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

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

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.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of ~~October~~July 29, ~~2021~~2022 was ~~144,386,057~~145,686,840 shares.

This Quarterly Report on Form 10-Q (this “Form 10-Q”) 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. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-Q 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:

These and other factors are more fully discussed in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our 2020 Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) and “Management’s Discussion and Analysis ofPart I. Financial Condition and Results of Operations” section in this Form 10-Q. There have been no material changes to the risk factors described in our 2020 Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements made by us in this Form 10-Q 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.

The financial statements and related footnotes as of October 2, 2021 should be read in conjunction with the financial statements for the year ended December 31, 2020 contained in our 2020 Annual Report on Form 10-K.


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020			July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net revenue	$	1,496	$	1,362	$	4,392	$	3,570		$	1,686	$	1,477	$	3,192	$	2,896
Cost of goods sold		1,080		992		3,227		2,680			1,219		1,091		2,287		2,135
Gross profit		416		370		1,165		890			467		386		905		761
Research and development expenses											28		22		52		43
Selling, general and administrative expenses		229		221		684		676			244		236		479		451
Research and development expenses		20		18		63		55
Operating profit		167		131		418		159
Intangible asset amortization											9		7		16		16
Income from operations											186		121		358		251
Other expense, net		58		35		130		106			41		28		81		72
Interest expense		12		14		37		49
Interest expense, net											14		12		25		25
Income before taxes		97		82		251		4			131		81		252		154
Tax expense		29		7		76		26
Net income (loss)	$	68	$	75	$	175	$	(22	)
Weighted Average Number of Common Shares Outstanding (in thousands)
Provision for income taxes											37		23		71		47
Net income										$	94	$	58	$	181	$	107
Earnings per common share
Basic		144,284		123,421		143,865		123,194		$	0.65	$	0.40	$	1.25	$	0.74
Diluted		148,559		125,235		148,260		123,194		$	0.63	$	0.39	$	1.22	$	0.72
Earnings (Loss) Per Share
Weighted average number of common shares outstanding
Basic	$	0.47	$	0.61	$	1.22	$	(0.18	)		145,457		143,939		145,286		143,657
Diluted	$	0.46	$	0.60	$	1.18	$	(0.18	)		148,829		148,328		148,836		148,050

~~The~~See accompanying notes to the unaudited ~~Notes to Consolidated Interim Financial Statements are an integral part of these~~consolidated financial statements.

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


	October 2, 2021			December 31, 2020			July 2, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	686		$	517		$	251		$	775
Accounts receivable – net		932			863
Inventories – net		710			672
Accounts receivable less allowances of $11 million and $9 million, respectively								1,073			876
Inventories, net								971			740
Other current assets		179			173			186			150
Total current assets		2,507			2,225			2,481			2,541
Property, plant and equipment – net		290			318
Property, plant and equipment, net								363			287
Goodwill		2,671			2,691			2,695			2,661
Other intangible assets, net								463			120
Other assets		366			376			314			244
Total assets	$	5,834		$	5,610		$	6,316		$	5,853
LIABILITIES
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	905		$	936		$	987		$	883
Current maturities of debt		10			7
Current maturities of long-term debt								12			10
Accrued liabilities		617			595			580			601
Total current liabilities		1,532			1,538			1,579			1,494
Long-term debt		1,222			1,155
Long-term debt, net of current maturities								1,410			1,220
Obligations payable under Indemnification Agreements		587			590			601			585
Other liabilities		335			334			332			302
COMMITMENTS AND CONTINGENCIES (Note 12)
EQUITY
Common stock, $0.001 par value, 700,000 shares authorized, 145,616 and 144,383 shares issued and outstanding as of October 2, 2021, 143,959 and 143,059 shares issued and outstanding as of December 31, 2020, respectively		0			0
Total liabilities								3,922			3,601
COMMITMENTS AND CONTINGENCIES
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000 shares authorized, 147,528 and 145,684 shares issued and outstanding as of July 2, 2022, 146,248 and 144,808 shares issued and outstanding as of December 31, 2021, respectively								0			0
Additional paid-in capital		2,111			2,070			2,147			2,121
Retained earnings								498			317
Accumulated other comprehensive loss, net								(220	)		(165	)
Treasury stock, at cost		(16	)		(6	)		(31	)		(21	)
Retained earnings		250			75
Accumulated other comprehensive loss		(187	)		(146	)
Total equity		2,158			1,993
Total liabilities and equity	$	5,834		$	5,610
Total stockholders’ equity								2,394			2,252
Total liabilities and stockholders’ equity							$	6,316		$	5,853

~~The~~See accompanying notes to the unaudited ~~Notes to Consolidated Interim Financial Statements are an integral part of these~~consolidated financial statements.

Note 1. Organization, Operations, and Basis of Presentation

Business Description

Resideo Technologies, Inc. (“Resideo” or “the Company”), is a leading ~~global~~ manufacturer and developer of technology-driven products that provide critical comfort, ~~residential thermal,~~energy, smoke and carbon monoxide detection home safety products, and security solutions to homes globally. The Company is also the leading wholesale distributor of low-voltage security products including ~~intrusion,~~ access control, fire detection, fire suppression, intrusion, 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, and data communications.~~cable. The Company has a global footprint serving commercial and residential end markets.

We acquired First Alert, Inc. (“First Alert”) on March 31, 2022. Refer toNote 11. Acquisitions for further detail on the First Alert acquisition.

The Company was incorporated in Delaware on April 24, 2018. The Company separated from Honeywell International Inc. (“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result of a pro rata distribution of the Company’s common stock to shareholders of Honeywell (the “Spin-Off”).

Basis of Presentation

The ~~Company’s~~accompanying unaudited consolidated financial statements ~~are presented on a consolidated basis~~ (collectively, the ~~“Interim Financial~~“Financial Statements”) ~~and~~ have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted ~~in the United States of America~~accounting principles (“~~U.S.~~ GAAP”)~~. All intercompany transactions have been eliminated~~ for ~~all periods presented. The Interim Financial Statements are unaudited; however, in~~complete financial statements. In the opinion of management, ~~they~~the unaudited consolidated financial statements included herein contain all ~~the~~ adjustments, ~~(consisting~~which consist of ~~those of a~~ normal recurring ~~nature) considered~~adjustments, necessary to ~~state~~ fairly present the Company’s financial position, results of operations and cash flows for the periods ~~presented in conformity with U.S. GAAP applicable to interim periods.~~

~~The Company reports financial information on a fiscal quarter basis using a “modified” 4-4-5 calendar (modified in~~indicated. Operating results for the period from January 1, 2022 through July 2, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ~~always begins on January 1 and ends on~~ending December ~~31) that requires its businesses to close their first, second, and third quarter books on a Saturday in order to minimize~~31, 2022.

During 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. In the event that differences in closing dates are material to year-over-year comparisons of quarterly or year-to-date results,three months ended July 2, 2022, the Company ~~will provide appropriate disclosures.~~changed the presentation of intangible asset amortization. These expenses are now presented as a separate line on the unaudited consolidated statements of operations, whereas they were previously included in cost of goods sold and selling, general and administrative expenses. Prior periods have been reclassified to conform to the current period presentation. The reclassification decreased cost of goods sold by $7 million and $11 million, and decreased selling, general and administrative expenses by $2 million and $5 million for the three and six months ended July 2, 2022, respectively. The reclassification decreased cost of goods sold by $5 million and $12 million, and decreased selling, general and administrative expenses by $2 million and $4 million for the three and six months ended July 3, 2021, respectively. The reclassification had no impact on total operating costs, income from operations, net income, earnings per common share or total equity

~~Reclassification~~

~~The prior year segment information was recast. See Note 4. Segment Financial Data for additional information.~~ Certain reclassifications have been made to ~~the~~ prior period amounts in the unaudited consolidated financial statements to conform to the ~~classification adopted~~current presentation.

For additional information, refer to the consolidated financial statements and notes thereto included in the ~~current period.~~Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2022.

Reporting Periods

The Company’s fiscal quarters are based on a four-four-five week calendar with the periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior ~~year unaudited Consolidated Interim Statements~~fiscal quarters.

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

Restricted Cash

The following table provides a reconciliation of ~~Operations were reclassified to present research~~cash, cash and ~~development expenses as a separate line item~~cash equivalents and restricted cash reported within the ~~statements. Research and development expenses were formerly included within Selling, general and administrative expenses.~~consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in millions):


	July 2, 2022		December 31, 2021
Cash and cash equivalents	$	251	$	775
Restricted cash included in Other current assets (1)		4		4
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cashflows	$	255	$	779

(1)

Primarily collateral to support certain bank guarantees.

Note 2. Summary of Significant Accounting Policies

The Company’s accounting policies are set forth in Note 2. Summary of Significant Accounting Policies of the Company’s Notes to Consolidated and Combined Financial Statements included in the 2020 Annual Report on Form 10-K.

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

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

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 along with its subsequent clarifications, is effective from March 12, 2020 through December 31, 2022 and is applicable for the Company’s A&R Senior Credit Facilities and Swap Agreements, which use LIBOR as a reference rate. The A&R Senior Credit Facilities include a transition clause to a new reference rate in the event LIBOR is discontinued and Swap Agreements will be amended to match the new reference rate. We have evaluated the potential impact of adopting this guidance, and we do not expect it to have a material impact on our consolidated financial statements. Refer to Note ~~13.~~15. Long-term Debt and Credit Agreement for further details on the Company’s Swap Agreements and A&R Senior Credit ~~Facilities~~Facilities.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and ~~Note 14. Derivative Instruments~~Contract Liabilities from Contracts with Customers. Under this guidance, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is effective for ~~further details~~interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 effective April 1, 2022, on ~~the Company's Swap Agreements.~~a prospective basis. The ~~Company is currently evaluating the potential~~ impact of adoption of this standard on ~~its~~our consolidated financial ~~statements.~~statements, including accounting policies, processes, and systems, was not material.

Note 3. Revenue Recognition

Disaggregated Revenue

The Company has two operating segments, Products & Solutions and ADI Global Distribution. Disaggregated revenue information for Products & Solutions is presented by product grouping while ADI Global Distribution is presented by region. Beginning January 1, 2022, the Products & Solutions 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 results of operations as of its March 31, 2022 acquisition date in the Security and Safety grouping.

Revenues by ~~geography~~product grouping and ~~business line~~region are as follows:

Three Months Ended

Nine Months Ended

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Comfort

$
303

$
297

$
877

$
725

Security

172

142

512

379

Residential Thermal Solutions

156

133

446

341

Products & Solutions

631

572

1,835

1,445

U.S. and Canada

727

650

2,125

1,758

EMEA (1)

128

129

402

338

APAC (2)

10

11

30

29

ADI Global Distribution

865

790

2,557

2,125

Net revenue

$
1,496

$
1,362

$
4,392

$
3,570


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Products & Solutions Disaggregated Revenue:
Air	$	262	$	206	$	476	$	397
Water		81		89		172		177
Energy		154		140		313		290
Security and Safety		267		163		422		340
Total Products & Solutions	$	764	$	598	$	1,383	$	1,204

ADI Global Distribution Disaggregated Revenue:
U.S. and Canada		791		731		1,543		1,398
EMEA (1)		123		140		249		274
APAC (2)		8		8		17		20
Total ADI Global Distribution		922		879		1,809		1,692

Total Net revenue	$	1,686	$	1,477	$	3,192	$	2,896

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

(2) APAC represents Asia and Pacific countries.

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~~Less than 3% of the Company’s revenue is satisfied over time. As of ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020,~~July 3, 2021, contract assets and liabilities were not material.

Note 4. Segment Financial Data

~~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~~monitors its business operations through 2 operating ~~segments,~~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~~operating segments follow the same accounting policies used for our consolidated financial statements. We evaluate a ~~clearer view into the operational~~segment's performance ~~of the two segments, and increase accountability for management of~~on a U.S. GAAP basis based primarily upon operating income before corporate ~~spending. As a result, the Company recast prior periods to conform with the new presentation.~~expenses.

~~Products & Solutions~~

~~—The Products & Solutions business is a leading global provider~~Corporate assets consist primarily of ~~products, software solutions~~cash, investments, prepaid expenses, current and ~~technologies that help homeowners stay connected~~deferred taxes and ~~in control of their comfort, security,~~property, plant and ~~energy use.~~equipment. These items are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, unallocated pension expense, restructuring charges, acquisition-related costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology, strategy, communications and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, and other income (expense).

~~ADI Global Distribution—The ADI Global Distribution business is the leading global distributor of low-voltage security products including intrusion, access control, and video products and participates significantly in the~~

1110

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED ~~INTERIM~~ FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

~~broader related markets of smart home, fire, access control, power, audio, ProAV, networking, communications, wire and cable, and data communications.~~

~~Corporate~~—Corporate includes 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.

Three Months Ended

Nine Months Ended

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Revenue

Total Products & Solutions revenue

$
726

$
674

$
2,121

$
1,715

Less: Intersegment revenue

95

102

286

270

External Products & Solutions revenue

631

572

1,835

1,445

External ADI Global Distribution revenue

865

790

2,557

2,125

Total revenue

$
1,496

$
1,362

$
4,392

$
3,570

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

Three Months Ended

Nine Months Ended

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Operating profit (loss)

Products & Solutions

$
157

$
141

$
416

$
241

ADI Global Distribution

73

56

198

135

Corporate

(63
)

(66
)

(196
)

(217
)
Total

$
167

$
131

$
418

$
159


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net revenue:
Products & Solutions		764		598		1,383		1,204
ADI Global Distribution		922		879		1,809		1,692
Total Net revenue:	$	1,686	$	1,477	$	3,192	$	2,896


	Three Months Ended						Six Months Ended
	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Income from operations:
Products & Solutions	$	154		$	129		$	307		$	259
ADI Global Distribution		86			66			166			125
Corporate		(54	)		(74	)		(115	)		(133	)
Total Income from operations:	$	186		$	121		$	358		$	251

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

Note 5. Stock-Based Compensation Plans

Restricted Stock Units (“RSUs”) and Performance Stock Unit (“PSUs”)

During the ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, as part of the Company’s annual long-term compensation under 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”), it granted ~~500,227~~672,453 market-based ~~RSUs~~PSUs and ~~1,125,136~~1,035,043 service-based RSUs to eligible employees. The weighted average grant date fair value per share for market-based ~~RSUs~~PSUs and service-based RSUs was $~~42.89~~36.04 and $~~27.41~~24.54, respectively.

~~Stock Options~~Annual awards to our key employees generally have a

three or

~~During~~four year performance period. The fair value is based on the ~~nine months ended October 2, 2021~~,Company’s stock price as ~~part~~ of the ~~Company’s annual long-term compensation under the Stock Incentive Plan,~~ ~~150,000~~ ~~stock options were granted to eligible employees at a weighted average exercise price per share~~date of $~~25.48~~ ~~and weighted average grant date fair value per share of $7.69~~.grant.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

Note 6. Leases

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.~~inflation. Generally, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company’s operating lease ~~costs~~expense for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021 consisted of the following:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020		July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Cost of goods sold	$	5	$	5	$	13	$	13	$	7	$	4	$	10	$	8
Selling, general and administrative		12		13		34		33		13		10		25	$	22
Total operating lease costs	$	17	$	18	$	47	$	46
Total operating lease expense									$	20	$	14	$	35	$	30

Total operating lease ~~costs include~~expense includes variable lease ~~costs~~expense of $5 million and $139 million for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021.~~2022, respectively. For the three and ~~nine~~six months ended ~~September 26, 2020,~~July 3, 2021, total operating lease ~~costs~~

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

expense include variable lease ~~costs~~expense of $54 million and $128 million, respectively. Total operating lease ~~costs~~expense also include offsetting sublease income which is immaterial for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020.~~July 3, 2021.

The Company recognized the following related to its operating leases:


	Financial Statement Line Item	At October 2, 2021		At December 31, 2020		Financial Statement Line Item	As of July 2, 2022		As of December 31, 2021
Operating right-of-use assets	Other assets	$	134	$	133	Other assets	$	172	$	141
Operating lease liabilities - current	Accrued liabilities	$	33	$	33	Accrued liabilities	$	36	$	32
Operating lease liabilities - noncurrent	Other liabilities	$	112	$	107	Other long-term liabilities	$	146	$	120

~~Maturities of the Company’s operating~~Future minimum lease ~~liabilities were~~payments under non-cancelable leases are as follows:

At October 2,
2021

2021

$
10

2022

39

2023

34

2024

23

2025

17

Thereafter

46

Total lease payments

169

Less: imputed interest

24

Present value of operating lease liabilities

$
145

Weighted-average remaining lease term (years)

5.75

Weighted-average incremental borrowing rate

5.39
%

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~


	As of July 2, 2022
2022 (excluding the six months ended July 2, 2022)	$	22
2023		42
2024		33
2025		28
2026		24
Thereafter		66
Total future minimum lease payments		215
Less: imputed interest		33
Present value of future minimum lease payments	$	182
Weighted-average remaining lease term (years)		6.36
Weighted-average incremental borrowing rate		5.28	%

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

Nine Months Ended

October 2, 2021

September 26, 2020

Operating cash outflows

$
25

$
22

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

$
31

$
22


	Six Months Ended
	July 2, 2022		July 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Cash outflows for operating leases	$	16	$	17
Non-cash activities:
Right of use assets obtained in exchange for new operating lease liabilities	$	56	$	17

As of October 2, 2021, 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 three and nine months ended October 2, 2021 and September 26, 2020 was not material.

Note 7. Income Taxes

The Company recorded tax expense of $2937 million and $7671 million for the three and ~~nine~~six months ended ~~October~~July 2, 2022, respectively. The Company recorded tax expense of $23 million and $47 million for the three and six months ended July 3, 2021, respectively.

For interim periods, income tax is equal to the total of (1) year-to-date pretax income multiplied by the Company’s forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where the Company expects to report losses for which the Company does not expect to receive tax benefits, the Company ~~is required to apply~~applies separate forecasted effective tax rates to those jurisdictions rather than including them in the consolidated forecasted effective tax rate.

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

For the three months ended ~~October~~July 2, ~~2021~~2022, the net tax expense of $2937 million consists primarily of interim period tax expense ~~of $~~32 ~~million~~ based on year-to-date pretax income multiplied by the Company’s forecasted effective tax ~~rate, partially offset by a tax benefit specific to the period of approximately $~~3 ~~million consisting primarily of changes in estimates related to prior years.~~rate. In addition to items specific to the period, the Company’s income tax rate is impacted by the mix of earnings across the jurisdictions in which the Company operates, non-deductible expenses, and U.S. taxation of foreign earnings.

For the ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, the net tax expense of $7671 million consists primarily of interim period tax expense ~~of $~~80 ~~million~~ based on year-to-date pretax income multiplied by the Company’s forecasted effective tax ~~rate, offset by tax benefits specific to the period of approximately $~~4 ~~million, consisting primarily of excess deductions for share-based compensation and changes in estimates related to prior years.~~rate. In addition to items specific to the period, the Company’s income tax rate is impacted by the mix of earnings across the jurisdictions in which the Company operates, non-deductible expenses, and U.S. taxation of foreign earnings.

Note 8. ~~Other Expense, Net~~

Three Months Ended

Nine Months Ended

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Reimbursement Agreement expense

$
39

$
38

$
111

$
107

Loss on extinguishment of debt

18

-

41

-

Other

1

(3
)

(22
)

(1
)

$
58

$
35

$
130

$
106

~~Note 9.~~ Earnings ~~(Loss)~~ Per Common Share

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

Three Months Ended

Nine Months Ended

October 2,
2021

September 26,
2020

October 2,
2021

September 26,
2020

Net income (loss)

$
68

$
75

$
175

$
(22
)

Shares used in computing basic earnings per share

144,284

123,421

143,865

123,194

Effect of dilutive securities:

Dilutive effect of common stock equivalents

4,275

1,814

4,395

-

Shares used in computing diluted earnings per share

148,559

125,235

148,260

123,194

Earnings (loss) per share:

Basic

$
0.47

$
0.61

$
1.22

$
(0.18
)
Diluted

$
0.46

$
0.60

$
1.18

$
(0.18
)


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Numerator for Basic and Diluted Earnings Per Common Share
Net income	$	94	$	58	$	181	$	107
Denominator for Basic and Diluted Earnings Per Common Share
Weighted average basic number of shares outstanding		145,457		143,939		145,286		143,657
Add: dilutive effect of stock equivalents		3,372		4,389		3,550		4,393
Weighted average diluted number of shares outstanding		148,829		148,328		148,836		148,050

Earnings per common share:
Basic	$	0.65	$	0.40	$	1.25	$	0.74
Diluted	$	0.63	$	0.39	$	1.22	$	0.72

Diluted earnings per common share is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of the Company’s common stock for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020. 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.~~July 3, 2021. For the three and ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, average options and other rights to purchase approximately ~~0.2~~0.9 million shares of common stock were outstanding and anti-dilutive, and therefore excluded from the computation of diluted earnings per common share. In addition, an average of ~~approximately~~ ~~0.8~~1.0 million and ~~0.7~~0.9 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022, respectively, as the contingency ~~has~~had not been satisfied. For the three and ~~nine~~six months ended ~~September 26, 2020,~~July 3, 2021, average options and other rights to purchase approximately ~~1.1~~ ~~million and~~ ~~3.6~~0.1 million shares of common stock ~~respectively,~~ were outstanding and anti-dilutive, and therefore excluded from the computation of diluted income per common share. An average of approximately ~~0.8~~0.9 million and ~~0.6~~0.8 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the three and ~~nine~~six months ended ~~September 26, 2020,~~July 3, 2021, respectively, as the contingency ~~has~~had not been satisfied.

Note 9. Inventories, Net


	July 2, 2022		December 31, 2021
Raw materials	$	264	$	174
Work in process		24		17
Finished products		683		549
Total Inventories, Net	$	971	$	740

Note 10. ~~Inventories—~~Property, Plant, and Equipment, Net


	July 2, 2022			December 31, 2021
Machinery and equipment	$	641		$	602
Buildings and improvements		297			292
Construction in progress		60			35
Other		8			4
Total Gross Property, Plant, and Equipment		1,006			933
Accumulated depreciation		(643	)		(646	)
Property, Plant, and Equipment, Net	$	363		$	287

Depreciation expense for the three and six months ended July 2, 2022 and July 3, 2021 were $29 million and $15 million, respectively.

Note 11. Acquisitions

October 2, 2021

December 31, 2020

Raw materials

$
161

$
127

Work in process

18

19

Finished products

531

526

$
710

$
672

On February 6, 2022, the Company announced it had entered into a definitive agreement to purchase 100% of the issued and outstanding capital stock of First Alert, a leading provider of home safety products. The acquisition closed on March 31, 2022 for an aggregate cash purchase price of $614 million (including preliminary post-closing adjustments of $6 million). First Alert is expected to expand and leverage the Company's footprint in the home with complementary smoke and carbon monoxide detection home safety products and fire suppression products. The business is included within the Products & Solutions segment.

The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition. The Company preliminarily determined the fair value of the tangible and intangible assets and liabilities acquired, and recorded goodwill based on the excess of the fair value of the acquisition consideration over such fair values as follows:


Cash and other current assets	$	4
Accounts receivable, net		72
Inventories, net		117
Property, plant and equipment		87
Goodwill (1)		72
Other intangible assets, net		349
Other assets (non-current)		37
Total assets		738
Accounts payable		55
Accrued liabilities		33
Other liabilities		36
Total liabilities		124
Net asset acquired (2)	$	614

(1) The $72 million of preliminary goodwill was allocated to the Products & Solutions segment. Goodwill from this acquisition is partially deductible for tax purposes.

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

(2) Reflects preliminary purchase price allocation.

First Alert contributed $113 million in net revenue for the three months ended July 2, 2022. The net income for the period was not material. On a pro forma basis, First Alert's net revenue for the three months ended April 2, 2022 and the twelve months ended December 31, 2021 was $110 million and $395 million, respectively. The pro forma net income for both periods was not material.

The Company expensed approximately $10 million of costs related to the acquisition of First Alert during the six months ended July 2, 2022. These costs, which consist primarily of advisory, insurance, and legal fees, are included in Selling, general and administrative expenses in the accompanying unaudited Consolidated Statements of Operations.

On February 14, 2022, the Company acquired 100% of the outstanding equity of Arrow Wire and Cable Inc. (“Arrow”), a leading regional distributor of data communications, connectivity and security products, for an aggregate cash purchase price of $15 million. The business is included within the ADI Global Distribution segment and is expected to strengthen the Company’s global distribution portfolio in the data communications category with an assortment of copper and fiber cabling and connectivity, connectors, racking solutions, and network equipment. The Company is still assessing the final allocation of the purchase price to the assets and liabilities of the business.

Note 12. Goodwill and Other Intangible Assets, Net

The Company's goodwill balance and changes in the carrying amount of goodwill by segment are as follows (in millions):


	Products & Solutions			ADI Global Distribution			Total
Balance as of December 31, 2021	$	2,010		$	651		$	2,661
Adjusted Goodwill from acquisitions		72			7			79
Currency translation		(34	)		(11	)		(45	)
Balance as of July 2, 2022	$	2,048		$	647		$	2,695

The table that follows presents the major components of intangible assets as of July 2, 2022 and December 31, 2021. Intangible assets that are fully amortized have been removed from the disclosures.

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED ~~INTERIM~~ FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)


	Range of Life (Years)	Weighted Average Amortization Period (Years)	Cost		Accumulated Amortization			Net Carrying Amount
As of July 2, 2022
Other intangible assets, net:
Patents and technology	3-10	10	$	64	$	(24	)	$	40
Customer relationships	7-15	14		294		(107	)		187
Trademarks (1)	10-Indefinite	10		194		(8	)		186
Software	2-7	6		164		(114	)		50
Total intangible assets			$	716	$	(253	)	$	463

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

(1)

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

The Company uses the straight-line method of amortization and expects to recognize amortization expense over the next five fiscal years as follows (in millions):


2022 (excluding the six months ended July 2, 2022)	$	19
2023		44
2024		32
2025		31
2026		27

Note ~~11.~~13. Accrued Liabilities


	October 2, 2021		December 31, 2020		July 2, 2022		December 31, 2021
Obligations payable under Indemnification Agreements	$	140	$	140	$	140	$	140
Taxes payable		55		62		52		54
Compensation, benefit and other employee-related		105		105		88		114
Customer rebate reserve		73		91		77		94
Litigation reserve		55		3
Restructuring reserve		10		24
Current operating lease liability						36		32
Other		179		170		187		167
	$	617	$	595
Total Accrued liabilities					$	580	$	601

Refer to Note ~~12.~~14. Commitments and Contingencies for further details on Obligations payable under Indemnification Agreements.

Note ~~12.~~14. 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 and 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

RESIDEO TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

July 2, 2022

(In millions, unless otherwise noted)

(Unaudited)

expenses for sites owned and operated by Resideo are presented within Cost of goods sold for operating sites. For the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020,~~July 3, 2021, environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $22 million as of ~~October~~July 2, ~~2021~~2022 and December 31, ~~2020.~~

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 unaudited consolidated results of operations and operating cash flows in the periods recognized or paid.2021.

Obligations Payable Under Indemnification Agreements

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

Reimbursement Agreement

~~On October 29, 2018, in~~In connection with the Spin-Off, the Company entered into the Reimbursement Agreement with Honeywell 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. See Note ~~19.~~17. Commitments and Contingencies in the Company’s ~~2020~~2021 Annual Report on Form 10-K for further discussion.

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

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


	Nine Months Ended						Six Months Ended
	October 2, 2021			September 26, 2020			July 2, 2022			July 3, 2021
Beginning balance	$	591		$	585		$	597		$	591
Accruals for indemnification liabilities deemed probable and reasonably estimable		111			107			86			72
Indemnification payment		(105	)		(70	)		(70	)		(70	)
Ending balance (1)	$	597		$	622		$	613		$	593

(1)

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.

For the three and ~~nine~~six months ended ~~October~~July 2, 2022, net expenses related to the Reimbursement Agreement were $45 million and $86 million, respectively, and for the three and six months ended July 3, 2021, net expenses related to the Reimbursement Agreement were $3936 million and $~~111~~ ~~million, respectively, and for the three and nine months ended September 26, 2020, net expenses related to the Reimbursement Agreement were $~~38 ~~million and $107~~72 million, respectively, and are recorded in Other expense, net.

Reimbursement Agreement liabilities are included in the following balance sheet accounts:


	July 2, 2022		December 31, 2021
Accrued liabilities	$	140	$	140
Obligations payable under Indemnification Agreements		473		457
	$	613	$	597

October 2, 2021

December 31, 2020

Accrued liabilities

$
140

$
140

Obligations payable under Indemnification Agreements

457

451

$
597

$
591

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 such indemnification liability payments can be determined although they could be material to the Company’s unaudited consolidated results of operations and operating cash flows in the periods recognized or paid.

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 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. As of ~~October~~July 2, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company ~~had an indemnity~~has recorded a liability ~~owed~~in respect to ~~Honeywell for future tax payments~~the Tax Matters Agreement of $~~130~~128 million, ~~and $139~~ ~~million, respectively,~~ which is included in Obligations payable under Indemnification Agreements.

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 ofwhich is generally equal to 1.5% on net revenue to Honeywell related to such licensed products which is recorded in Selling, general and administrative ~~expense~~expenses on the unaudited Consolidated ~~Interim~~ Statements of Operations. For the three and ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, royalty fees were $5 million and $1411 million, respectively. For the three and ~~nine~~six months ended ~~September 26, 2020,~~July 3, 2021, royalty fees were $74 million and $189 million, respectively.

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 or outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. No such matters are material to the Company’s 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~~were named defendants ofin a class action securities suit that was filed 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 ~~defendants filed a motion to dismiss the~~amended complaint ~~on July 10, 2020. On March 30, 2021, United States District Judge Wilhelmina M. Wright issued an order~~asserted claims under Section 10(b) and ~~decision denying the motion to dismiss. On April 13, 2021, the Defendants filed an answer in~~Section 20(a) of the Securities ~~Litigation.~~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. Following a court-approved settlement resolving the Securities Litigation, on March 25, 2022, the court entered a final judgement, which was amended to provide a dismissal of the Securities Litigation with prejudice on April 14, 2022.

On July 30, 2021, the Company executed a term sheet with plaintiffs’ representatives setting forth an agreement in principle to settle the claims alleged in the complaint, as amended. The total amount to be paid in settlement of the claims as set forth in the agreement in principle is $55 ~~million. Insurance recoveries of approximately $~~39 million are expected related to the settlement. The claim settlement payment and related insurance recoveries are recorded in Accrued liabilities and Other current assets, respectively. The net expense of $16 ~~million from the claim settlement and related insurance recoveries is recorded in Selling, general and administrative expenses.~~

On August 18, 2021 the Company and plaintiffs’ representative executed a definitive Stipulation and Agreement of Settlement reflecting the terms of the agreement in principle and other customary terms and conditions (the “Settlement”). That same day, on August 18, 2021, the plaintiffs’ representatives filed a motion with the Court seeking preliminary approval of the Settlement. The motion for preliminary approval was deemed fully submitted by the Court on September 14, 2021. On October 21, 2021, the Court granted preliminary approval of the Settlement and scheduled the Settlement hearing for January 27, 2022. The Company intends to vigorously pursue approval of the Settlement, but there can be no assurance that court approval will be granted.

Certain current or former directors and officers of the Company ~~are~~were defendants in a consolidated derivative action ~~pending~~ in the District Court for the District of Delaware under the caption In re Resideo Technologies, Inc. Derivative Litigation ~~20-cv-00915~~ (the “Federal Derivative Action”)~~, which has been stayed by agreement of the parties.~~

. On September ~~21,~~23, 2021, ~~the parties filed a stipulation requesting~~ the Federal Derivative Action bewas transferred to the District of Minnesota, where ~~the~~ Securities Litigation is pending, to reserve judicial resources and for the convenience of the parties. The Court ordered the transfer of the Federal Derivative Action on September 23, 2021. The Company intends to defend this action vigorously, but there can be no assurance that the defense will be successful.

was pending. On September 1, 2021, an additional shareholder derivative complaint was filed by Riviera Beach, part of the leadership group in the Federal Derivative Action, and

City of Hialeah Employees Retirement System against certain current or former directors and officers of the Company in the District of Minnesota, alleging substantially that the same facts and making substantially the same claims against the same defendants as in the Federal Derivative Action, and additionally referencing board materials obtained through a demand made pursuant to Section 220 of the Delaware Code Title ~~8. The parties intend to seek consolidation of that action, captioned~~ ~~Riviera~~8 (the “Riviera Beach ~~Police Pension Fund v. Nefkens, 21-cv-1965, and~~Action”). On December 1, 2021, the Federal Derivative Action and the Riviera Beach Action were consolidated into a single action under the caption: In re Resideo Technologies, Inc. Derivative Litigation (the “Consolidated Federal Derivative Action”) and was stayed pending entry of final judgement in the ~~Minnesota Court. The Company intends~~Securities Litigation. On April 19, 2022, after entry of the final judgement in the Securities Litigation, the court entered the parties’ stipulation suspending all deadlines in the case for sixty days to ~~defend this action vigorously, but there can be no assurance that~~facilitate settlement discussions. On July 8, 2022, the ~~defense will be successful.~~parties participated in a status conference with the Court, following which, on July 19, 2022, the Court entered a sealed order extending the stay and addressing certain matters in respect of the ongoing settlement discussions.

On June 25, 2021, the Bud & Sue Frashier Family Trust U/A DTD 05/05/98, filed a shareholder derivative complaint against certain current or former directors and officers of the Company in the Court of Chancery of the

State of Delaware, captioned Bud & Sue Frashier Trust U/A DTD 05/05/98 v. Fradin~~, 2021-0556~~ (“Delaware Chancery Derivative Action”). The Delaware Chancery Derivative Action alleges substantially the same facts and makes substantially the same claims as the Federal Derivative Action, and additionally references board materials obtained through a demand made pursuant to Section 220 of the Delaware Code Title 8. The Delaware Chancery Derivative Action remains stayed by ~~agreement~~order of the ~~parties. The~~Court.

While the Company is engaged in discussions concerning potential settlement of the Federal Derivative Action and the Delaware Chancery Derivative Action, there can be no guarantees that a settlement will be reached or approved. In the event that no settlement is reached, the Company intends to defend ~~this action~~these actions vigorously, but there can be no assurance that the defense will be successful.

On August 20, 2021, Alice Burstein, a purported shareholder of the Company, sent a letter demanding that the Company’s Board of Directors undertake an independent internal investigation into certain current or former directors of the Company for violations of state and/or federal law related to the same conduct alleged in the Securities Litigation and derivative complaints (the “Demand Letter”). On September 13, 2021, the Company responded to the Demand Letter stating that the Board had reviewed and considered the demand and determined the best interests of the shareholders and the Company would be served by deferring an investigation pending adjudication or resolution of the outstanding derivative actions.

See Note ~~19.~~17. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements in the Company’s ~~2020~~2021 Annual Report on Form 10-K for further discussion of these matters.

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:


	Nine Months Ended						Six Months Ended
	October 2, 2021			September 26, 2020			July 2, 2022			July 3, 2021
Beginning of period	$	22		$	25		$	23		$	22
Accruals for warranties/guarantees issued during the year		12			13			11			8
Adjustment of pre-existing warranties/guarantees		(1	)		-
Settlement of warranty/guarantee claims		(13	)		(12	)
Additions from acquisitions								14			-
Settlements and adjustments								(13	)		(10	)
End of period	$	20		$	26		$	35		$	20

Note ~~13.~~15. Long-term Debt and Credit Agreement

The Company’s long-term debt as of ~~October~~July 2, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following:


	October 2, 2021			December 31, 2020			July 2, 2022			December 31, 2021
4.000% notes due 2029	$	300		$	0		$	300		$	300
6.125% notes due 2026		0			400
Five-year variable rate term loan A due 2023		0			315
Seven-year variable rate term loan B due 2025		0			465
Seven-year variable rate term loan B due 2028		945			0
Seven-year variable rate A&R Term B Facility								1,137			943
Unamortized deferred financing costs		(13	)		(18	)		(15	)		(13	)
Total outstanding indebtedness		1,232			1,162			1,422			1,230
Less: Amounts expected to be paid within one year		10			7			12			10
Total long-term debt due after one year	$	1,222		$	1,155		$	1,410		$	1,220

~~On February 12,~~As of July 2, 2022 and July 3, 2021, the ~~Company entered into an amended~~interest rate for the Amendment and ~~restated credit agreement (the “A&R Credit Agreement”). The A&R Credit~~Restatement 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”~~(“A&R”) ~~and (ii) a~~ ~~five-year~~ ~~senior secured revolving~~

~~RESIDEO TECHNOLOGIES, INC.~~

~~NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

~~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”).~~(defined below) was

~~The A&R Credit Agreement replaces the five-year variable rate term loan A due~~ ~~2023, the seven-year variable rate term loan B due~~ ~~2025~~ ~~and the five-year senior secured first-lien revolving credit facility.~~

In addition to paying interest on outstanding borrowings under the A&R Revolving Credit Facility, the Company is 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.~~

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~~3.59% and ~~(3) the one month adjusted LIBOR rate, plus~~ ~~1.00~~2.75% ~~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)~~, respectively, 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.~~

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 the Company and substantially all of the direct and indirect wholly owned subsidiaries of the Company that are organized under the laws of the United States (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 the Company, as well as the tangible and intangible personal property and material real property of the Company and each of the Guarantors.

~~As of October 2, 2021,~~ there were 0 borrowings and 0 letters of credit issued under the A&R Revolving Credit ~~Facility. At October 2, 2021~~Facility (as defined below). During the ~~interest rate for the A&R Term B Facility was~~ ~~2.75~~%

~~On February 16,~~six months ended July 3, 2021, the Company ~~redeemed $140~~ ~~million in principal amount of the~~ ~~6.125% senior unsecured notes (the “Senior Notes due~~ ~~2026”) at a redemption price of~~ ~~106.125% of par plus accrued interest.~~

~~As a result of the Senior Notes due 2026 redemption and the execution of the A&R Credit Agreement,~~incurred debt extinguishment costs of $23 million ~~were incurred during~~related to the ~~three months ended April 3, 2021~~execution of the A&R Credit Agreement (as defined below) and ~~were recorded in Other expense, net.~~

~~On August 26, 2021,~~a partial redemption of previously outstanding senior notes. As of July 2, 2022, the Company ~~redeemed~~was in compliance with all covenants related to the ~~remaining $260~~ ~~million in principal amount of~~A&R Credit Agreement and the Senior Notes due ~~2026 at a redemption price~~2029 (as defined below).

The Company assessed the amounts recorded under the Amendment and Restatement Agreement Term B Facility, the Senior Notes due 2029, and the A&R Revolving Credit Facility. The Company determined that the A&R Revolving Credit Facility approximated fair value. As of ~~105.594% of par plus accrued interest. As a result, debt extinguishment costs~~July 2, 2022, the A&R Term B Facility and the Senior Notes due 2029 had approximate fair values of $181,100 million ~~were incurred during~~and $236 million, respectively. The fair values of the ~~three months ended October~~debt are based on the quoted inactive prices and are therefore classified as Level 2 ~~2021.~~within the valuation hierarchy.

Senior Notes due 2029

On August 26, 2021, the Company issued $300 million in principal amount of 4% senior unsecured notes due in 2029 (the “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.

~~Before September 1, 2024~~

Credit Agreement

On February 12, 2021, the Company ~~may, at its option, redeem~~entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). This agreement effectively replaced the ~~Senior Notes due 2029~~Company’s previous senior secured credit facilities.

The A&R Credit Agreement provides for a (i) seven-year senior secured term B loan facility in ~~whole or in part at a redemption price equal to~~ ~~100% of the~~an aggregate principal amount of ~~the Senior Notes due 2029 redeemed, plus accrued~~$950 million (the “A&R Term B Facility”) and ~~unpaid interest, if any, plus~~(ii) a ~~“make-whole” premium. On or after September 1, 2024 Resideo may, at its option, redeem the Senior Notes due 2029~~five-year senior secured revolving credit facility in ~~whole or in part at a redemption price equal to~~ ~~100% of the~~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 ~~Notes due 2029 plus accrued and unpaid interest, plus a fixed redemption percentage on~~Credit Facilities”).

On March 28, 2022, the A&R Credit Agreement was further amended to include an additional aggregate principal amount of ~~the Senior Notes due 2029 redeemed of (i)~~ $~~102% if redeemed during the twelve-month period beginning on~~200 million in the loans.

Refer to Note 18. Long-Term Debt and Credit Agreement in the Company’s 2021 Annual Report on Form 10-K for further discussion regarding the Company’s long-term debt and credit agreement.

~~September 1, 2024 (ii)~~ ~~101% if redeemed during the twelve-month period beginning on~~ ~~September 1, 2025, (iii)~~ ~~100% if redeemed on or after~~ ~~November 1, 2026~~.

The Senior Notes due 2029 limit the Company and its restricted subsidiaries’ ability to, among other things, incur additional secured indebtedness and issue preferred stock; 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 the Company 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.~~

~~The Company incurred approximately $~~4 million in debt issuance costs related to the Senior Notes due 2029. The debt issuance costs associated with the Senior Notes due 2029 are recorded as a reduction of the principal balance of the debt. All issuance costs are being amortized through interest expense for the term of the Senior Notes due 2029.

The Company assessed the amounts recorded under the A&R Term B Facility, the Senior Notes due 2029, and the Revolving Credit Facility. The Company determined that the Revolving Credit Facility approximated fair value. The A&R Term B Facility and the Senior Notes due 2029’s fair values are approximately $~~948~~ ~~million and $295~~ ~~million, respectively. The fair values of the debt are based on the quoted inactive prices and are therefore classified as Level~~July 2, ~~within the valuation hierarchy.~~

Note ~~14.~~16. Derivative Instruments

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

InOn March 31, 2021, the Company entered into 8 interest rate swap agreements (the “Swap Agreements”) with several financial institutions for a combined notional value of $560 million. The effect of the Swap Agreements is to convert a portion of the Company’s variable interest rate obligations based on three-month LIBOR with a minimum rate of 0.50% per annum to a base fixed weighted average rate of 0.9289% over terms ranging from ~~three~~two to ~~five~~four years. The Swap Agreements are adjusted to fair value on a quarterly basis. The estimated fair value is based on Level 2 inputs primarily including the forward LIBOR curve available to swap dealers. Contract gains recognized in other comprehensive income (loss) totaled $1 million and ~~amounts~~$24 million for the three and six months ended July 2, 2022, respectively. Contract gains or losses recognized in other comprehensive income (loss) were immaterial for the three and six months ended July 3, 2021, respectively. Amounts reclassified from Accumulated other comprehensive loss into earnings were not material for any of the periods presented. The fair value of the Swap Agreements ~~at October~~as of July 2, 2022 was $31 million, of which $9 million was recognized in Other current assets and $22 million was recognized in Other assets. The fair value of the Swap Agreements as of July 3, 2021 was ~~not material.~~immaterial. Amounts expected to be reclassified into earnings in the next 12 months were not material as of ~~October~~July 2, ~~2021.~~2022.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries (“Resideo” or “the Company”, “we”, “us” or “our”) for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and should be read in conjunction with the unaudited Consolidated ~~Interim~~ Financial Statements and the notes thereto contained elsewhere in this Form 10-Q. The financial information as of ~~October~~July 2, ~~2021~~2022 should be read in conjunction with the consolidated and combined financial statements for the year ended December 31, ~~2020~~2021 contained in our ~~2020~~2021 Annual Report on Form 10-K (the ~~“2020~~“2021 Annual Report on Form 10-K”).

This Quarterly Report on Form 10-Q 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. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Form 10-Q 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:

These and other factors are more fully discussed in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our 2021 Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in this Form 10-Q. There have been no material changes to the risk factors described in our 2021 Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

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

~~During~~In March 2022, we completed the ~~fourth quarter~~acquisition of ~~2020, we made~~First Alert, Inc. ("First Alert"), a ~~change to our reportable segments. Previously we allocated corporate costs to~~leading provider of home safety products. This acquisition was integrated into the Products & Solutions ~~segment as well as~~portfolio and expands our footprint in 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, our Chief Operating Decision Maker moved towards making financial decisionshome with complementary smoke and ~~allocating resources based on segment Operating profit, rather than Segment Adjusted EBITDA. These changes were designed to better align accountability~~carbon monoxide detection home safety and ~~authority, give a clearer view into the operational performance of the two segments and increase accountability for management of corporate spending.~~fire suppression products.

Our financial performance is influenced by ~~several macro~~macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates, and the overall ~~macro~~macroeconomic environment. ~~The~~We are experiencing global ~~outbreak of~~shortages in key materials and components in certain instances impacting our ability to supply certain products. Additionally, the current inflationary environment has resulted in higher raw materials, freight, and other costs, and unfavorable foreign currency impacts from a novel coronavirus disease (“COVID-19”) created economic disruption. Starting at the end of the first quarter of 2020, we experienced constrained supply and slowed customer demand, as well as temporary closures of several of our ADI Global Distribution branches, that adversely impacted business, results of operations and overall financial performance. Although there remains uncertainty as to the continuing implications of COVID-19, customer demand has improved and ongoing cost actions and transformation efforts contributed to the improvements in the Company’s operations and overall financial performance. We continue to experience constrained supply.stronger U.S. dollar.

Net revenue increased ~~$134~~$209 million, or 14%, over the second quarter prior year primarily from $128 million in revenue from the ~~third quarter of 2021 compared~~First Alert and Arrow acquisitions and higher selling prices for our products in response to the ~~same quarter~~current inflationary environment. Partially offsetting these increases were foreign currency fluctuations of ~~2020, primarily due to volume and sales price increases.~~ approximately 300 bps or $40 million.

Gross profit as a percent of net revenues ~~increased to~~was 28% infor the ~~third quarter of 2021 from 27% in the third quarter of 2020. The primary items driving the 100 basis point (“bps”) increase in gross profit percentage were a~~three months ended July 2, 2022, an approximately 200 bps ~~benefit from sales~~increase over the same period last year. The drivers of the increase include favorable price ~~increases~~ and positive sales mix, ~~100 bps benefit~~including from ~~customer rebate favorability, and~~recent acquisitions, of 400 bps. Partially offsetting the increases were higher costs as a ~~100 bps benefit from reduced obsolete and surplus inventory charges. These favorable changes were partially offset by a~~result of the current inflationary environment of 200 ~~bps unfavorable impact from increased material costs and a 100 bps impact from increased freight costs.~~

~~Third quarter net income~~Research and development expenses for the three months ended July 2, 2022 was ~~$68~~$28 million, an increase of $6 million from $22 million for the three months ended ~~October 2, 2021 compared to net income of $75 million for the three months ended September 26, 2020.~~July 3, 2021. The increase was driven by acquisitions and new product investments.

Selling, general and administrative ~~expense~~expenses for the three months ended ~~October~~July 2, ~~2021 was $229~~2022 were $244 million, an increase of $8 million or 3% from ~~$221~~$236 million for the three months ended ~~September 26, 2020.~~July 3, 2021. The increase was primarily driven by ~~impairment charges resulting from~~increased costs associated with the ~~relocation~~First Alert acquisition of ~~our Austin, Texas corporate headquarters location to a lower cost site, commercial investments, increased incentives expense, increased stock-based compensation expense,~~$16 million, labor inflation of $6 million, and ~~labor and other inflation totaling $37 million. These increases were partially~~investment of $4 million offset by lower ~~Spin-Off~~legal and ~~restructuring related expenses, transformation programs cost savings,~~foreign currency impacts. As a percentage of net sales, selling, general and ~~other cost reductions totaling $29 million.~~administrative expense improved 200 bps despite increases incurred as a result of acquisitions, labor inflation, and foreign currency fluctuations.

~~Research and development expense~~Net income for the three months ended ~~October~~July 2, ~~2021~~2022 was ~~$20~~$94 million ~~an increase~~compared to net income of ~~$2 million from $18~~$58 million for the three months ended ~~September 26, 2020.~~July 3, 2021, a 62% increase and $0.25 improvement in earnings per share. The ~~increase was driven by labor and other items totaling $2 million.~~improvement is a result of the discussion above.

~~We ended the third quarter with $686~~Unrestricted cash on hand was approximately $251 million ~~in cash~~ and ~~cash equivalents. Net cash provided by operating activities~~liquidity was ~~$203~~approximately $751 million ~~for the nine months ended October~~as of July 2, ~~2021. At October 2, 2021, accounts receivable were $932 million, inventories were $710 million, accounts payable were $905 million, and~~2022. Also, there were no borrowings under ~~our~~the $500 million revolving credit facility.

~~The World Health Organization (“WHO”) declared COVID-19 a pandemic in March 2020. The broader implications of COVID-19 on our results of operations~~ and overall financial performance remain uncertain. During the second half of 2020 and into 2021 customer demand has improved versus the first half of 2020 and on-going cost actions and transformation efforts contributed to the improvements in the Company’s results of operations and overall financial performance. As viruses constantly change through mutation, new variants of the COVID virus have occurred and are expected to continue to occur over time. The CDC and other world health agencies have identified multiple variants which are circulating globally. As new information emerges it may have an impact on potential restrictions globally in areas including travel, freight, shipping, and commercial operations. As there remains uncertainty around the impacts of the COVID-19 pandemic, we address and evaluate the impacts frequently.

U.S. and international government responses to the COVID-19 outbreak have included “shelter in place,” “stay at home”, and similar types of orders. In the United States, Canada, and certain other countries globally, these orders exempt certain products and services needed to maintain continuity of operations of critical infrastructure sectors as determined by the federal government. If additional lockdown orders are put in place or 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. Finally, we are incurring increased costs associated with other employee safety measures.Recent Macroeconomic Environment

Our visibility toward future performance is more limited than is typical due to the uncertainty surrounding the duration and ultimate impact of COVID-19 and its variants, and the ~~mitigation measures that are implemented by governmental authorities. We also expect~~overall prevailing macroeconomic environment, including due to COVID-19. For example, recent business conditions ~~to remain challenging, with global~~have been impacted by shortages in key materials and components ~~in certain instances impacting~~which have impacted our ability to supply certain products. We have also experienced various inflationary impacts, such as increased labor rates, materials price inflation, and increased freight costs. In response to these challenges, we ~~will continue~~have, among other measures, aggressively managed supplier relationships to ~~focus on those factors that we can control: closely managing and controlling our expenses; aligning~~mitigate some of these shortages, developed contingency plans for future supply, aligned our production schedules with demand in a proactive ~~manner as there are changes in market conditions to minimize our cash operating costs;~~manner; and ~~pursuing~~pursued further improvements in the productivity and effectiveness of our manufacturing, selling, and administrative activities.

On August 26, 2021, we redeemed the remaining $260 million in principal amount of the Senior Notes due 2026 at a redemption price of 105.594% of par plus accrued interest. As a result, debt extinguishment costs of $18 million were recorded in Other expense, net.

~~On August 26, 2021, we issued $300 million in principal amount 4% senior unsecured notes due in 2029.~~

Our financial statements are presented on a consolidated basis (collectively, the “Interim Financial Statements”). The Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The prior year segment information was recast to present Corporate separately as well as present segment Operating profit which replaces Segment Adjusted EBITDA. See Note 4. Segment Financial Data of Notes to Consolidated Interim 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.

The prior year unaudited Consolidated Interim Statements of Operations were reclassified to present Research and development expenses as a separate line item within the statements. Research and development expenses were formerly included within Selling, general and administrative expenses.

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

~~Products & Solutions:~~ We generate the majority of our Product & 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, and data communications 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 and 2021 approximately two-thirds of ADI Global Distribution’s net revenue was attributed to non-residential end markets and one-third to residential end markets.

~~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.~~

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.

Other expense, net consists primarily of Reimbursement Agreement expenses for certain Honeywell environmental liability payments. For further information see the “Reimbursement Agreement” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 12. Commitments and Contingencies of Notes to Interim Financial Statements of this Form 10-Q. Other expense, net also includes debt extinguishment costs incurred as a result of the Senior Notes due 2026 redemption and the execution of the A&R Credit Agreement as well as foreign exchange gains and losses and other non-operating related expense or income.

Interest expense consists of interest on our short and long-term obligations, including our senior notes, term credit facilities, revolving credit facilities, and any realized gains or losses from our interest rate swaps. Interest expense on our obligations includes contractual interest, amortization of the debt discount, and amortization of deferred financing costs.

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.

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

~~Results of Operations for the Three and Nine Months Ended October 2, 2021 and September 26, 2020~~

Net revenue increased $209 million, or 14%, over the second quarter prior year primarily $128 million in revenue from the First Alert and Arrow acquisitions and higher selling prices of $113 million. Partially offsetting these increases were foreign currency fluctuations of approximately 300 bps or $40 million.

Net revenue for the ~~three~~six months ended ~~October~~July 2, ~~2021~~2022 was ~~$1,496~~$3,192 million, an increase of ~~$134~~$296 million, or 10%, from ~~$1,362~~$2,896 million for the ~~three~~six months ended ~~September 26, 2020.~~July 3, 2021. The increase in net revenue was ~~primarily due to volume~~driven by price increases and ~~sales price increases.~~acquisitions revenue, partially offset by foreign exchange fluctuations.

~~Net revenue for the nine months ended October 2, 2021 was $4,392 million, an increase of $822 million, or 23% from $3,570 for the nine months ended September~~ 26 ~~2020, which was negatively impacted by the emergence of COVID-19. The increase is mainly due to volume increases.~~

~~A 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 for the three months ended October 2, 2021 was $1,080 million, an increase of $88 million, or 9%, from $992 million for the three months ended September 26, 2020.~~

This increase in cost of goods sold was driven by higher revenue volumes, increased material costs, increased freight costs, foreign currency translation, and labor inflation totaling $128 million. These increased costs were partially offset by favorable changes in sales mix, lower charges related to obsolete and surplus inventory, transformation programs cost savings, and other cost savings totaling $40 million.

Gross profit as a percentage of net sales was 28% for the three months ended ~~October~~July 2, ~~2021,~~2022, compared to ~~27%~~a 200 bps increase over the same period last year. The drivers of the increase include favorable price and positive sales mix, including from recent acquisitions, of 400 bps. Partially offsetting the increases were unfavorable impacts from higher costs as a result of the current inflationary environment of 200 bps.

Gross profit as a percentage of net sales was 28% for the ~~three~~six months ended ~~September 26, 2020.~~July 2, 2022, compared to 26% for the six months ended July 3, 2021. The primary items driving the increase in gross profit percentage were a ~~200~~300 bps impact from ~~sales~~ price increases and favorable sales ~~mix, a 100 bps~~mix. This impact from customer rebate favorability, and a 100 bps impact from reduced obsolete and surplus inventory charges. These favorable changes were partially offset by a 200 bps impact from increased material costs and a 100 bps impact from increased freight costs.

~~Cost of goods sold for the nine months ended October 2, 2021~~ was ~~$3,227 million, an increase of $547 million, or 20%, from $2,680 for the nine months ended September 26, 2020.~~

This increase in cost of goods sold was driven by higher revenue volumes, increased freight costs, foreign currency translation, increased material costs, foreign currency translation and labor inflation totaling $656 million. These increased costs were partially offset by favorable changes in sales mix, lower charges related to obsolete and surplus inventory, decreased restructuring related costs, transformation programs cost savings, and other cost savings totaling $109 million.

Gross profit percentage was 27% for the nine months ended October 2, 2021, compared to 25% for the nine months ended September 26, 2020. The primary items driving the increase in gross profit percentage were a 100 bps benefit from sales price increases and sales mix, a 100 bps benefit resulting from higher revenue volume, a 100 bps benefit from lower charges related to obsolete and surplus inventory, and a 100 bps benefit from sourcing productivity. These benefits were partially offset by a 100 bps unfavorable impact from increased ~~freight costs and a 100 bps unfavorable impact from increased~~ material costs.

Research and development expenses for the three months ended July 2, 2022 was $28 million, an increase of $6 million from $22 million for the three months ended July 3, 2021. The increase was driven by acquisitions and new product investments.

Research and development expenses for the six months ended July 2, 2022 was $52 million, an increase of $9 million from $43 million for the six months ended July 3, 2021. The increase was driven by planned investment to support new product launches and the inclusion of acquisitions.

Selling, general and administrative ~~expense~~expenses for the three months ended ~~October~~July 2, ~~2021~~2022 was ~~$229~~$244 million, an increase of $8 million, or 3%, from ~~$221~~$236 million for the three months ended ~~September 26, 2020.~~July 3, 2021. The increase was primarily driven by ~~impairment charges resulting from~~increased costs associated with the ~~relocation~~First Alert acquisition of ~~our Austin, Texas corporate headquarters location to a lower cost site, commercial investments, increased incentives expense, increased stock-based compensation expense, and~~$16 million, labor inflation of $6 million, and ~~other items totaling $37 million. These increases were partially~~investment of $4 million offset by lower ~~Spin-Off and restructuring related~~legal expenses ~~transformation programs cost savings, and other cost reductions totaling $29 million.~~

~~Selling, general and administrative expense for~~as a result of the ~~nine months ended October 2,~~ 2021 ~~was $684 million, an increase of $8 million from $676 million for the nine months ended September 26, 2020. The increase was driven by commercial investments, the pending~~ securities class action litigation settlement net of insurance recoveries ~~increased incentives expense,~~of $16 million, and foreign currency ~~translation, impairment charges resulting~~impacts. As a percentage of net sales, selling, general and administrative expenses improved 200 bps despite increases incurred as a result of acquisitions, labor inflation, and foreign currency fluctuations.

Selling, general and administrative expenses for the six months ended July 2, 2022 was $479 million, an increase of $28 million from $451 million for the ~~relocation of our Austin, Texas corporate headquarters location~~six months ended July 3, 2021. The increase was driven by expenses related to ~~a lower cost site,~~acquisitions, transaction costs associated with the First Alert acquisition, increased ~~stock-based compensation expense,~~investment, and labor inflation and other items totaling ~~$109~~$56 million. These increases were partially offset by lower ~~Spin-Off and restructuring related~~legal expenses ~~transformation programs cost savings,~~as a result of the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, foreign currency translation and other cost reductions totaling ~~$101~~$28 million.

Research and development expense for the three months ended October 2, 2021 was $20 million, an increase of $2 million from $18 million for the three months ended September 26, 2020. The increase was driven by labor and other items totaling $2 million.

Research and development expense for the nine months ended October 2, 2021 was $63 million, an increase of $8 million from $55 million for the nine months ended September 26, 2020. The increase was driven by investments to support new product launches, labor inflation and other items totaling $15 million. These increases were partially offset by transformation programs cost savings, lower restructuring related expenses, and other cost reductions totaling $7 million.

Other expense, net for the three months ended ~~October~~July 2, ~~2021~~2022 was ~~$58~~$41 million, an increase of ~~$23~~$13 million from ~~$35~~$28 million for the three months ended ~~September 26, 2020.~~July 3, 2021. Other expense, net ~~increased $18 million from debt extinguishment costs incurred as a result of~~for the ~~redemption of the remaining Senior Notes due 2026, $2~~three months ended July 2, 2022 included $45 million in ~~foreign exchange impact, and $3~~expenses related to the Honeywell Reimbursement Agreement partially offset by $4 million of other non-operating income. Other expense, net for the three months ended July 3, 2021, included $36 million in ~~increased~~expenses related to the Honeywell Reimbursement Agreement, partially offset by $8 million of other non-operating ~~expense.~~income.

Other expense, net for the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 was ~~$130~~$81 million, an increase of ~~$24~~$9 million from ~~$106~~$72 million for the ~~nine~~six months ended ~~September 26, 2020.~~July 3, 2021. Other expense, net ~~increased $41~~for the six months ended July 2, 2022 included $86 million ~~from debt extinguishment costs incurred as a result of~~in expenses related to the ~~Senior Notes due 2026 redemption and the execution of the A&R Credit~~Honeywell Reimbursement Agreement partially offset by $6$5 million of other non-operating income. Other expense, net for the six months ended July 3, 2021 included $72 million in ~~favorable foreign exchange impact, a $9 million reduction in the accruals~~expenses related to the ~~Tax Matters Agreement, and a $2 million decrease in other non-operating expense.~~Honeywell Reimbursement Agreement.

For the three months ended July 2, 2022, the net tax expense of ~~$29~~$37 million ~~and $76 million for the three and nine months ended October 2, 2021.~~

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

For the three months ended October 2, 2021 the net tax expense of $29 million consists primarily of interim period tax expense of $32 million based on year-to-date pretax income multiplied by our forecasted effective tax rate partially offset by a tax benefit specific to the period of approximately $3 million consisting primarily of changes in estimates related to prior years. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

For the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022, the net tax expense of ~~$76~~$71 million consists primarily of ~~interim period tax expense of $80 million based on~~ year-to-date pretax income multiplied by our forecasted effective tax ~~rate, offset by tax benefits specific to the period of approximately $4 million, consisting primarily of excess deductions for share-based compensation and changes in estimates related to prior years.~~rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.

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

Products & Solutions revenue increased ~~10%~~28%, mainly due to ~~increased volume~~First Alert acquisition revenue and ~~sales~~ price ~~increases.~~increases, partially offset by foreign exchange fluctuations. Operating profit increased from ~~$141~~$129 million to ~~$157~~$154 million, or ~~11%~~19% primarily from positive price, net of inflationary cost increases of $7 million, higher demand of $11 million, and the contribution from the First Alert acquisition of $7 million.

Products & Solutions revenue increased 15%, mainly due to price increases and First Alert acquisition revenue, partially offset by foreign exchange fluctuations. Operating profit increased from $259 million to $307 million, or 19%. Operating profit was positively impacted by ~~increased volume, sales~~ price increases, ~~customer rebate favorability, a decrease in restructuring related expenses, lower charges related to obsolete and surplus inventory, transformation programs cost savings,~~contributions from the First Alert acquisition, and other cost ~~reduction efforts~~reductions totaling ~~$66~~$166 million. These impacts were partially offset by increased material costs, ~~increased freight costs, increased incentives expense, and labor inflation totaling $50 million.~~

~~Products & Solutions revenue increased 27%, mainly due to increased volume. Operating profit increased from $241 million to $416 million, or 73%. Operating profit was positively impacted by~~unfavorable changes in sales mix, higher ~~revenue, a decrease in Spin-Off and restructuring related expenses, lower~~ charges related to obsolete and surplus inventory, ~~sales price increases, transformation programs cost savings, favorable changes in sales mix, and other cost reduction efforts totaling $295 million. These impacts were partially offset by~~ increased freight costs, increased ~~material costs, investments to support new product launches, increased incentives expense, and labor inflation~~investment totaling ~~$120~~$118 million.

During 2021, ADI Global Distribution completed the acquisition of Norfolk Wire & Electronics, a regional distributor of data communications products and Shoreview Distribution, a U.S. distributor of Pro AV products. Both acquisitions are an example of our strategy to utilize M&A to accelerate expansion in attractive adjacent categories.

ADI Global Distribution revenue increased ~~9%,~~5% highlighted by strong growth in the U.S. and Canada ~~primarily~~ driven by ~~volume~~price increases, and ~~sales price increases.~~the impact of acquisitions, partially offset by foreign exchange fluctuations. Operating profit increased from ~~$56~~$66 million to ~~$73~~$86 million, or 30%. Operating profit was favorably impacted primarily by ~~favorable~~ changes in sales mix, ~~higher revenue,~~price increases, impact of acquisitions, and other expense productivity totaling ~~$28~~$31 million. These positive impacts were partially offset by commercial investments, increased freight costs, ~~and increased incentives expense,~~ as well as labor inflation totaling $11 million.

ADI Global Distribution revenue increased ~~20%, highlighted~~7% driven by ~~strong growth in~~price increases and the ~~U.S. and Canada, as well as EMEA.~~impact of acquisitions, partially offset by foreign exchange fluctuations. Operating profit increased from ~~$135~~$125 million to ~~$198~~$166 million, or ~~47%~~33%. Operating profit was favorably impacted ~~primarily~~ by ~~higher revenue, favorable~~ changes in sales mix, price increases, impact of acquisitions, and other expense productivity totaling ~~$90~~$60 million. These positive impacts were partially offset by commercial investments, increased freight costs, ~~and increased incentives expenses,~~ as well as labor inflation totaling ~~$27~~$19 million.

Corporate costs for the three months ended ~~October~~July 2, ~~2021~~2022 were ~~$63~~$54 million, a decrease from ~~$66~~$74 million for the three months ended ~~September 26, 2020,~~July 3, 2021, or 5%27%. The decrease was driven by lower Spin-Off and restructuring related expenses, transformation programs cost savings, and other cost reductions totaling $19 million. These decreases were partially offset by impairment charges resulting fromdue primarily to the ~~relocation of our Austin, Texas corporate headquarters location to a lower cost site, increased consulting expense, increased incentives expense, and labor inflation totaling $16 million.~~

~~Corporate costs for the nine months ended October 2,~~ 2021 were $196 million, a decrease from $217 million for the nine months ended September 26, 2020, or 10%. The decrease was driven by lower Spin-Off and restructuring related expenses, transformation programs cost savings, and other cost reductions totaling $74 million. These decreases were partially offset by the pending securities class action litigation settlement net of insurance recoveries ~~increased consulting expense, impairment charges resulting from the relocation~~ of ~~our Austin, Texas corporate headquarters location to a lower~~$16 million, and other cost ~~site, increased incentives expense, foreign currency translation, and labor inflation~~reductions totaling ~~$53~~$20 million.

Corporate costs for the six months ended July 2, 2022 were $115 million, a decrease from $133 million for the six months ended July 3, 2021, or 14%. The decrease was due primarily to the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, lower consulting spend of $7 million, and other cost reductions. These positive impacts were partially offset by transaction costs associated with the First Alert acquisition of $10 million.

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

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. While we may elect to seek ~~addition~~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.~~months and the longer term. We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

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 cap of $140 million.

The amount paid during the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 was ~~$105~~$70 million. See Note ~~12.~~14. Commitments and Contingencies of Notes to Consolidated ~~Interim~~ Financial Statements of ~~the~~this Form 10-Q and Note ~~19.~~17. Commitments and

Contingencies of Notes to Consolidated and Combined Financial Statements in our ~~2020~~2021 Annual Report on Form 10-K for further discussion.

Cash Flow Summary for the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020~~July 3, 2021

Our cash flows from operating, investing and financing activities for the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 and ~~September 26, 2020,~~July 3, 2021, as reflected in the unaudited ~~Interim Financial~~Consolidated Statements of Cash Flows, are summarized as follows:

Cash ~~provided by~~used for operating activities for the ~~nine~~six months ended ~~October~~July 2, ~~2021~~2022 increased by ~~$111~~$123 million, primarily due to ~~increased profitability, offset by~~ an increase in ~~working capital balances as a result~~net income of ~~revenue growth.~~$74 million, and an increase in current liabilities of $23 million. These increases were offset by increases in account receivable and inventory totaling $231 million. The increase in accounts receivable and inventory were necessary to support the increased sales activity.

Cash used for investing activities ~~decreased~~increased by ~~$29~~$628 million, primarily due to ~~$24~~$623 million of additional cash paid for acquisitions in the ~~nine~~six months ended ~~September 26, 2020.~~July 2, 2022.

Net cash provided by financing activities ~~decreased~~increased by ~~$107~~$176 million. The ~~decrease in cash provided by financing activities~~increase was primarily due to ~~a decrease of $150~~$196 million of net proceeds from ~~our revolving credit facility that was used~~the March 2022 Amended A&R Credit Agreement, as compared to ~~increase our cash position in 2020 in light of the economic uncertainty surrounding the COVID-19 pandemic, partially offset by $31~~$6 million of net proceeds resulting from the 2021 execution of the A&R Credit Agreement, debt issuance and ~~redemption~~modification costs, and repayments of ~~the Senior Notes due 2026, $6 million of decreased~~long-term debt ~~repayments,~~ and, ~~$6 million of~~cash used for other financing ~~activities.~~activities totaling $1 million.

We believe our capital spending has been sufficient to support the requirements of the business. We expect to continue investing to expand and modernize our existing facilities and to create capacity for new product development.

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.

The preparation of our unaudited ~~Interim~~ Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed in our ~~2020~~2021 Annual Report on Form 10-K to be critical to the understanding of our unaudited ~~Interim~~ Financial Statements included in this Form 10-Q. There have been no material changes in our critical accounting policies as compared to what was disclosed in the ~~2020~~2021 Annual Report on Form 10-K. We adopted ASU 2021-08 effective April 1, 2022, on a prospective basis. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material. Actual results could differ from our estimates and assumptions, and any such differences could be material to our unaudited ~~Interim~~ 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 ~~12.~~14. Commitments and Contingencies of Notes to Consolidated ~~Interim~~ Financial Statements of this Form 10-Q for a discussion of environmental and other litigation matters.

See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated ~~Interim~~ Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.

We are exposed to market risk from foreign currency exchange rates 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.

As of ~~October~~July 2, ~~2021, $945~~2022, $1,137 million of our total debt, excluding unamortized deferred financing costs, ~~of $1,245 million~~ carried variable interest rates. In March 2021, eight interest rate swap agreements were entered into with various financial institutions for a combined notional amount of $560 million (the “Swap Agreements”). The Swap Agreements effectively converted a portion of the Company’s variable interest rate obligations based on three-month LIBOR with a minimum rate of 0.50% per annum to a base fixed weighted average rate of 0.9289% over a term of ~~three~~two to ~~five~~four years. For more information on the Swap Agreements, see Note ~~14.~~16. Derivative Instruments of Notes to Consolidated ~~Interim~~ Financial Statements of this Form 10-Q. The fair market values of our fixed-rate financial instruments and Swap Agreements are sensitive to changes in interest rates. ~~At October~~As of July 2, ~~2021,~~2022, an increase or decrease in the interest rate by 100 basis points would have an approximate $4$6 million impact on our annual interest ~~expense, while a decrease in interest rate is not possible due to the interest rate floor on our variable rate debt.~~expense.

We are exposed to market risks from changes in currency exchange rates. While we primarily transact with customers in the U.S. Dollar, we also transact in foreign currencies, primarily including the Canadian Dollar, Euro, Mexican Peso, Indian Rupee, British Pound, ~~Indian Rupee, Canadian Dollar,~~ and ~~Mexican Peso.~~Czech Koruna. 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 ~~October~~July 2, ~~2021~~2022 and December 31, ~~2020,~~2021, we have no outstanding foreign currency hedging arrangements.

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.

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

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

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

There was no change in our internal control over financial reporting that occurred during the quarter ended ~~October~~July 2, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

See Note ~~12.~~14. Commitments and Contingencies — Other Matters of Notes to Consolidated ~~Interim~~ Financial Statements of this Form 10-Q for a discussion on legal proceedings.

We face a variety of risks that are inherent in our business and our industry, including operational, legal, and regulatory risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations, and historical trends. There have been no material changes to the risk factors described in our ~~2020~~2021 Annual Report on Form 10-K.

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

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.


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

~~901 E 6~~th16100 N 71st Street ~~Austin~~, ~~Texas~~Suite 550 Scottsdale, Arizona		~~78702~~85254
(Address of principal executive offices)		(Zip Code)


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


	Part I. Financial Information	Page

Item 1.	Unaudited Consolidated Financial Statements

	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended July 2, 2022 and July 3, 2021	3

	Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended July 2, 2022 and July 3, 2021	4

	Unaudited Consolidated Balance Sheets as of July 2, 2022 and December 31, 2021	5

	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended July 2, 2022 and July 3, 2021	6

	Unaudited Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended July 2, 2022 and July 3, 2021	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

	Part II. Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 6.	Exhibits	35


Three Months Ended October 2, 2021	Common Shares		Treasury Shares		Common Stock		Treasury Stock			Additional Paid- In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance at July 3, 2021		144,171		1,188	$	-	$	(14	)	$	2,098	$	182		$	(163	)	$	2,103
Net income		-		-		-		-			-		68			-			68
Other comprehensive loss, net of tax		-		-		-		-			-		-			(24	)		(24	)
Stock issuances, net of shares withheld for taxes		212		45		-		(2	)		3		-			-			1
Stock-based compensation		-		-		-		-			10		-			-			10
Balance at October 2, 2021		144,383		1,233	$	-	$	(16	)	$	2,111	$	250		$	(187	)	$	2,158

Three Months Ended September 26, 2020	Common Shares		Treasury Shares		Common Stock		Treasury Stock			Additional Paid- In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance at June 27, 2020		123,378		852	$	-	$	(5	)	$	1,775	$	(59	)	$	(216	)	$	1,495
Net income		-		-		-		-			-		75			-			75
Other comprehensive income, net of tax		-		-		-		-			-		-			28			28
Stock issuances, net of shares withheld for taxes		65		29		-		-			-		-			-			0
Stock-based compensation		-		-		-		-			7		-			-			7
Balance at September 26, 2020		123,443		881	$	-	$	(5	)	$	1,782	$	16		$	(188	)	$	1,605

Nine Months ended October 2, 2021	Common Shares		Treasury Shares		Common Stock		Treasury Stock			Additional Paid- In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance at January 1, 2021		143,059		900	$	-	$	(6	)	$	2,070	$	75		$	(146	)	$	1,993
Net income		-		-		-		-			-		175			-			175
Other comprehensive loss, net of tax		-		-		-		-			-		-			(41	)		(41	)
Stock issuances, net of shares withheld for taxes		1,324		333		-		(10	)		12		-			-			2
Stock-based compensation	-		-			-		-			29		-		-				29
Balance at October 2, 2021		144,383		1,233	$	-	$	(16	)	$	2,111	$	250		$	(187	)	$	2,158

Nine Months Ended September 26, 2020	Common Shares		Treasury Shares		Common Stock		Treasury Stock			Additional Paid- In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
Balance at January 1, 2020		122,873		615	$	-	$	(3	)	$	1,761	$	38		$	(194	)	$	1,602
Net loss		-		-		-		-			-		(22	)		-			(22	)
Other comprehensive income, net of tax		-		-		-		-			-		-			6			6
Stock issuances, net of shares withheld for taxes		570		266		-		(2	)		-		-			-			(2	)
Stock-based compensation	-		-			-		-			21		-		-				21
Balance at September 26, 2020		123,443		881	$	-	$	(5	)	$	1,782	$	16		$	(188	)	$	1,605


Fiscal Quarters	Common Shares		Common Shares ($)		Additional Paid- In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Shares		Treasury Stock			Total Stockholders’ Equity
Balance as of April 2, 2022		145,372	$	0	$	2,135	$	404	$	(151	)		1,696	$	(27	)	$	2,361
Net income		-		0		0		94		0			-		0			94
Other comprehensive loss, net of tax		-		0		0		0		(69	)		-		0			(69	)
Stock issuances, net of shares withheld for taxes		312		0		1		0		0			148		(4	)		(3	)
Share-based compensation		-		0		11		0		0			-		0			11
Balance as of July 2, 2022		145,684	$	0	$	2,147	$	498	$	(220	)		1,844	$	(31	)	$	2,394

Balance as of April 3, 2021		143,819	$	0	$	2,088	$	124	$	(170	)		1,069	$	(10	)	$	2,032
Net income		-		0		0		58		0			-		0			58
Other comprehensive income, net of tax		-		0		0		0		7			-		0			7
Stock issuances, net of shares withheld for taxes		352		0		0		0		0			119		(4	)		(4	)
Share-based compensation		-		0		10		0		0			-		0			10
Balance as of July 3, 2021		144,171	$	0	$	2,098	$	182	$	(163	)		1,188	$	(14	)	$	2,103

Fiscal Year to Date Periods	Common Shares		Common Shares ($)		Additional Paid- In Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Shares		Treasury Stock			Total Stockholders’ Equity
Balance as of December 31, 2021		144,808	$	0	$	2,121	$	317	$	(165	)		1,440	$	(21	)	$	2,252
Net income		-		0		0		181		0			-		0			181
Other comprehensive loss, net of tax		-		0		0		0		(55	)		-		0			(55	)
Stock issuances, net of shares withheld for taxes		876		0		4		0		0			404		(10	)		(6	)
Share-based compensation	-			0		22		0	0			-			0			22
Balance as of July 2, 2022		145,684	$	0	$	2,147	$	498	$	(220	)		1,844	$	(31	)	$	2,394

Balance as of December 31, 2020		143,059	$	0	$	2,070	$	75	$	(146	)		900	$	(6	)	$	1,993
Net income		-		0		0		107		0			-		0			107
Other comprehensive loss, net of tax		-		0		0		0		(17	)		-		0			(17	)
Stock issuances, net of shares withheld for taxes		1,112		0		9		0		0			288		(8	)		1
Share-based compensation	-			0		19		0	0			-			0			19
Balance as of July 3, 2021		144,171	$	0	$	2,098	$	182	$	(163	)		1,188	$	(14	)	$	2,103


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


	Item		Page

Part I.		Item 1. Financial Statements	5

	1.	Financial Statements	5

		Consolidated Interim Statements of Operations (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020	5

		Consolidated Interim Statements of Comprehensive Income (Loss) (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020	6

		Consolidated Interim Balance Sheets (unaudited) – October 2, 2021 and December 31, 2020	7

		Consolidated Interim Statements of Cash Flows (unaudited) – Nine Months Ended October 2, 2021 and September 26, 2020	8

		Consolidated Interim Statements of Equity (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020	9

		Notes to Consolidated Interim Financial Statements (unaudited)	10

	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

	3.	Quantitative and Qualitative Disclosures About Market Risk	34

	4.	Controls and Procedures	35

Part II.	1.	Legal Proceedings	36

	1A.	Risk Factors	36

	6.	Exhibits	37

		Signatures	38


	Nine Months Ended
	October 2, 2021			September 26, 2020
Cash flows provided by operating activities:
Net income (loss)	$	175		$	(22	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		67			64
Stock compensation expense		29			21
Loss on extinguishment of debt		41			-
Other		4			20
Changes in assets and liabilities, net of acquired companies:
Accounts receivable		(78	)		(64	)
Inventories – net		(40	)		64
Other current assets		(6	)		15
Accounts payable		(19	)		(62	)
Accrued liabilities		26			52
Obligations payable under Indemnification Agreements		(3	)		(8	)
Other		7			12
Net cash provided by operating activities		203			92
Cash flows used for investing activities:
Expenditures for property, plant, equipment and other intangibles		(48	)		(50	)
Cash paid for acquisitions, net of cash acquired		(11	)		(35	)
Other		3			-
Net cash used for investing activities		(56	)		(85	)
Cash flows provided by financing activities:
Proceeds from long-term debt		1,250			-
Payment of debt facility issuance and modification costs		(39	)	-
Net proceeds from revolving credit facility		-			150
Repayment of long-term debt		(1,185	)		(11	)
Other		2			(4	)
Net cash provided by financing activities		28			135
Effect of foreign exchange rate changes on cash and cash equivalents		(6	)		(4	)
Net increase in cash and cash equivalents		169			138
Cash and cash equivalents at beginning of period		517			122
Cash and cash equivalents at end of period	$	686		$	260


	At October 2, 2021
2021	$	10
2022		39
2023		34
2024		23
2025		17
Thereafter		46
Total lease payments		169
Less: imputed interest		24
Present value of operating lease liabilities	$	145
Weighted-average remaining lease term (years)		5.75
Weighted-average incremental borrowing rate		5.39	%


	Three Months Ended				Six Months Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net revenue	$	1,686	$	1,477	$	3,192	$	2,896
Cost of goods sold		1,219		1,091		2,287		2,135
Gross profit		467		386		905		761
Research and development expenses		28		22		52		43
Selling, general and administrative expenses		244		236		479		451
Intangible asset amortization		9		7		16		16
Income from operations		186		121		358		251
Other expense, net		41		28		81		72
Interest expense		14		12		25		25
Income before taxes		131		81		252		154
Provision for income taxes		37		23		71		47
Net income	$	94	$	58	$	181	$	107
Earnings per common share
Basic	$	0.65	$	0.40	$	1.25	$	0.74
Diluted	$	0.63	$	0.39	$	1.22	$	0.72
Weighted average number of common shares outstanding
Basic		145,457		143,939		145,286		143,657
Diluted		148,829		148,328		148,836		148,050


	Three Months Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2022			2021			2022			2021
Cost of goods sold	$	1,219		$	1,091		$	2,287		$	2,135
% change compared with prior period		12	%					7	%
Gross profit percentage		28	%		26	%		28	%		26	%


	Three Months Ended						Nine Months Ended
	October 2,			September 26,			October 2,			September 26,
	2021			2020			2021			2020
Cost of goods sold	$	1,080		$	992		$	3,227		$	2,680
% change compared with prior period		9	%					20	%
Gross profit percentage		28	%		27	%		27	%		25	%


Exhibit Number		Exhibit Description
~~4.1~~4.2		Second Supplemental Indenture, dated ~~as of~~May 19, 2022, to the Senior Notes Indenture, dated August 26, 2021, ~~among Resideo Funding, Inc., as issuer, Resideo Technologies, Inc.,~~relating to the ~~other guarantors named therein, and U.S. Bank National Association, as trustee. (incorporated by reference to Exhibit 4.1 to Resideo's Form 8-K filed on August 27, 2021)~~Issuer's 4.000% Senior Notes due 2029 (filed herewith)

10.1		Resideo Technologies, Inc. Bonus Plan, amended as of April 28, 2022 (filed herewith)

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

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

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

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

101.INS		Inline XBRL Instance Document (filed herewith)

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

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

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

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

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

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


†		Schedules omitted pursuant to item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon its request.


	Resideo Technologies, Inc.

Date: ~~November~~August 4, ~~2021~~2022	By:	/s/ Anthony L. Trunzo
		Anthony L. Trunzo Executive Vice President and Chief Financial Officer (on behalf of the Registrant and as the Registrant’s Principal Financial Officer)


Date: ~~November~~August 4, ~~2021~~2022	By:	/s/ ~~AnnMarie Geddes~~Tina Beskid
		~~AnnMarie Geddes~~Tina Beskid
		Vice President ~~Controller~~ and Chief Accounting Officer (Principal Accounting Officer)