and future senior unsecured debt and senior to all of Resideo’s subordinated debt.

Resideo may, at its option, redeem the Senior Notes in whole or part prior to November 1, 2021, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, plus a “make-whole” premium. On or after November 1, 2021 Resideo may, at its option, redeem the Senior Notes in whole or in part plus accrued and unpaid interest, plus a fixed redemption percentage on the principal amount of the Senior Notes redeemed of (i) 104.594% if redeemed during the twelve-month period beginning on November 1, 2021 (ii) 103.063% if redeemed during the twelve-month period beginning onNovember

67

RESIDEO TECHNOLOGIES, INC.

1, 2022, (iii) 101.531% if redeemed during the twelve-month period beginning on November 1, 2023, or (iv) 100% if redeemed on or after November 1, 2024.

Credit Agreement

On October 25, 2018, in connection with the consummation of the Spin-Off, the Company as the borrower, entered into a credit agreement with JP Morgan Chase Bank N.A. as administrative agent (the “Credit Agreement”), which was subsequently amended on November 26, 2019 (the “Credit Agreement First Amendment”) and on November 16, 2020 (the “Credit Agreement Second Amendment”).

The Credit Agreement provides for a seven-year LIBOR plus 2.25% senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the "Term B Facility") and a five-year LIBOR plus 2.25% senior secured first-lien term A loan facility in an aggregate principal amount of $350 (the "Term A Facility" and, together with the Term B Facility, the “Term Loans” or "Term Loan Facilities”). The Company is obligated to make quarterly principal payments throughout the term of the Term Loan Facilities according to the amortization provisions in the Credit Agreement. Borrowings under the Credit Agreement are able to be prepaid at the Company’s 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. Amounts repaid or prepaid in respect of Term Loan Facilities may not be re-borrowed.

The Credit Agreement also established a five-year senior secured first-lien revolving credit facility to be used for the Company’s 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 interest rate on the Revolving Credit Facility borrowings are based on, at the option of the Company, either, (i) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (ii) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.75% and (iii) the one month adjusted LIBOR rate, plus 1.25% per annum. If the Company chooses 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 (i) on or prior to the Credit Agreement First Amendment 2.00% per annum (for Libor loans) and 1.00% per annum (for base rate loans) and (ii) after the Credit Agreement First Amendment 2.25% per annum (for LIBOR loans) and 1.25% per annum (for base rate loans). The applicable margin for each of the Term A Facility and the Revolving Credit Facility varies (i) on or prior to the Credit Agreement First Amendment 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) and (ii) after the credit Agreement First Amendment from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for base rate loans) based on the Company’s 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 the Company’s 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 Revolving Credit Facility has a quarterly commitment fee based on the unused portion, which is determined by the Company’s leverage ratio and ranges from 0.25% to 0.35% per annum.

The net proceeds from the borrowings under the Credit Agreement and the offering of the Senior Notes were used as part of the financing for the Spin-Off. For the year ended December 31, 2018, the Company incurred approximately $16 million in debt issuance costs related to the Term Loans, $5 million in costs related to the Revolving Credit Facility and $8 million in costs related to the Senior Notes. The debt issuance costs associated with the Term Loans and Senior Notes were recorded as a reduction of the principal balance of the debt, and the Revolving Credit Facility costs were capitalized in Other assets. The issuance costs are being amortized through Interest expense for the duration of each respective debt facility.

68

RESIDEO TECHNOLOGIES, INC.

The Credit Agreement and Senior Notes contain customary covenants limiting the ability of the Company and its subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company, enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets.

The Credit Agreement First Amendment amended the Credit Agreement to: (i) increase the levels of the maximum consolidated total leverage ratio under the Credit Agreement, to not greater than 5.25 to 1.00 for the quarter ended December 31, 2019, with step-downs to 4.75 to 1.00 starting in the quarter ending December 31, 2020, 4.25 to 1.00 starting in the quarter ending December 31, 2021, and 3.75 to 1.00 starting in the quarter ending December 31, 2022; (ii) increase each applicable interest rate margin on loans outstanding after the first amendment effective date by 25 basis points per annum, 2.25% per annum (for LIBOR loans) and 1.25% per annum (for ABR loans) in respect of the Term B Loan Facility, and based on the Company’s leverage ratio, from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for ABR loans) for the Term A Loan Facility and the Revolving Credit Facility; and (iii) modify the defined terms “Consolidated EBITDA” and “Pro Forma Basis” set forth in the Credit Agreement. In connection with the Credit Agreement First Amendment, the Company incurred costs of approximately $4 million. The Term Loan costs were recorded as a reduction of the principal balance of the debt and the Revolving Credit Facility costs were capitalized in Other assets.

The Credit Agreement Second Amendment amended the Credit agreement to permit the sale and leaseback transactions in an aggregate amount not to exceed $150 million for all such sale and leaseback transactions, provided that (x) each sale and leaseback transactions is undertaken on arm’s length commercial terms and (y) no Event of Default (as defined in the Credit Agreement) has occurred and is continuing or would result therefrom.

As of December 31, 2020, the Company was in compliance with all covenants related to the Credit Agreement and Senior Notes.

Note 16. Leases

As discussed in Note 2, the Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019. The Company is party to operating leases for the majority of its manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment.Certain of the Company’s real estate leases include variable rental payments which adjust periodically based on inflation, and certain automobile lease agreements include rental payments which fluctuate based on mileage. Generally, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s operating lease costs for the years ended December 31, 2020 and 2019 consisted of the following:

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

Selling, general and administrative expenses

 

$

44

 

 

$

37

 

Cost of goods sold

 

 

17

 

 

 

16

 

Total operating lease costs

 

$

61

 

 

$

53

 

Total operating lease costs include variable lease costs of $16 million and $11 million for the years ended December 31, 2020 and 2019, respectively. Total operating lease costs also include offsetting sub-lease income which is immaterial for the years ended December 31, 2020 and 2019.

69

RESIDEO TECHNOLOGIES, INC.

The Company recognized the following related to its operating leases:

 

 

Financial

Statement

Line Item

 

At December 31,

2020

 

At December 31,

2019

Operating right-of-use assets

 

Other assets

 

$133

 

$137

Operating lease liabilities - current

 

Accrued liabilities

 

$33

 

$31

Operating lease liabilities - non-current

 

Other liabilities

 

$107

 

$111

Maturities of the Company’s operating lease liabilities were as follows:

 

 

At December 31,

2020

 

2021

 

$

40

 

2022

 

 

36

 

2023

 

 

29

 

2024

 

 

18

 

2025

 

 

12

 

Thereafter

 

 

30

 

Total lease payments

 

 

165

 

Less: Imputed interest

 

 

25

 

Present value of operating lease liabilities

 

$

140

 

Weighted-average remaining lease term (years)

 

 

5.43

 

Weighted-average incremental borrowing rate

 

 

5.88

%

Supplemental cash flow information related to the Company’s operating leases was as follows:

 

 

 

 

Years Ended December 31,

 

 

 

 

 

2020

 

 

2019

 

Operating cash outflows

 

 

 

$

30

 

 

$

35

 

Operating right-of-use assets obtained in exchange for operating lease liabilities

 

 

 

$

26

 

 

$

60

 

As of December 31, 2020, the Company has additional operating leases that have not yet commenced. Obligations under these leases are not material. Additionally, as a lessor, the Company leases all or a portion of certain owned properties. Rental income for the years ended December 31, 2020 and 2019 was not material.

Note 17. Financial Instruments and Fair Value Measures

Credit and Market Risk—The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer.

Foreign Currency Risk Management—The Company conducts its business on a multinational basis in a wide variety of foreign currencies. It is exposed to market risks from changes in currency exchange rates. These exposures may impact future earnings and/or operating cash flows. The exposure to market risk for changes in foreign currency exchange rates arises from transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. The Company relies primarily on natural offsets to address the exposures and may supplement this approach from time to time by entering into forward and option hedging contracts. As of December 31, 2020 and 2019, the Company had no forward or hedging contracts.

70

RESIDEO TECHNOLOGIES, INC.

Senior Notes and Credit Agreement—As of December 31, 2020, the Company assessed the amount recorded under the Term Loans, the Senior Notes, and the Revolving Credit Facility. The Term A Loan Facility, Term B Loan Facility and the Senior Notes’ fair values are approximately $305 million, $461 million and $422 million, respectively. The Company determined that the Revolving Credit Facility approximated fair value. The fair values of the debt are based on the quoted inactive prices and are therefore classified as Level 2 within the valuation hierarchy.

The carrying value of cash and cash equivalents, accounts receivables - net, and accounts payables contained in the Consolidated Balance Sheets approximates fair value.

Fair Value of Financial Instruments—The FASB’s accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB’s guidance classifies the inputs used to measure fair value into the following hierarchy:

Level 1

Quoted prices in active markets for identical assets or liabilities;

Procedures

Level 2

Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and

Level 3

Unobservable inputs for which there is little or no market data, which require the Company to develop assumptions of what market participants would use in pricing the asset or liability.

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Note 18. Stock-Based Compensation Plans

On October 29, 2018, the Board adopted, and Honeywell, as the Company’s sole shareholder, approved, the 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates and the 2018 Stock Incentive Plan for Non-Employee Directors of Resideo Technologies, Inc. as may be amended from time to time (together, the “Stock Incentive Plan”). On or about December 21, 2018, the Board adopted the Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates. The Stock Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock units, restricted stock, other stock-based awards and cash-based awards. The maximum aggregate number of shares of the Company’s common stock that may be issued under awards granted under the Stock Incentive Plan is 16 million. As of December 31, 2020, 7,664,452 shares of the Company’s common stock were available to be granted under the Stock Incentive Plan.

Summary of Restricted Stock Unit Activity

Restricted stock unit (“RSU”) awards entitle the holder to receive one share of common stock for each unit when the units vest. RSUs are issued to certain key employees and to non-employee directors. RSUs typically become fully vested over periods ranging from one to seven years and are payable in Resideo common stock upon vesting.

Since the Spin-Off on October 29, 2018 through December 31, 2018, the Company granted the following awards:

•

1,809,644 RSUs were granted to employees of Resideo with four-year vesting periods in accordance with the Stock Incentive Plan

•

Honeywell stock options, RSUs, and performance-based awards held by certain of the key employees who would otherwise forfeit prior Honeywell awards as a result of the Spin-Off were issued replacement grants in the amount of 1,411,395 RSUs with substantially the same vesting schedule as the forfeited awards. Compensation expense for these awards will continue to be recognized ratably over the remaining term of the unvested awards, which ranged from one to four years as of the date of the Spin-Off.

•

117,145 RSUs were granted to members of the Board of Directors for annual director compensation with one to four-year vesting periods in accordance with the Stock Incentive Plan

71

RESIDEO TECHNOLOGIES, INC.

The following table summarizes RSU activity related to the Stock Incentive Plan during the years ended December 31, 2020 and 2019:

 

 

RSUs

 

 

 

Number of

Restricted

Stock Units

 

 

Weighted

Average Grant

Date Fair Value

Per Share

 

Non-vested as of January 1, 2019

 

 

3,338,184

 

 

$

24.05

 

Granted

 

 

1,607,204

 

 

 

21.83

 

Vested

 

 

(509,366

)

 

 

23.78

 

Forfeited

 

 

(641,491

)

 

 

24.07

 

Non-vested as of December 31, 2019

 

 

3,794,531

 

 

 

23.14

 

Granted

 

 

3,057,775

 

 

 

9.45

 

Vested

 

 

(921,060

)

 

 

21.07

 

Forfeited

 

 

(731,482

)

 

 

18.57

 

Non-vested as of December 31, 2020

 

 

5,199,764

 

 

$

16.10

 

As of December 31, 2020, there was approximately $22 million of total unrecognized compensation cost related to non-vested RSUs granted under the Stock Incentive Plan, which is expected to be recognized over a weighted-average period of 1.6 years. The fair value of RSUs that vested during the year ended December 31, 2020 is $9 million. Included in the outstanding RSUs are 867,732 performance-based RSU's as of December 31, 2020 and the related expense was $2 million during the year ended December 31, 2020.

Summary of Stock Option Activity

Stock option awards entitle the holder to purchase shares of common stock at a specific price when the options vest. Stock options typically vest over three years from the date of grant and expire seven years from the grant date.

The fair value of stock options was calculated using the following assumptions in the Black-Scholes model:

 

 

December 31,

 

 

2020

 

2019

Expected stock price volatility

 

31% - 37%

 

30% - 32%

Expected term of options

 

4.5 years

 

4.5 years

Expected dividend yield

 

—

 

—

Risk-free interest rate

 

0.25% - 1.41%

 

2.22% - 2.47%

The aggregate intrinsic value disclosed below represents the total intrinsic value (the difference between the fair market value of the Company’s common stock as of December 31, 2020, and the exercise price, multiplied by the number of in-the-money service-based stock options) that would have been received by the option holders had all option holders exercised their options on December 31, 2020. This amount is subject to change based on changes to the fair market value of the Company’s common stock.

72

RESIDEO TECHNOLOGIES, INC.

The following table summarizes stock option activity related to the Stock Incentive Plan during the year ended December 31, 2020:

 

 

Stock Options

 

 

 

Number of

Stock

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Contractual

Life (years)

 

 

Aggregate

Intrinsic

Value

 

Stock Options outstanding as of January 1, 2019

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

Granted

 

 

1,155,566

 

 

 

24.37

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(165,312

)

 

 

24.39

 

 

 

 

 

 

 

 

 

Stock Options outstanding as of December 31, 2019

 

 

990,254

 

 

 

24.36

 

 

 

6.0

 

 

 

-

 

Granted

 

 

1,083,665

 

 

 

9.17

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(348,696

)

 

 

18.39

 

 

 

 

 

 

 

 

 

Stock Options outstanding as of December 31, 2020

 

 

1,725,223

 

 

 

15.98

 

 

 

4.9

 

 

 

12

 

Vested and expected to vest at December 31, 2020

 

 

1,446,606

 

 

 

16.97

 

 

 

4.7

 

 

 

9

 

Exercisable at December 31, 2020

 

 

442,013

 

 

$

23.13

 

 

 

2.3

 

 

$

-

 

Stock options granted during the year ended December 31, 2020 had a weighted average grant date fair value per share of $2.61. As of December 31, 2020, there was approximately $1 million of total unrecognized compensation cost related to non-vested stock options granted under the Stock Incentive Plan, which is expected to be recognized over a weighted-average period of 1.5 years. NaN stock options were exercised during the year ended December 31, 2020.

Summary of Stock-Based Compensation

The following table summarizes stock-based compensation expense and the related tax benefits under the Company’s plans:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Stock-based compensation expense before income taxes

 

$

29

 

 

$

25

 

 

$

20

 

Less: Income tax expense (benefit)

 

 

1

 

 

 

(1

)

 

 

(5

)

Stock-based compensation expense, net of income taxes

 

$

30

 

 

$

24

 

 

$

15

 

Certain share-based compensation expense relates to stock-based awards awarded to key employees of the Company as part of Honeywell’s incentive compensation plans prior to the Spin-Off. Such share-based compensation expense was $16 million for the period from January 1, 2018 until October 29, 2018.

Note 19. Commitments and Contingencies

Environmental Matters

The Company is subject to various federal, state, local, and foreign government requirements relating to the protection of the environment. It believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury and that its handling, manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and regulations. The Company has incurred remedial response and voluntary cleanup costs for site contamination and is a party to claims associated with environmental and safety matters, including products containing hazardous substances. Additional claims and costs involving environmental matters are likely to continue to arise in the future.

73

RESIDEO TECHNOLOGIES, INC.

With respect to environmental matters involving site contamination, the Company continually conducts studies, individually or jointly with other potentially responsible parties, to determine the feasibility of various remedial techniques. It is its policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on the 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, the Company does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in excess of the Company’s recorded liabilities. The Company expects 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.

The Company accrues costs related to environmental matters when it is probable that it has incurred a liability related to a contaminated site and the amount can be reasonably estimated. Environmental-related expenses for sites owned and operated by Resideo are presented within Cost of goods sold in the Consolidated and Combined Statements of Operations. Prior to the Spin-Off, expenses related to Honeywell Sites now under the Reimbursement Agreement were presented within Other expense, net in the Consolidated and Combined Statements of Operations.

The following table summarizes information concerning the recorded liabilities for environmental costs for the year ended December 31, 2020, 2019 and 2018. On October 29, 2018, upon the consummation of the Spin-Off, certain environmental liabilities became subject to the Reimbursement Agreement and were reclassified to Obligations payable under Indemnification Agreements. For additional information, see Reimbursement Agreement below.

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Beginning balance

 

$

22

 

 

$

20

 

 

$

537

 

Accruals for environmental matters deemed probable and reasonably estimable

 

 

1

 

 

 

2

 

 

 

340

 

Less: Environmental liability payments

 

 

(1

)

 

 

-

 

 

 

(179

)

Less: Change due to the Reimbursement Agreement payments

 

 

-

 

 

 

-

 

 

 

(86

)

Less: Liabilities subject to the Reimbursement Agreement payments

 

 

-

 

 

 

-

 

 

 

(592

)

Ending balance

 

$

22

 

 

$

22

 

 

$

20

 

The$86 million change for the year ended December 31, 2018 due to the Reimbursement Agreement represents a reduction in the estimated liability driven by the terms of Reimbursement Agreement at October 29, 2018. Pursuant to the Reimbursement Agreement, the Company is responsible to indemnify Honeywell in amounts equal to 90% of the environmental-liability payments of certain sites, 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. Prior to the Spin-Off, the Company’s estimated liability for resolution of the same pending and future environmental-related liabilities was calculated as if it was responsible for 100% of the environmental-liability payments. In addition, prior to the Spin-Off, these costs were calculated on the gross basis, excluding any insurance receipts or proceeds received by Honeywell. 

The Company does not currently possess sufficient information 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 the Company’s consolidated and combined results of operations and operating cash flows in the periods recognized or paid.

74

RESIDEO TECHNOLOGIES, INC.

Obligations Payable Under Indemnification Agreements

In connection with the Spin-Off, the Company entered into a Reimbursement Agreement and a tax matters agreement (the “Tax Matters Agreement”) (collectively, the “Indemnification Agreements”) which are further described below.

Reimbursement Agreement

On October 29, 2018, in connection with the Spin-Off, the Company entered into the Reimbursement Agreement pursuant to which the Company has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for 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”). The amount payable by the Company in respect of such liabilities arising in respect of any given year is subject to a cap of $140 million.

Payments in respect of the liabilities arising in a given year will be made quarterly throughout such year on the basis of an estimate of the liabilities and recoveries provided by Honeywell. Following the end of any such year, Honeywell will provide the Company with a calculation of the amount of payments and the recoveries actually received.

Payment amounts under the Reimbursement Agreement will be deferred to the extent that a specified event of default has occurred and is continuing under certain indebtedness, including under the Credit Agreement, or the payment thereof causes the Company to not be compliant with certain financial covenants in certain indebtedness, including the Company’s Credit Agreement on a pro forma basis, including the maximum total leverage ratio (ratio of consolidated debt to consolidated EBITDA, which excludes any amounts owed to Honeywell under the Reimbursement Agreement), and the minimum interest coverage ratio.

The obligations under the Reimbursement Agreement will continue 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 year, the Company and Honeywell entered into several amendments to the Reimbursement Agreement. These amendments included modifications of certain covenants in Exhibit G to conform to the amended covenants included in the Credit Agreement First Amendment, deferment of certain payments under the Reimbursement Agreement to later in the year, and amendment of Exhibit G to, among other things, permit sale and leaseback transaction. An aggregate amount of up to $150 million would be permitted thereunder so long as the same conditions that are applicable under the Credit Agreement are satisfied.

On February 12, 2021, the Company entered into another amendment with Honeywell. See Note 24. Subsequent Events for a further discussion of this amendment.

The following table summarizes information concerning the Company’s Reimbursement Agreement liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Beginning balance

 

$

585

 

 

$

616

 

 

$

-

 

Liabilities subject to the Reimbursement Agreement payments

 

 

-

 

 

 

-

 

 

 

592

 

Accruals for indemnification liabilities deemed probable and reasonably estimable

 

 

146

 

 

 

179

 

 

 

49

 

Reduction (1)

 

 

-

 

 

 

(71

)

 

 

-

 

Indemnification payment

 

 

(140

)

 

 

(139

)

 

 

(25

)

Ending balance(2)

 

$

591

 

 

$

585

 

 

$

616

 

75

RESIDEO TECHNOLOGIES, INC.

(1)

Reduction in indemnification liabilities relates to a provision in the Reimbursement Agreement that reduces the obligation due to Honeywell for any proceeds received by Honeywell from a property sale of a site under the agreement.

(2)

Reimbursement Agreement liabilities deemed probable and reasonably estimable, however, it is possible the Company 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.

Reimbursement Agreement liabilities are included in the following balance sheet accounts:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

Accrued liabilities

 

$

140

 

 

$

140

 

Obligations payable under Indemnification Agreements

 

 

451

 

 

 

445

 

 

 

$

591

 

 

$

585

 

The Company does not currently possess sufficient information to reasonably estimate the amounts of indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined although they could be material to the Company’s consolidated and combined results of operations and operating cash flows in the periods recognized or paid.

Independent of the Company’s payments under the Reimbursement Agreement, the Company will have ongoing liability for certain environmental claims which are part of the Company’s going forward business.

Tax Matters Agreement

In connection with the Spin-Off, the Company entered into the Tax Matters Agreement with Honeywell pursuant to which it is responsible and will indemnify Honeywell for all taxes, including 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.

In addition, the Tax Matters Agreement provides that the Company is required to indemnify Honeywell for any taxes (and reasonable expenses) 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 (a) breaches of covenants and representations it makes and agrees to in connection with the Spin-Off, (b) the application of certain provisions of U.S. federal income tax law to these transactions or (c) any other action or omission (other than actions expressly required or permitted by the Separation and Distribution Agreement, the Tax Matters Agreement or other ancillary agreements) the Company takes after the consummation of the Spin-Off that gives rise to these taxes.

As of December 31, 2020, and 2019, the Company had an indemnity outstanding to Honeywell for future tax payments of $139 million and $149 million, which is included in Obligations payable under Indemnification Agreements.

Trademark Agreement

The Company and Honeywell entered into a 40-year Trademark License Agreement (the “Trademark Agreement”) that authorizes the Company’s use of certain licensed trademarks in the operation of Resideo’s business for the advertising, sale and distribution of certain licensed products. In exchange, the Company will pay a royalty fee of 1.5% on net revenue to Honeywell related to such licensed products which is recorded in Selling, general and administrative expense on the Consolidated and Combined Statements of Operations. For the years ended December 31, 2020, 2019, and 2018, royalty fees were $26 million, $27 million, and $4 million, net of a one-time credit of $2 million received in December 31, 2018 for inventory on hand as of the Spin-Off, respectively.

76

RESIDEO TECHNOLOGIES, INC.

Other Matters

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

The Company, the Company’s former CEO Michael Nefkens, the Company’s former CFO Joseph Ragan, and the Company’s former CIO Niccolo de Masi are named defendants of a class action securities suit in the U.S. District Court for the District of Minnesota styled In re Resideo Technologies, Inc. Securities Litigation, 19-cv-02863 (the “Securities Litigation”). The Securities Litigation is a class action securities suit with the class defined as all persons or entities who purchased or otherwise acquired common stock of Resideo during the class period of October 29, 2018 to November 6, 2019. The complaint asserts claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, broadly alleging, among other things, that the defendants (or some of them) made false and misleading statements regarding, among other things, Resideo’s business, performance, the efficiency of its supply chain, operational and administrative issues resulting from the spin-off from Honeywell, certain business initiatives, and financial guidance in 2019. The defendants filed a motion to dismiss the complaint on July 10, 2020. The motion to dismiss has been fully briefed and a hearing was held on the motion on December 1, 2020. The court has not yet issued its decision regarding the motion to dismiss. The Company and the plaintiffs are scheduled to participate in a mediation on February 25, 2021, in an effort to settle the Securities Litigation. There can be no assurance that a settlement will be reached. If a settlement cannot be reached, the Company intends to vigorously defend against the allegations in the Securities Litigation. However, there can be no assurance that the defense will be successful.

On July 7, 2020, Jawad A. Ayaz as Trustee of the Shiv Venkatasetty 2016 Trust (“Derivative Plaintiff”) filed a shareholder derivative complaint (the “Derivative Complaint”) against certain current or former directors and officers of the Company (“Derivative Defendants”) in the District Court for the District of Delaware, captioned Ayaz v. Nefkens, 20-cv-00915. Derivative Plaintiff alleges generally that Derivative Defendants breached fiduciary duties owed to the Company by allegedly causing or allowing the Company to make materially false and misleading statements to the public regarding the Company’s business operations and financial prospects. Derivative Plaintiff also alleges that the Company’s 2019 proxy statement was materially false and misleading, in violation of Section 14(a) of the Securities Exchange Act of 1934, and asserts claims of corporate waste and unjust enrichment, among other allegations, and relies on a similar set of facts as alleged in the Securities Litigation. The Derivative Complaint seeks declaratory relief and unspecified money damages on behalf of the Company. On July 28, 2020, certain of the Derivative Defendants filed a stipulation to stay the proceedings pending the resolution of the motion to dismiss in the Securities Litigation. An additional shareholder derivative complaint was filed on August 12, 2020, by Plaintiff Daniel Sanclemente (the “Sanclemente Action”) on behalf of the Company in the District Court for the District of Delaware, captioned Sanclemente v. Nefkens, 20-cv-1062, alleging substantially the same facts and making substantially the same claims against the same defendants as in the Derivative Complaint. The District Court has consolidated the Derivative Complaint and the Sanclemente Action. The consolidated action is styled In re Resideo Technologies, Inc. Derivative Litigation, 20-cv-00915 (the “Derivative Action”), and lead counsel has been appointed.Additionally, the court has granted a stipulation to stay the consolidated action pending the resolution of the motion to dismiss in the Securities Litigation. On August 28, 2020, Riviera Beach Police Pension Fund (“Riviera Beach”) filed a motion to intervene in the Derivative Action. On September 18, 2020, Riviera Beach and the existing plaintiffs reached an agreement regarding the leadership structure of the Derivative Action in the event that Riviera Beach files its own complaint in the future, and in connection therewith, Riviera Beach withdrew its motion to intervene. The Company intends to defend this action vigorously, but there can be no assurance that the defense will be successful.

77

RESIDEO TECHNOLOGIES, INC.

Warranties and Guarantees

In the normal course of business, the Company issues product warranties and product performance guarantees. It accrues for the estimated cost of product warranties and product performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in Accrued liabilities. The following table summarizes information concerning recorded obligations for product warranties and product performance guarantees.

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Beginning balance

 

$

25

 

 

$

26

 

 

$

17

 

Accruals for warranties/guarantees issued during the year

 

 

21

 

 

 

15

 

 

 

17

 

Adjustment of pre-existing warranties/guarantees

 

 

(7

)

 

 

-

 

 

 

(1

)

Settlement of warranty/guarantee claims

 

 

(17

)

 

 

(16

)

 

 

(7

)

Ending balance

 

$

22

 

 

$

25

 

 

$

26

 

Purchase Commitments

The Company’s unconditional purchase obligations include purchase commitments with suppliers and other obligations entered in to during the normal course of business regarding the purchase of goods and services. As of December 31, 2020, the Company’s estimated minimum obligations associated with unconditional purchase obligations, which are not recognized in the Company’s Consolidated Balance Sheet, were $16 million in 2021, $17 million in 2022, $9 million in 2023 and $3 million in 2024. For the years ended December 31, 2020 and 2019, purchases related to these obligations were $15 million and $26 million, respectively. Purchases under these obligations were not material for the year ended December 31, 2018.

Note 20. Pension

Prior to the Spin-Off, certain of Resideo’s employees participated in multiple U.S. and non-U.S. defined benefit pension plans (the “Shared Plans”) sponsored by Honeywell, which includes participants from other Honeywell subsidiaries and operations. The Company accounted for participation in the Shared Plans as if the Shared Plans were a multiemployer benefit plan. Accordingly, it did not record an asset or liability to recognize the funded status of the Shared Plans.

The related pension expense was allocated based on annual service cost of active participants and reported within Costs of goods sold and Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. The pension expense related to participation in the Shared Plans for the period from January 1, 2018 until October 29, 2018 and the year ended December 31, 2018 was $11 million and $16 million, respectively.

As of the date of separation from Honeywell, these employees’ and certain former Honeywell employees’ entitlement to benefits in Honeywell’s plans were transferred to Resideo sponsored plans.

The Resideo defined benefit pension plans have substantially similar benefit formulas as the Honeywell defined benefit pension plans. Moreover, vesting service, benefit accrual service and compensation credited under the Honeywell defined benefit pension plans apply to the determination of pension benefits under the Resideo defined benefit pension plan.

The Company sponsors multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of its U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. It also sponsors defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, France, India, Switzerland, and the Netherlands.

78

RESIDEO TECHNOLOGIES, INC.

The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with the pension plans.

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year (1)

 

$

344

 

 

$

286

 

 

$

279

 

 

$

137

 

 

$

93

 

 

$

95

 

Service cost

 

 

7

 

 

 

5

 

 

 

1

 

 

 

7

 

 

 

5

 

 

 

1

 

Interest cost

 

 

11

 

 

 

13

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

-

 

Actuarial losses (gains)

 

 

38

 

 

 

51

 

 

 

5

 

 

 

6

 

 

 

27

 

 

 

(3

)

Net benefits paid

 

 

(4

)

 

 

(13

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

-

 

Settlements

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(3

)

 

 

-

 

Other

 

 

-

 

 

 

2

 

 

 

-

 

 

 

2

 

 

 

13

 

 

-

 

Exchange rate adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14

 

 

 

-

 

 

 

-

 

Benefit obligation at end of year

 

 

374

 

 

 

344

 

 

 

286

 

 

 

161

 

 

 

137

 

 

 

93

 

Change in plan assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year (1)

 

 

331

 

 

274

 

 

279

 

 

 

27

 

 

20

 

 

20

 

Actual return (loss) on plan assets

 

 

35

 

 

 

70

 

 

 

(4

)

 

 

-

 

 

 

2

 

 

 

-

 

Contributions

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

2

 

 

 

-

 

Net benefits paid

 

 

(4

)

 

 

(13

)

 

 

(1

)

 

 

-

 

 

 

1

 

 

 

-

 

Settlements

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(3

)

 

 

-

 

Other

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

3

 

 

 

5

 

 

 

-

 

Exchange rate adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

-

 

Fair value of plan assets at end of year

 

 

340

 

 

331

 

 

274

 

 

 

28

 

 

27

 

 

20

 

Funded status of plans (non-current)

 

$

(34

)

 

$

(13

)

 

$

(12

)

 

$

(133

)

 

$

(110

)

 

$

(73

)

(1)

2018 "Beginning of year" is the Spin-Off date, October 29, 2018.

The benefit obligation generated a global net actuarial loss of $44 million for the year ended December 31, 2020. A global decrease in discount rates over the course of the year was the main driver, generating a total loss of $50 million across all plans, partially offset by gains on inflation related assumptions of approximately $5 million (driven primarily by inflation/pension increase assumption in the Germany, which resulted in a gain of $5 million), and by gains on demographic assumptions of approximately $2 million (driven primarily by change in mortality assumption in the U.S., which resulted in a gain of $2 million). Experience losses added $1 million of net actuarial loss globally, while losses from other assumption changes were not significant.

Actual return on plan assets for the year ended December 31, 2020 was higher than expected due to equity and bonds performance being above expectations leading to an additional asset gain of $17 million globally, for a total asset return of $35 million globally.

Amounts recognized in Accumulated other comprehensive (loss) associated with pension plans at December 31, 2020 and 2019 are as follows:

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Prior service credit

 

$

(2

)

 

$

(3

)

 

$

-

 

 

$

-

 

Net actuarial loss

 

 

30

 

 

 

12

 

 

 

14

 

 

 

13

 

Net amount recognized

 

$

28

 

 

$

9

 

 

$

14

 

 

$

13

 

79

RESIDEO TECHNOLOGIES, INC.

The components of net periodic benefit cost and other amounts recognized in Comprehensive income for pension plans include the following components:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

Net Periodic Benefit Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

7

 

 

$

5

 

 

$

1

 

 

$

7

 

 

$

5

 

 

$

1

 

Interest cost

 

 

11

 

 

 

13

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

-

 

Expected return on plan assets

 

 

(17

)

 

 

(16

)

 

 

(3

)

 

 

(1

)

 

 

(1

)

 

 

-

 

Amortization of prior service credit

 

 

(1

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Mark to market adjustment

 

 

-

 

 

 

1

 

 

 

-

 

 

 

6

 

 

 

16

 

 

 

-

 

Other

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

Net periodic benefit cost

 

$

3

 

 

$

2

 

 

$

-

 

 

$

13

 

 

$

24

 

 

$

1

 

(1)

2018 begins at the Spin-Off date, October 29, 2018. Activity before the Spin-Off date was recognized under the Shared Plans.

The components of net periodic benefit cost other than the service cost are included in Other expense, net in the Consolidated and Combined Statements of Operations for the years ended December 31, 2020, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

Other Changes in Plan Assets and Benefits Obligations Recognized in Other Comprehensive Loss (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses (gains)

 

$

38

 

 

$

51

 

 

$

12

 

 

$

6

 

 

$

26

 

 

$

(3

)

Excess return on plan assets(2)

 

 

(17

)

 

 

(54

)

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

Actuarial gains recognized during the year

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(17

)

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

Total recognized in other comprehensive loss (income)

 

$

19

 

 

$

(3

)

 

$

12

 

 

$

1

 

 

$

8

 

 

$

(3

)

Total recognized in net periodic benefit cost and other comprehensive loss (income)

 

$

22

 

 

$

(1

)

 

$

12

 

 

$

14

 

 

$

32

 

 

$

(2

)

(1)

2018 begins at the Spin-Off date, October 29, 2018. Activity before the Spin-Off date was recognized under the Shared Plans.

(2)

Represents actual return on plan assets in excess of the expected return.

80

RESIDEO TECHNOLOGIES, INC.

Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit (income) cost for benefit plans are presented in the following table as weighted averages.

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Actuarial assumptions used to determine benefit obligations as of December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

2.7

%

 

 

3.3

%

 

 

4.5

%

 

 

0.7

%

 

 

1.1

%

 

 

1.9

%

Interest crediting rate

 

 

6.0

%

 

 

6.0

%

 

 

6.0

%

 

 

1.5

%

 

 

1.5

%

 

 

1.5

%

Expected annual rate of compensation increase

 

 

3.5

%

 

 

3.4

%

 

 

3.4

%

 

 

2.4

%

 

 

2.4

%

 

 

2.3

%

Actuarial assumptions used to determine net periodic benefit cost for the twelve months ended December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate - benefit obligation

 

 

3.3

%

 

 

4.5

%

 

 

4.5

%

 

 

1.1

%

 

 

2.0

%

 

 

1.9

%

Interest crediting rate

 

 

6.0

%

 

 

6.0

%

 

 

6.0

%

 

 

1.5

%

 

 

1.5

%

 

 

1.5

%

Expected rate of return on plan assets

 

 

5.4

%

 

 

5.7

%

 

 

5.7

%

 

 

2.7

%

 

 

2.8

%

 

 

3.3

%

Expected annual rate of compensation increase

 

 

3.4

%

 

 

3.4

%

 

 

3.4

%

 

 

2.4

%

 

 

2.4

%

 

 

2.3

%

The discount rate for the U.S. pension plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31. To determine discount rates for the U.S. pension plans, the Company uses a modeling process that involves matching the expected cash outflows of its benefit plans to a yield curve constructed from a portfolio of high-quality, fixed income debt instruments. The Company uses the single weighted-average yield of this hypothetical portfolio as a discount rate benchmark.

The expected rate of return on U.S. plan assets of 5.4% is a long-term rate based on historical plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations. The Company reviews the expected rate of return on an annual basis and revises it as appropriate.

For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each country.

The following amounts relate to pension plans with accumulated benefit obligations exceeding the fair value of plan assets.

 

 

December 31,

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Projected benefit obligation

 

$

374

 

 

$

344

 

 

$

161

 

 

$

137

 

Accumulated benefit obligation

 

$

358

 

 

$

332

 

 

$

139

 

 

$

116

 

Fair value of plan assets

 

$

340

 

 

$

331

 

 

$

28

 

 

$

27

 

The Company utilized a third-party investment management firm to serve as its Outsourced Chief Investment Officer; however, the Company has appointed an internal fiduciary committee that monitors adherence to the investment guidelines the firm will follow.

The Company employs an investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Other assets such as real estate and hedge funds may be used to improve portfolio diversification.

The non-U.S. investment policies are different for each country as local regulations, funding requirements, and financial and tax considerations are part of the funding and investment allocation process in each country.

81

RESIDEO TECHNOLOGIES, INC.

A majority of the U.S. pension plan assets as of December 31, 2020 do not have published pricing and are valued using Net Asset Value (“NAV”) which approximates fair value. NAV by asset category and fair value by asset category are as follows for December 31, 2020 and 2019:

 

 

U.S. Plans

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

NAV

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

NAV

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash

 

$

6

 

 

$

1

 

 

$

5

 

 

$

-

 

 

$

-

 

 

$

4

 

 

$

-

 

 

$

4

 

 

$

-

 

 

$

-

 

Equity

 

 

105

 

 

 

105

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

-

 

Investment funds

 

 

14

 

 

 

14

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15

 

 

 

15

 

 

 

-

 

 

 

-

 

 

 

-

 

U.S. treasury obligations

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

132

 

 

 

132

 

 

 

-

 

 

 

-

 

 

 

-

 

Government bonds

 

 

41

 

 

 

41

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

Corporate bonds

 

 

126

 

 

 

126

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

Real estate / property

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

Total assets at fair value

 

$

340

 

 

$

335

 

 

$

5

 

 

$

-

 

 

$

-

 

 

$

331

 

 

$

327

 

 

$

4

 

 

$

-

 

 

$

-

 

The fair values of the non-U.S. pension plan assets as by asset category are as follows:

 

 

Non-U.S. Plans

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Equity

 

$

1

 

 

$

1

 

 

$

-

 

 

$

-

 

 

$

1

 

 

$

1

 

 

$

-

 

 

$

-

 

Government bonds

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

Corporate bonds

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

Insurance contracts

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

8

 

Other

 

 

16

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

16

 

Total assets at fair value

 

$

28

 

 

$

1

 

 

$

1

 

 

$

26

 

 

$

27

 

 

$

1

 

 

$

2

 

 

$

24

 

5

The following table summarizes changes in the fair value of Level 3 assets for Non-U.S. plans:

 

 

Non-U.S. Plans

 

Balance at October 29, 2018

 

$

5

 

Return on plan assets

 

 

1

 

Purchases, sales and settlements, net

 

 

-

 

Balance at December 31, 2018

 

 

6

 

Return on plan assets

 

 

2

 

Purchases, sales and settlements, net

 

 

15

 

Other

 

 

1

 

Balance at December 31, 2019

 

 

24

 

Return on plan assets

 

 

-

 

Purchases, sales and settlements, net

 

 

(1

)

Other

 

 

3

 

Balance at December 31, 2020

 

$

26

 

82

RESIDEO TECHNOLOGIES, INC.

Corporate Bonds and Government Bonds held as of December 31, 2020 and 2019 are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity risks. Other investments as of December 31, 2020 and 2019 and Insurance Contracts are classified as Level 3 as there are neither quoted prices nor other observable inputs for pricing. Insurance Contracts are issued by insurance companies and are valued at cash surrender value, which approximates the contract fair value. Other investments consist of a collective pension foundation that is valued and allocated by the plan administrator.

The Company utilizes the services of retirement and investment consultants to actively manage the assets of the Company’s pension plans. The Company has established asset allocation targets and investment guidelines based on the guidance of the consultants. The Company’s target allocations are 51% fixed income investments, 29% global equity investments, 10% global real estate investments and 10% cash and other investments.

The Company’s general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2020, it was not required to make contributions to the U.S. pension plans, however $1 million of contributions were made. There is no requirement to make any contributions to the U.S. pension plans in 2021. In 2020, contributions of $2 million were made to the non-U.S. pension plans to satisfy regulatory funding requirements. In 2021, the Company expects to make contributions of cash and/or marketable securities of approximately $2 million to the non-U.S. pension plans to satisfy regulatory funding standards. Contributions for both the U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company assets.

Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

2021

 

$

19

 

 

$

2

 

2022

 

$

20

 

 

$

2

 

2023

 

$

21

 

 

$

2

 

2024

 

$

23

 

 

$

3

 

2025

 

$

23

 

 

$

3

 

2026-2030

 

$

114

 

 

$

21

 

Note 21. Segment Financial Data

In May 2020, the Board appointed Jay Geldmacher as President and CEO of the Company. As part of this transition, during the fourth quarter of 2020, the format of the Chief Operating Decision Maker's reporting package was modified which resulted in changes to how business operations are presented.

The Company continues to monitor its business operations through 2 operating segments, Products & Solutions and ADI Global Distribution. The Company now reports Corporate separately from the 2 operating segments.The reporting package also includes segment Operating profit, which replaces Segment Adjusted EBITDA as a performance metric.

These changes were designed to better align accountability and authority, give a clearer view into the operational performance of the two segments and increase accountability for management of corporate spending. As a result, the Company recast prior periods to conform with the new fourth quarter 2020 presentation.  

Products & Solutions—The Products & Solutions business is a leading global provider of products, software solutions and technologies that help homeowners stay connected and in control of their comfort, security and energy use.

ADI Global Distribution—The ADI Global Distribution business is the leading wholesale distributor of low-voltage security products including intrusion, access control and video products and participates significantly in

83

RESIDEO TECHNOLOGIES, INC.

the broader related markets of smart home, fire, access control, power, audio, ProAV, networking, communications, wire and cable, enterprise connectivity, and structured wiring products.

Corporate—Corporate includes headquarter type expenses associated with legal, finance, information technology, human resources, strategy and communications related to the Corporate office as well as supporting the operating segments, but do not relate directly to revenue-generating activities.

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

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Total Products & Solutions revenue

 

$

2,488

 

 

$

2,487

 

 

$

2,474

 

Less: Intersegment revenue

 

 

367

 

 

 

312

 

 

 

305

 

External Products & Solutions revenue

 

 

2,121

 

 

 

2,175

 

 

 

2,169

 

External ADI Global Distribution revenue

 

 

2,950

 

 

 

2,813

 

 

 

2,658

 

Total revenue

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Operating profit

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

407

 

 

$

327

 

 

$

591

 

ADI Global Distribution

 

 

194

 

 

 

210

 

 

 

205

 

Corporate

 

 

(290

)

 

 

(279

)

 

 

(303

)

Total

 

$

311

 

 

$

258

 

 

$

493

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

63

 

 

$

62

 

 

$

48

 

ADI Global Distribution

 

 

12

 

 

 

10

 

 

 

10

 

Corporate

 

 

11

 

 

 

8

 

 

 

8

 

Total

 

$

86

 

 

$

80

 

 

$

66

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

Products & Solutions

 

$

41

 

 

$

71

 

 

$

61

 

ADI Global Distribution

 

 

15

 

 

 

5

 

 

 

5

 

Corporate

 

 

14

 

 

 

19

 

 

 

15

 

Total

 

$

70

 

 

$

95

 

 

$

81

 

The Company’s CODM does not use segment assets information to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.

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RESIDEO TECHNOLOGIES, INC.

Note 22. Geographic Areas—Financial Data

 

 

Net Revenue (1)

Years Ended December 31,

 

 

Long-lived Assets (2)

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2020

 

 

2019

 

 

2018

 

United States

 

$

3,543

 

 

$

3,423

 

 

$

3,289

 

 

$

260

 

 

$

272

 

 

$

184

 

Europe

 

 

1,121

 

 

 

1,117

 

 

 

1,138

 

 

 

144

 

 

 

136

 

 

 

91

 

Other International

 

 

407

 

 

 

448

 

 

 

400

 

 

 

47

 

 

 

45

 

 

 

25

 

 

 

$

5,071

 

 

$

4,988

 

 

$

4,827

 

 

$

451

 

 

$

453

 

 

$

300

 

(1)

Revenue between geographic areas approximate market and is not significant. Net revenue is classified according to their country of origin. Included in United States net revenue are export sales of $21 million, $27 million and $31 million in 2020, 2019 and 2018, respectively.

(2)

Long-lived assets are comprised of Property, plant and equipment – net and lease right-of-use assets. The Company has restated long-lived assets as of December 31, 2019 to include lease right-of-use assets, resulting in an increase in long-lived assets of $86 million in the United states, $33 million in Europe and $18 million in Other International.

Note 23. Unaudited Quarterly Financial Information

The following tables show selected unaudited quarterly results of operations for 2020 and 2019. The quarterly data have been prepared on the same basis as the audited annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods.

 

 

2020

 

 

 

Q1

 

 

Q2

 

 

Q3

 

 

Q4

 

 

Year Ended

December 31,

 

Net revenue

 

$

1,179

 

 

$

1,029

 

 

$

1,362

 

 

$

1,501

 

 

$

5,071

 

Gross profit

 

 

284

 

 

 

236

 

 

 

370

 

 

 

423

 

 

 

1,313

 

Net (loss) income

 

 

(21

)

 

 

(76

)

 

 

75

 

 

 

59

 

 

 

37

 

Earnings (loss) per share -basic

 

 

(0.17

)

 

 

(0.62

)

 

 

0.61

 

 

 

0.45

 

 

 

0.30

 

Earnings (loss) per share - diluted

 

 

(0.17

)

 

 

(0.62

)

 

 

0.60

 

 

 

0.44

 

 

 

0.29

 

 

 

2019

 

 

 

Q1

 

 

Q2

 

 

Q3

 

 

Q4

 

 

Year Ended

December 31,

 

Net revenue

 

$

1,216

 

 

$

1,242

 

 

$

1,226

 

 

$

1,304

 

 

$

4,988

 

Gross profit

 

 

332

 

 

 

323

 

 

 

309

 

 

 

313

 

 

 

1,277

 

Net income (loss)

 

 

48

 

 

 

(11

)

 

 

8

 

 

 

(9

)

 

 

36

 

Earnings (loss) per share - basic

 

 

0.39

 

 

 

(0.09

)

 

 

0.07

 

 

 

(0.07

)

 

 

0.29

 

Earnings (loss) per share - diluted

 

 

0.39

 

 

 

(0.09

)

 

 

0.06

 

 

 

(0.07

)

 

 

0.29

 

Note 24. Subsequent Events

Amended and Restated Credit Agreement

On February 12, 2021, the Company entered into an amended and restated credit agreement (the “A&R Credit Agreement”). The A&R Credit Agreement provides for (i) a seven-year senior secured term B loan facility in an aggregate principal amount of $950 million (the “A&R Term B Facility”) and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility” and, together with the Term Loan Facilities, the “A&R Senior Credit Facilities”).  

The Company is obligated to make quarterly principal payments of approximately $2.4 million throughout the term of the A&R Term B Facility according to the amortization provisions in the A&R Credit Agreement. In addition to paying interest on outstanding borrowings under the A&R Revolving Credit Facility, the Company is

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RESIDEO TECHNOLOGIES, INC.

required to pay a quarterly commitment fee based on the unused portion of the A&R Revolving Credit Facility. Borrowings under the A&R Credit Agreement can be prepaid at the Company’s 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 A&R Revolving Credit Facility for the issuance of letters of credit to the Company or any of the Company’s subsidiaries. Letters of credit are available for issuance under the A&R Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce the available funds under the A&R Revolving Credit Facility. 

The A&R Senior Credit Facilities are subject to an interest rate and interest period which the Company will elect. If the Company chooses to make a base rate borrowing on an overnight basis, the interest rate will be based on the highest of (1) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (2) the greater 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. For the A&R Term Loan B, the applicable LIBOR rate will not be less than 0.50% per annum. The applicable margin for the A&R Term B Facility is 2.25% per annum (for LIBOR loans) and 1.25% per annum (for base rate loans). The applicable margin for the A&R Revolving Credit Facility varies from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for base rate loans) based on the Company’s leverage ratio. Accordingly, the interest rates for A&R the Senior Credit Facilities will fluctuate during the term of the A&R Credit Agreement based on changes in the base rate, LIBOR rate or future changes in the Company’s 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 A&R Credit Agreement contains certain affirmative and negative covenants customary for financings of this type that, among other things, limit the Company and the Company’s 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/repurchases, in respect of the Company and the Company’s subsidiaries’ equity interests, to engage in transactions with affiliates or amend certain material documents. In addition, the A&R Revolving Credit Facility also contains certain financial maintenance covenants. The A&R Credit Agreement contains customary events of default, including with respect to a failure to make payments under the A&R Senior Credit Facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. 

All obligations under the A&R 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 A&R Credit Agreement concurrently with the effectiveness of the A&R Credit Agreement. Subject to certain limitations, the A&R 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 Company and each Guarantor under the A&R 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 Company and each of the Guarantors under the A&R Senior Credit Facilities, subject, in each case, to certain exceptions. The Company and the Guarantors entered into security documents concurrently with effectiveness of the A&R Credit Agreement.

Senior Notes

On February 16, 2021 the Company redeemed $140 million in principal amount of the Senior Notes at a redemption price of 106.125% of par plus accrued interest.

Amendmentto Reimbursement Agreement

On February 12, 2021, in connection with entering into the A&R Credit Agreement, the Company entered into a Fourth Amendment to the Reimbursement Agreement. The covenants in Exhibit G of the Reimbursement Agreement were amended and restated in their entirety to substantially conform to the affirmative and negative covenants contained in the A&R Credit Agreement.

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RESIDEO TECHNOLOGIES, INC.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures designed to give reasonable assurance that information required to be disclosed in the Company’sour reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)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, including our Chief Accounting Officer, conducted an evaluation of the effectiveness of the Company’sour disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underof the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. 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 Annual Report on Form 10-K.

Management’s Report on Internal Control overOver Financial Reporting

The Company’s management

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for itsthe assessment of the effectiveness of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) underof the Exchange Act. The Company’s internalInternal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) in Internal Control—Integrated Framework (2013).

Based on this assessment, management determined that the Companywe maintained effective internal control over financial reporting as of December 31, 2020.

2023.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 20202023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, 20202023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

87


Item 9B. Other Information

During the three months ended December 31, 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 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.
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RESIDEO TECHNOLOGIES, INC.

Item 9B.

Other Information

None.

PART III.

Item 10.

Directors, Executive Officers and Corporate Governance

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be included in our Proxy Statement to be filed pursuant to Regulation 14A within 120 days after our year ended December 31, 20202023 in connection with our 20212024 Annual Meeting of Stockholders, or the 20212024 Proxy Statement, and is incorporated herein by reference.

Item 11.

Executive Compensation

Information relating to executive compensation is contained

Item 11. Executive Compensation
The information required by this item will be included in the 20212024 Proxy Statement, referredwhich will be filed pursuant to above in Item 10. Directors, Executive OfficersRegulation 14A within 120 days after our year ended December 31, 2023 and Corporate Governance, and such information is incorporated herein by reference.

Item 12.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information relating to certain beneficial ownership of certain stockholdersCertain Beneficial Owners and management, as well as certain otherManagement and Related Stockholder Matters

The information required by this Item 12,item will be containedincluded in the 20212024 Proxy Statement, referredwhich will be filed pursuant to above in Item 10. Directors, Executive OfficersRegulation 14A within 120 days after our year ended December 31, 2023 and Corporate Governance, and such information is incorporated herein by reference.

Item 13.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information relating to certain relationships and related transactions, asRelated Transactions, and Director Independence

The information required by this Item 13,item will be containedincluded in the 20212024 Proxy Statement, referredwhich will be filed pursuant to above in Item 10. Directors, Executive OfficersRegulation 14A within 120 days after our year ended December 31, 2023 and Corporate Governance, and such information is incorporated herein by reference.

Item 14.

Principal Accounting Fees and Services

Item 14. Principal Accountant Fees and Services

Information relating to fees paid to and services performed by Deloitte & Touche LLP and our Audit Committee’s pre-approval policies and procedures with respect to non-audit services are contained in the 20212024 Proxy Statement, referredwhich will be filed pursuant to above in Item 10. Directors, Executive Officers and Corporate Governance,Regulation 14A within 120 days after our year ended December 31, 2023, and such information is incorporated herein by reference.

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RESIDEO TECHNOLOGIES, INC.

PART IV.


Item 15. Exhibits and Financial Statement Schedules
Item 15.

Exhibits, Financial Statement Schedules

(a)(1)Financial Statements

The Consolidated and Combined Financial Statements and relatedaccompanying notes, together with the report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (PCAOB ID No. 34), appear in Part II Item 8. Financial Statements and Supplementary Data of this Form 10-K.

(a)(2)Financial Statements Schedules

All schedules have been omitted because they are not required or because the required information is given in the Consolidated and Combined Financial Statements or Notesaccompanying thereto.

(a)(3)Exhibits

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

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RESIDEO TECHNOLOGIES, INC.

EXHIBIT INDEX

Exhibit


Number

Exhibit Description

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

89

RESIDEO TECHNOLOGIES, INC.

Exhibit

Number

Exhibit Description

2.9

2.10

2.11

2.12

2.13

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RESIDEO TECHNOLOGIES, INC.
2.14

3.1

2.15

3.1

3.2

4.1

4.2

4.3

10.01

Offer Letter of Michael G. Nefkens ‡, the other guarantors named therein, and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 10.014.1 to Resideo’s Form 108-K filed on August 23, 2018,27, 2021, File No. 001-38635)

4.4

10.02

4.5

4.6

4.7
10.01

10.03

10.02

10.04

10.03

10.05

10.04

10.06

First Amendment to Credit Agreement dated as of November 26, 2019, by and among the Company Resideo Holding Inc., a Delaware corporation, Resideo Intermediate Holding Inc., a Delaware corporation, Resideo Funding Inc., a Delaware corporation, the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. (incorporated by reference to Exhibit 10.1 to Resideo’s Form 8-K filed on November 27, 2019. File No. 001-38635)

10.07

Resideo Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates ‡ (incorporated by reference to Exhibit 10.1Appendix A to Resideo’s Form 10-Qthe Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders filed on August 7, 2019, File No. 001-38635)April 25, 2023)

90

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RESIDEO TECHNOLOGIES, INC.

Exhibit

Number

Exhibit Description

10.0810.05

10.09

10.06

10.10

10.07

10.11

10.08

10.12

10.09

10.13

10.10

10.14

10.11

10.15

10.12

10.16

10.13

10.17

10.14

10.18

10.15

10.19

10.16

10.20

10.17

10.18

10.21

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RESIDEO TECHNOLOGIES, INC.
10.19

10.20

10.21

10.22

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RESIDEO TECHNOLOGIES, INC.

Exhibit

Number

Exhibit Description

10.23

Employment Separation Agreement and Release with Mike Nefkens dated January 22, 2020 ‡ (incorporated by reference to Exhibit 10.29 to Resideo’s Form 10-K filed on February 27, 2020, File No. 001-38635)

10.24

Employment Offer letter agreement with Michael Flink executed January 17, 2020‡ (incorporated by reference to Exhibit 10.4 to Resideo’s Form 10-Q filed on May 7, 2020,August 4, 2022, File No. 001-38635)

10.25

10.23

10.26

10.24

10.27

10.25

10.28

10.26

10.29

Restricted Stock Unit Agreement with Andrew Teich dated December 2, 2019. ‡ (incorporated by reference to Exhibit 10.9 to Resideo’s Form 10-Q filed on May 7, 2020, File No. 001-38635)

10.30

Employment Agreement Letter with Jay Geldmacher dated May 18, 2020. ‡ (incorporated by reference to Exhibit 10.1 to Resideo’s Form 8-K filed on May 19, 2020, File No. 001-38635)

10.27

10.31

10.28

10.29

10.32

10.30

10.31

21.1

10.32

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RESIDEO TECHNOLOGIES, INC.
21.1

23.1

24.1

31.1

31.2

32.1

32.2

97

101.INS

Inline XBRL Instance Document (filed herewith)

101.SCH

Inline XBRL Taxonomy Extension Schema (filed herewith)

92

RESIDEO TECHNOLOGIES, INC.

Exhibit

Number

Exhibit Description

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)

_____________________________

*

Certain schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules and similar attachments upon request by the U.S. Securities and Exchange Commission.

‡

Indicates management contracts or compensatory plans or arrangements.


Item 16.

Form 10-K Summary

The Company has elected not to include a Form 10-K summary under this Item 16.

93

Summary

None.

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RESIDEO TECHNOLOGIES, INC.

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: February 25, 2021

14, 2024

By:

/s/ Anthony L. Trunzo

Anthony L. Trunzo

Executive Vice President and Chief Financial Officer

(on behalf of the Registrant and as the


Registrant’s Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

Name

Title

Title

Date

/s/ Jay Geldmacher

President, Chief Executive Officer and Director


(Principal Executive Officer)

February 25, 2021

14, 2024

Jay Geldmacher

/s/ AnnMarie Geddes

Tina Beskid

Vice President, Controller and Chief Accounting Officer


(Principal Accounting Officer)

February 25, 2021

14, 2024

AnnMarie Geddes

Tina Beskid

*

Chairman of the Board

February 25, 2021

14, 2024

Roger B. Fradin

*

Director

February 14, 2024

          *

Director

February 25, 2021

Paul F. Deninger

*

Director

February 14, 2024

          *

Cynthia Hostetler

*

Director

February 25, 2021

14, 2024

Cynthia Hostetler

          *

Director

February 25, 2021

Brian G. Kushner

*

Director

February 14, 2024

          *

Director

February 25, 2021

Jack R. Lazar

*

Director

February 14, 2024

          *

Director

February 25, 2021

Nina L. Richardson

*

Director

February 14, 2024

          *

Director

February 25, 2021

Andrew C. Teich

*

Director

February 14, 2024

         *

Sharon Wienbar

*

Director

February 25, 2021

14, 2024

Sharon Wienbar

Kareem Yusuf

*

Director

February 14, 2024

*By:

/s/ Jeannine J. Lane

(Jeannine J. Lane, Attorney-in-Fact)

February 25, 2021

14, 2024

94

88