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

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~~"emerging growth ~~company”~~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~~Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the ~~Registrant~~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 November ~~13, 2018~~1^st, 2019 was ~~122,966,558~~122,818,158 shares.

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly 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 ~~Quarterly Report on~~ 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 the “Risk Factors” section in our 2018 Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report on Form 10-K”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~sections of~~section in this ~~Quarterly~~Form 10-Q. There have been no material changes to the risk factors described in our 2018 Annual Report on Form ~~10-Q and~~10-K, except as reflected in the ~~Information Statement (as defined below).~~“Risk Factors” section in this Form 10-Q. These risks could cause actual results to differ materially from those implied by forward-looking statements in this ~~Quarterly Report on~~ Form 10-Q. Even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this ~~Quarterly Report on~~ 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 ~~Quarterly Report on~~ 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 September 30, ~~2018~~2019 should be read in conjunction with the financial statements for the year ended December 31, ~~2017~~2018 contained in ~~Exhibit 99.1 to Amendment No. 2 to the Company’s Registration Statement~~our 2018 Annual Report on Form ~~10 as filed with the Securities and Exchange Commission (“SEC”) on October 2, 2018, which became effective on October 3, 2018 (the “Information Statement”).~~10-K.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2018

2017

2018

2017

(Dollars in millions except share and per share data)

Net sales

$
1,200

$
1,152

$
3,561

$
3,310

Cost of goods sold

853

816

2,525

2,355

Gross Profit

347

336

1,036

955

Selling, general and administrative expenses

219

214

648

647

Other expense

146

65

322

165

Interest and other charges, net

-

(1
)

-

(1
)

365

278

970

811

Income (loss) before taxes

(18
)

58

66

144

Tax expense (benefit)

(329
)

35

(323
)

89

Net income

$
311

$
23

$
389

$
55

Weighted Average Number of Common Shares Outstanding

Basic and Diluted (in thousands)

122,967

122,967

122,967

122,967

Per Share Amounts

Basic and Diluted net income per share

$
2.53

$
0.19

$
3.16

$
0.45

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019		2018			2019		2018
Net revenue	$	1,226	$	1,200		$	3,684	$	3,561
Cost of goods sold		937		853			2,786		2,525
Gross profit		289		347			898		1,036
Selling, general and administrative expenses		230		219			712		648
Operating profit		59		128			186		388
Other expense, net		35		144			54		320
Interest expense		16		2			51		2
Income (loss) before taxes		8		(18	)		81		66
Tax expense (benefit)		-		(329	)		36		(323	)
Net income	$	8	$	311		$	45	$	389
Weighted Average Number of Common Shares Outstanding (in thousands)
Basic		122,770		122,967			122,681		122,967
Diluted		123,244		122,967			123,404		122,967
Earnings Per Share
Basic	$	0.07	$	2.53		$	0.37	$	3.16
Diluted	$	0.06	$	2.53		$	0.36	$	3.16

The Notes to unaudited Consolidated and Combined Interim Financial Statements are an integral part of this statement.

CONSOLIDATED AND COMBINED ~~COMBINED INTERIM BALANCE SHEET~~INTERIM STATEMENT OF CASH FLOWS

September 30,
2018

December 31,
2017

(Dollars in millions)

ASSETS

Current assets:

Cash and cash equivalents

$
184

$
56

Due from related parties, current

26

23

Accounts, notes and other receivables – net

783

779

Inventories

603

465

Other current assets

72

69

Total current assets

1,668

1,392

Property, plant and equipment – net

276

265

Goodwill

2,638

2,648

Other intangible assets - net

138

140

Deferred income taxes

4

5

Other assets

18

23

Total assets

$
4,742

$
4,473

LIABILITIES

Current liabilities:

Accounts payable

$
850

$
678

Due to related parties, current

162

60

Accrued liabilities

388

409

Total current liabilities

1,400

1,147

Deferred income taxes

100

377

Other liabilities

557

346

EQUITY

Invested equity

2,809

2,703

Accumulated other comprehensive (loss)

(124
)

(100
)
Total equity

2,685

2,603

Total liabilities and equity

$
4,742

$
4,473

	Nine Months Ended
	September 30,
	2019			2018
Cash flows (used for) provided by operating activities:
Net income	$	45		$	389
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Depreciation and amortization		55			49
Repositioning charges, net of payments		12			(4	)
Stock compensation expense		22			15
Deferred income taxes		(3	)		(275	)
Other noncash expense		13			17
Changes in assets and liabilities:
Accounts, notes and other receivables		(27	)		(11	)
Inventories		(109	)		(142	)
Other current assets		(13	)		(4	)
Other assets		(6	)		(6	)
Accounts payable		(23	)		151
Accrued liabilities		(6	)		(15	)
Obligations payable to Honeywell		(49	)		-
Other liabilities		19			211
Net cash (used for) provided by operating activities		(70	)		375
Cash flows used for investing activities:
Expenditures for property, plant, equipment and software		(66	)		(63	)
Cash paid for acquisitions, net of cash acquired		(17	)		-
Proceeds received related to amounts due from related parties		-			7
Net cash used for investing activities		(83	)		(56	)
Cash flows provided by (used for) financing activities:
Net proceeds from revolving credit facility		60			-
Repayment of long-term debt		(11	)		-
Non-operating obligations paid to Honeywell, net		(24	)		-
Payments related to amounts due to related parties, net		-			(1	)
Tax payments related to stock vestings		(3	)		-
Net decrease in invested equity		-			(300	)
Cashflow provided by cash pooling		-			115
Net cash provided by (used for) financing activities		22			(186	)
Effect of foreign exchange rate changes on cash and cash equivalents		(2	)		(5	)
Net (decrease) increase in cash and cash equivalents		(133	)		128
Cash and cash equivalents at beginning of period		265			56
Cash and cash equivalents at end of period	$	132		$	184

The Notes to unaudited Consolidated and Combined Interim Financial Statements are an integral part of this statement.

Nine Months Ended
September 30,

2018

2017

(Dollars in millions)

Cash flows from operating activities:

Net income

$
389

$
55

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

Depreciation

40

42

Amortization

9

8

Repositioning

5

21

Net payments for repositioning

(9
)

(11
)
Stock compensation expense

15

12

Pension expense

10

12

Deferred income taxes

(275
)

-

Bad debt expense

7

2

Changes in assets and liabilities:

Accounts, notes and other receivables

(11
)

(5
)
Inventories

(142
)

(90
)
Other current assets

(4
)

(18
)
Other assets

(6
)

(2
)
Accounts payable

151

120

Accrued liabilities

(15
)

(1
)
Other Liabilities

211

35

Net cash provided by operating activities

375

180

Cash flows used in investing activities:

Expenditures for property, plant and equipment

(63
)

(38
)
Proceeds received related to amounts due from related parties

7

13

Issuance related to amounts due from related parties

-

(13
)
Net cash used for investing activities

(56
)

(38
)
Cash flows used in financing activities:

Net (decrease) in invested equity

(300
)

(142
)
Proceeds received related to amounts due to related parties

1

-

Payments related to amounts due to related parties

(2
)

(4
)
Net cash flows from cash pooling

115

10

Net cash used for financing activities

(186
)

(136
)
Effect of foreign exchange rate changes on cash and cash equivalents

(5
)

4

Net increase in cash and cash equivalents

128

10

Cash and cash equivalents at beginning of period

56

47

Cash and cash equivalents at end of period

$
184

$
57

Supplemental Cash Flow Information:

Income taxes paid (net of refunds)

33

86

	Common Shares			Treasury Shares		Common Stock		Treasury Stock			Additional Paid- In Capital		Retained Earnings			Invested Equity			Accumulated Other Comprehensive Loss			Total Equity
Balance at December 31, 2017		-			-	$	-	$	-		$	-	$	-		$	2,703		$	(100	)	$	2,603
Net income		-			-		-		-			-		-			45			-			45
Other comprehensive income, net of tax		-			-		-		-			-		-			-			30			30
Change in invested equity		-			-		-		-			-		-			(89	)		-			(89	)
Balance at March 31, 2018		-			-	$	-	$	-		$	-	$	-		$	2,659		$	(70	)	$	2,589
Net income		-			-		-		-			-		-			33			-			33
Other comprehensive loss, net of tax		-			-		-		-			-		-			-			(49	)		(49	)
Change in invested equity		-			-		-		-			-		-			(93	)		-			(93	)
Balance at June 30, 2018		-			-	$	-	$	-		$	-	$	-		$	2,599		$	(119	)	$	2,480
Net income	-			-		-		-			-		-				311		-				311
Other comprehensive loss, net of tax	-			-		-		-			-		-			-			$	(5	)		(5	)
Change in invested equity	-			-		-		-			-		-				(101	)	-				(101	)
Balance at September 30, 2018		-			-	$	-	$	-		$	-	$	-		$	2,809		$	(124	)	$	2,685

Balance at December 31, 2018		122,499			468	$	-	$	-		$	1,720	$	2		$	-		$	(189	)	$	1,533
Net income		-			-		-		-			-		48		-				-			48
Other comprehensive income, net of tax		-			-		-		-			-		-		-				6			6
Shares issued for employee stock plans		271			-		-		-			-		-			-			-			-
Stock-based compensation	-			-			-		-			7		-			-		-				7
Shares withheld for employees' taxes		(84	)		84		-		(2	)		-		-			-			-			(2	)
Balance at March 31, 2019		122,686			552	$	-	$	(2	)	$	1,727	$	50		$	-		$	(183	)	$	1,592
Net loss		-			-		-		-			-		(11	)		-			-			(11	)
Other comprehensive loss, net of tax		-			-		-		-			-		-			-			(4	)		(4	)
Shares issued for employee stock plans		30			-		-		-			-		-			-			-			-
Stock-based compensation		-			-		-		-			7		-			-			-			7
Shares withheld for employees' taxes		(6	)		6		-		-			-		-			-			-			-
Adjustments due to the Spin-Off		-			-		-		-			9		-			-		-				9
Balance at June 30, 2019		122,710			558	$	-	$	(2	)	$	1,743	$	39		$	-		$	(187	)	$	1,593
Net income		-			-		-		-			-		8			-			-			8
Other comprehensive loss, net of tax		-			-		-		-			-		-			-			(35	)		(35	)
Shares issued for employee stock plans		114			-		-		-			-		-			-			-			-
Stock-based compensation		-			-		-		-			8		-			-			-			8
Shares withheld for employees' taxes		(38	)		38		-		(1	)		-		-			-			-			(1	)
Balance at September 30, 2019		122,786			596	$	-	$	(3	)	$	1,751	$	47		$	-		$	(222	)	$	1,573

The Notes to unaudited Consolidated and Combined Interim Financial Statements are an integral part of this statement.

Resideo Technologies, Inc. (“Resideo” or “the Company”), ~~referred to in the Information Statement as Homes and ADI Global Distribution business of Honeywell International Inc.,~~ is a ~~leading~~ global provider of products, software, solutions and technologies that help ~~owners of homes~~homeowners stay connected and in control of their comfort, security and energy use. ~~We are~~The Company is a leader in the home heating, ventilation and air conditioning controls and security markets, and a leading global distributor of low-voltage electronic and security ~~and fire protection~~ products.

The Company was incorporated in Delaware on April 24, 2018. The Company separated from Honeywell International Inc. (“Honeywell” ~~or the “Parent”~~) on October 29, 2018, becoming an independent publicly traded company as a result of a pro rata distribution of the Company’s common stock to shareholders of Honeywell (the “Spin-Off”). ~~The Information~~On October 3, 2018, Exhibit 99.1 to Amendment No. 2 to the Company’s Registration Statement on Form 10 as filed with the Securities and Exchange Commission (“SEC”) on October 2, 2018 was declared effective by the ~~SEC on October 3, 2018.~~SEC. On October 29, 2018, Honeywell’s shareholders of record as of October 16, 2018 ~~(the “Record~~(“Record Date”) received one share of the Company’s common stock, par value $0.001 per share, for every six shares of Honeywell’s common stock, par value $1.00 per share, held as of the Record Date, and cash for any fractional shares of the Company’s common stock. The Company began trading “regular way” under the ticker symbol “REZI” on the New York Stock Exchange on October 29, 2018. ~~References~~

In connection with the separation, Resideo and Honeywell entered into a Honeywell Reimbursement Agreement (as defined in Note 15. Commitments and Contingencies), a Separation and Distribution Agreement, an Employee Matters Agreement, a Tax Matters Agreement, a Transition Services Agreement, a Trademark License Agreement and a Patent Cross-License Agreement. The agreements govern the relationship between Resideo and Honeywell following the separation and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to ~~the Company throughout these Combined Interim Financial Statements are made using the first person notations of “we,” “us” or “our.”~~be provided by Honeywell to Resideo and by Resideo to Honeywell.

~~These accompanying~~Prior to the Spin-Off on October 29, 2018, the Company’s historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 29, 2018, these financial statements are presented on a combined basis and for the periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Interim Financial Statements”). The Consolidated and Combined Interim Financial Statements have been prepared ~~on a carve-out basis and are derived from Honeywell’s Consolidated Financial Statements and underlying~~in accordance with accounting records as if the Company had been a part of Honeywell for all periods presented. As noted above, the Spin-Off of Resideo was not effective until after the conclusion of the three and nine month financial reporting periods presented herein. The unaudited Combined Interim Financial Statements reflect the Company’s financial position, results of operations and cash flows as the business was operated as part of Honeywell prior to the distribution, in conformity with Generally Accepted Accounting Principlesprinciples generally accepted in the United States of America (“U.S. GAAP”).The Consolidated and Combined Interim Financial Statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The unaudited Combined Interim Financial Statements should be read in conjunction with the audited Combined Financial Statements of the Company included in the Information Statement. The results of operations for the three and nine months ended September 30, 2018 and the cash flows for the nine months ended September 30, 2018 should not necessarily be taken as indicative of the entire year.

All intracompany transactions have been ~~eliminated.~~eliminated for all periods presented. As described in ~~Note 3.~~“Note 5. Related Party Transactions with ~~Honeywell,~~Honeywell” of Notes to unaudited Consolidated and Combined Interim Financial Statements of this Form 10-Q, all significant transactions between the Company and Honeywell occurring prior to the Spin-Off have been included in ~~these~~the unaudited Combined Interim Financial Statements ~~and were settled~~for the period ended September 30, 2018.

Prior to the ~~Spin-Off. These~~Spin-Off, transactions ~~are~~between the Company and Honeywell were reflected in the Combined ~~Interim~~ Balance Sheet as Due from related parties, current or Due to related parties, current. In the unaudited Combined Interim ~~Statements~~Statement of Cash Flows, the cash flows related to related party notes receivables presented in the Combined ~~Interim~~ Balance Sheet in Due from related parties, current are reflected as investing activities since these balances represent amounts loaned to ~~Parent.~~Honeywell. The cash flows related to related party notes payables presented in the Combined ~~Interim~~ Balance Sheet in Due to related parties, current are reflected as financing activities since these balances represent amounts financed by ~~Parent.~~Honeywell.

While the Company was owned by Honeywell, ~~uses~~ a centralized approach to cash management and financing was used. Prior to the consummation of ~~its operations. Historically,~~the Spin-Off, the majority of the Company’s cash was transferred to Honeywell daily and Honeywell funded the Company’s operating and investing activities as needed. This arrangement is not reflective of the manner in which the Company would have been able to finance its operations had it been a stand-alone business separate from Honeywell during the periods presented. Cash transfers to and from Honeywell’s cash management accounts are reflected in the Combined ~~Interim~~ Balance Sheet as Due to and Due from related parties, current and in the unaudited Combined Interim ~~Statements~~Statement of Cash Flows as net financing activities.

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

~~Historically,~~Prior to the Spin-Off, Honeywell provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf of the Company. The cost of these services has been allocated to the Company on the basis of the proportion of ~~revenues.~~net revenue. The Company and Honeywell consider these allocations to be a reasonable reflection of the benefits received by the Company. However, the financial information presented in these unaudited Consolidated and Combined Interim Financial Statements may not reflect the consolidated and combined financial position, operating results and cash flows of the Company had the Company been a separate stand-alone entity during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. WeBoth Resideo and Honeywell consider the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Company during the periods presented. After the Spin-Off, a number of the above services have continued under a Transition Services Agreement with Honeywell, which the Company expenses as incurred based on the contractual pricing terms.

The Company reports its quarterly financial information using a calendar ~~convention;~~convention; the first, second and third quarters are consistently reported as ending on March 31, June 30 and September 30. It ~~has been Honeywell’s practice and will be our~~is the Company’s practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires ~~our~~its businesses to close their books on the last Saturday of the month in order to minimize the potentially disruptive effects of quarterly closing on ~~our~~ 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 actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, wethe Company will provide appropriate disclosures. ~~Our actual~~Actual closing dates for the three and nine months ended September 30, 2019 and 2018 were September 28, 2019 and ~~2017 were~~ September 29, 2018, ~~and September 30, 2017.~~respectively.

~~Note 2. Recent Accounting Pronouncements~~NOTES TO CONSOLIDATED AND COMBINED INTERIM FINANCIAL STATEMENTS

~~The accounting policies of the Company are set forth~~(Dollars in millions, unless otherwise noted)

The Company’s accounting policies are set forth in “Note 2. Summary of Significant Accounting Policies” of the Company’s Notes to ~~the~~Consolidated and Combined Financial Statements ~~contained~~included in the ~~Company’s Combined Financial Statements for the year ended December 31, 2017, which can be found in the Information Statement. We include~~2018 Annual Report on Form 10-K. Included herein are certain updates to those policies.

~~Sales Recognition~~Leases— ~~Product~~Effective January 1, 2019, arrangements containing leases are evaluated as an operating or finance lease at lease inception. For operating leases, the Company recognizes an operating right-of-use asset and ~~service sales are recognized when or as we transfer control~~operating lease liability at lease commencement based on the present value of lease payments over the lease term.

Since an implicit rate of return is not readily determinable for the Company's leases, an incremental borrowing rate is used in determining the present value of lease payments, and is calculated based on information available at the lease commencement date. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar term. The Company references a market yield curve consistent with the Company's credit rating which is risk-adjusted to approximate a collateralized rate in the currency of the ~~promised products or services to our customer. Revenue is measured as the amount~~lease. These rates are updated on a quarterly basis for measurement of ~~consideration we expect to receive in exchange for transferring goods or providing services.~~

In the sale of products, the terms of a contract or the historical business practice can give rise to variable consideration due to, but not limited to, discounts and bonuses. We estimate variable consideration at the most likely amount we will receive from customers and reduce revenues recognized accordingly. Wenew lease obligations. Most leases include ~~estimated amounts in the transaction price to the extent~~renewal options; however, generally it is ~~probable~~not reasonably certain that these options will be exercised at lease commencement. Lease expense is recognized on a ~~significant reversal~~straight-line basis over the lease term. Leases with an initial term of ~~cumulative revenue~~12 months or less are not recognized ~~will~~on the Company’s balance sheet. The Company does not ~~occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration~~separate lease and ~~determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance~~non-lease components for its real estate and ~~all information (historical, current and forecasted) that is reasonably available to us.~~automobile leases.

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

~~In February 2016, the FASB issued guidance on accounting for leases which requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases.~~ The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases that will be effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We expect to adopt the requirements of the new standardCompany adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, ~~2019. The guidance requires~~2019, and applied the use of a modified retrospective approach. In July 2018, the FASB issued updated guidance which allows an additional transition method to adopt the new leases standard at the adoption date, as compared to the beginning of the earliest period presented, and recognizechanges prospectively, recognizing a cumulative-effect adjustment to the beginning balance of retained earnings ~~in the period~~as of ~~adoption. The Company expects to elect this transition method at~~ the adoption date of January 1, 2019. We are currently finalizing our lease portfolio analysis to determine the impact to the Combined Interim Financial Statements. We are implementing processes and information technology tools to assist in our ongoing lease data collection and analysis, and updating our accounting policies and internal controls that would be impacteddate. As permitted by the new guidance, the Company elected the package of practical expedients, which among other things, allowed historical lease classification to ~~ensure readiness~~be carried forward.

Upon adoption of ASU No. 2016-02, the Company recognized an aggregate lease liability of $115 million, calculated based on the present value of the remaining minimum lease payments for qualifying leases as of January 1, 2019, with a corresponding right-of-use asset of $112 million. The cumulative-effect adjustment recognized to opening retained earnings was not material. The adoption ~~in the first quarter~~ of ~~2019.~~

In August 2017, the FASB issued amendments to hedge accounting guidance. These amendments are intended to better align a company’s risk management strategies and financial reporting for hedging relationships. Under the new guidance ~~more hedging strategies will be eligible for hedge accounting and~~did not impact the ~~application~~Company’s unaudited consolidated interim statement of hedge accounting is simplified. In addition, the new guidance amends presentation and disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including the interim periods within those years. The guidance requires the use of a modified retrospective approach. The Company does not expect the adoption of this ASU to have a material impact on its Combined Financial Statements.operations or cash flows.

In February 2018, the FASB issued guidance that allows for an entity to elect to reclassify the income tax effects on items within accumulated other comprehensive income resulting from thethe U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, including interim periods within those years. ~~Upon adoption,~~The Company adopted the ~~Company does~~standard on January 1, 2019 and has not ~~expect to elect to reclassify~~reclassified the ~~stranded~~ income tax effects of U.S. Tax Reform from accumulated other comprehensive income to retained earnings. The Company has adopted the aggregate portfolio accounting policy for recognizing the disproportionate income tax effects in accumulated other comprehensive income.

On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which provides guidance designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. From November 2018 to May 2019, amendments to Topic 326 were issued to clarify numerous accounting topics. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and

supportable information to inform credit loss estimates. The amendment is effective on a modified retrospective basis for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for fiscal years and interim periods beginning after December 15, 2018. The Company does not expect adoption of this pronouncement to have a material financial statement impact.

In August 2018, the FASB issued guidance that amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans and allows for the removal of certain disclosures, while adding certain new disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for early adoption. The Company does not expect this new standard to have a significant impact to its disclosures.

~~The unaudited Combined Interim Financial Statements have been prepared on a stand-alone basis and are derived from~~On October 29, 2018, the ~~consolidated financial statements and accounting records~~date of ~~Honeywell.~~

~~Honeywell provided certain services, such as legal, accounting, information technology, human resources and other infrastructure support, on behalf~~consummation of the ~~Company. The cost~~Spin-Off, 122,498,794 shares of ~~these services has been allocated~~the Company’s Common Stock, par value $0.001 per share, were distributed to Honeywell shareholders of record as of October 16, 2018. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the ~~Company on~~Spin-Off as no common stock was outstanding prior to the ~~basis~~date of the ~~proportion~~Spin-Off. For the 2018 year to date calculation, these shares are treated as issued and outstanding from January 1, 2018 for purposes of ~~revenues. The Company~~calculating historical basic earnings per share. For September 30, 2019 and ~~Honeywell consider the allocations to be a reasonable reflection of the benefits received by the Company. During the three months ended~~ September 30, 2018, this calculation excludes 596,300 and ~~2017,~~467,764 of treasury shares, respectively.

The details of the ~~Company was allocated $66 million~~earnings per share calculations for the three and ~~$74 million, respectively, of general corporate expenses incurred by Honeywell. During the~~ nine months ended September 30, 2019 and 2018 are as follows:

Diluted earnings per share is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and ~~2017,~~the average market price of our common stock for the three and nine months ended September 30, 2019. In periods where the Company ~~was allocated $203~~has a net loss, no dilutive common shares are included in the calculation for diluted shares as they are considered anti-dilutive.For the three and nine months ended September 30, 2019, average options and other rights to purchase approximately 3.8 million and ~~$211~~1.5 million shares of common stock were outstanding, respectively, all of general corporate expenses incurred by Honeywell. Such amounts are included within Selling, general and administrative expenses in the Combined Interim Statements of Operations. As certain expenses reflected in the unaudited Combined Interim Financial Statements include allocations of corporate expenses from Honeywell, these statements could differ from those that would have been prepared had the Company operated on a stand-alone basis.

All significant intercompany transactions between the Company and Honeywell have been included in these unaudited Combined Interim Financial Statements and are considered to have been effectively settled. Sales to Honeywellwhich were anti-dilutive during the three and nine months ended September 30, ~~2018 were $8~~2019, and therefore excluded from the computation of diluted earnings per common share. Additionally, an average of approximately 0.3 million ~~and $23 million, respectively. Costs~~shares of ~~goods sold to Honeywell during~~performance-based unit awards are excluded from the three and nine months ended September 30, 2018 were $5 million and $18 million, respectively. Purchases from Honeywell during the three and nine months ended September 30, 2018 were $32 million and $149 million, respectively.

~~Sales to Honeywell during the three and nine months ended September 30, 2017 were $8 million and $27 million, respectively. Costs~~computation of goods sold to Honeywell during the three and nine months ended September 30, 2017 were $7 million and $22 million, respectively. Purchases from Honeywell during the three and nine months ended September 30, 2017 were $57 million and $162 million, respectively.

The total net effect of the settlement of these intercompany transactions is reflected in the Combined Interim Statements of Cash Flows as a financing activity and in the Combined Interim Balance Sheet as invested equity. Honeywell uses a centralized approach for the purpose of cash management and financing of its operations. Historically, the Company’s cash was transferred to Honeywell daily and Honeywell funded the Company’s operating and investing activities as needed. The Company operates a centralized non-interest-bearing cash pool in the U.S. and regional interest-bearing cash pools outside of the U.S.

Honeywell centrally hedges its exposure to changes in foreign exchange rates principally with forward contracts. Certain contracts were specifically designated to and entered on behalf of the Company with the Parent as a counterparty and are used to hedge known or probable anticipated foreign currency sales and purchases. The Company designates these hedges as cash flow hedges. These hedges are marked-to-market with the effective portion of the changes in fair value of the derivatives recorded in Accumulated other comprehensive income (loss) and subsequently recognized indiluted earnings ~~when the hedged items impact earnings.~~

~~Net transfers to and from Honeywell are included within invested equity on the Combined Interim Statements of Equity. The components of the net transfers to and from Honeywell~~per common share for the three and nine months ended September 30, ~~2018 and 2017 are~~2019 as ~~follows:~~the contingency has not been satisfied at September 30, 2019.

~~A summary~~On March 28, 2019, the Company acquired all of ~~repositioning charge follows:~~

~~The following table summarizes~~ the ~~pretax distribution~~capital stock of ~~total net repositioning charges by statement~~Buoy Labs, for $6 million, which has been integrated into our Products & Solutions segment. Buoy Labs provides innovative Wi-Fi enabled solutions that track the amount of ~~operations classification:~~

~~The pretax impact of total net repositioning charges are related~~water used in a home, integrating smart software and hardware that can help consumers identify potential leaks and allow consumers to act to prevent them through its subscription-based app services. In connection with the ~~Products segment for the nine months ended September 30, 2018, and September 30, 2017.~~

~~In the three and nine months ended September 30, 2018,~~acquisition, the Company recognized ~~repositioning charges totaling $ - million~~preliminary goodwill and ~~$ 5~~ ~~million, respectively,~~ ~~mainly~~intangible assets of $6 million. The acquisition agreement includes deferred payments for ~~severance costs related to separation activities.~~

Incertain individuals that are contingent upon employment as well as financial performance. The Company determined that these deferred payments are accounted for as compensation expense over the ~~three months and nine months ended September 30, 2017,~~requisite service period. The Company is still assessing the Company recognized repositioning charges totaling $2 million and $22 million, respectively, for both severance costs and asset impairment costs. The severance costs were related to workforce reductions of manufacturing and administrative positions for the nine months ended September 30, 2017. These reductions were primarily related to cost saving actions taken in connection with our productivity and ongoing functional transformation initiatives; factory transitions to more cost-effective locations; and achieving acquisition related synergies.

~~The following table summarizes the status of our total repositioning reserves:~~

Certain repositioning projects in each of our reportable operating segments included exit or disposal activities, the costs related to which will be recognized in future periods when the actual liability is incurred. The remaining exit and disposal costs relating to repositioning actions as of September 30, 2018 is expected to be $9 million.

The effective tax rate increased for the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, primarily due to increased tax benefits attributable to internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $79 million reduction in tax expense, currency impacts for withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $259 million reduction in tax expense, and decreased income before taxes.

The effective tax rate decreased for the nine months ended September 30, 2018, as compared to the nine month September 30, 2017, primarily due to increased tax benefits attributable to internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $97 million reduction in tax expense, currency impacts for withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $262 million reduction in tax expense and decreased income before taxes.

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

The effective tax rate for the nine months ended September 30, 2018 was lower than the U.S. federal statutory rate of 21% primarily from tax benefits related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off that resulted in a $97 million, reduction in tax expense, currency impacts on withholding taxes on undistributed foreign earnings, adjustments to the provisional tax amount related to U.S. Tax Reform that resulted in a $262 million reduction in tax expense, and decreased income before taxes.

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

~~On December 22, 2017, the U.S. government enacted U.S. Tax Reform, which included changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion~~final allocation of the ~~current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures~~purchase price to ~~deter base erosion. The U.S. Tax Reform also included a permanent reduction in~~ the corporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates.

~~As described in our~~ ~~Combined Financial Statements for the year ended December 31, 2017,~~ we reasonably estimated certain effects of U.S. Tax Reform and, therefore, recorded provisional amounts, including the deemed repatriation transition tax and withholding taxes on undistributed earnings. For the nine months ended September 30, 2018, the Company recorded an adjustment to the provisional tax amount related to the deemed repatriation transition tax and taxes on undistributed earnings of $85 million and $177 million, respectively. This adjustment results in a decrease to the effective tax rate for the nine months ended September 30, 2018 of 397%. The adjustment reflects the revised determination of the fair value of assets and liabilities of ~~legal entities included in~~ the ~~Company’s business,~~business.

On May 21, 2019, the Company acquired certain assets relating to innovative energy efficiency from Whisker Labs, for $5 million, which ~~is utilized~~has been integrated into our Products & Solutions segment. The acquired technology creates a thermodynamic model of a home to ~~allocate earnings~~accurately predict home heating and ~~profit for purposes~~air conditioning run time and energy use to enable a homeowner to use less energy while maintaining comfort. In connection with the acquisition, the Company recognized preliminary goodwill and intangible assets of ~~calculating the deemed repatriation tax and taxes on undistributed earnings.~~$5 million. The Company ~~has not finalized~~is still assessing the ~~accounting for the tax effects~~final allocation of the ~~tax legislation, primarily related~~purchase price to ~~computations of earnings and profits and deferred tax balances for tax returns, as we are continuing to gather additional information and expect to complete our accounting within~~ the ~~prescribed measurement period.~~

On January 1, 2018, the Company adopted new guidance on revenue from contracts with customers using the modified retrospective method applied to contracts that were not completed as of January 1, 2018. As a result of adopting the new guidance, the Company ~~determined there are no material impacts on the unaudited Combined Interim Financial Statements as the Company’s previous revenue recognition was consistent with the new standard.~~

~~We recognize the majority of our revenue from performance obligations outlined in contracts with our customers that are satisfied at a point in time. Less than~~ 3% ~~of our revenue is satisfied over time.~~

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and unbilled receivables (contract assets), reported in Accounts, notes and other receivables – net, and customer advances and deposits (contract liabilities), reported in Accrued Liabilities, on the Combined Interim Balance Sheet. Contract assets arise when situations exist where the timing of cash collected from customers that differs from the timing of revenue recognition. Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized once invoiced in accordance with the terms of the contract. Contract liabilities are recorded in scenarios where we enter into arrangements where customers are contractually obligated to remit cash payments in advance of us satisfying performance obligations and recognizing revenue. Contract liabilities are derecognized when revenue is recognized, a milestone is met triggering the contractual right to bill, or the performance obligation is satisfied.

~~These~~ assets and liabilities ~~are reported on~~of the ~~Combined Interim Balance Sheet on a contract-by-contract basis at the end of each reporting period.~~business.

On June 27, 2019, the Company acquired all of the membership interests of LifeWhere for $6 million, which has been integrated into our Products & Solutions segment. LifeWhere uses machine learning and analytics to predict potential failure on critical home appliances, such as water heaters, furnaces and air conditioners. This service provides the detailed analytics required for professional contractors to dispatch technicians with the right skills to quickly repair the appliance before it causes a catastrophic failure. In connection with the acquisition, the Company recognized preliminary goodwill and intangible assets of $6 million. The ~~following table summarizes our contract~~Company is still assessing the final allocation of the purchase price to the assets and liabilities ~~balances:~~of the business.

~~The decrease~~These acquisitions have an immaterial financial statement impact on both an individual basis and when considered in ~~contract liabilities from January 1, 2018 to September 30, 2018 is primarily due to recognition of income from~~ the ~~beginning balance.~~aggregate.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales, typically each product sold to a customer represents a distinct performance obligation.

The majority of our performance obligations are satisfied as of a point in time. Performance obligations are supported by contracts with customers, providing a framework for the nature of the distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is typically indicated by the terms of the contract. All performance obligations are expected to be satisfied within one year.

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

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

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

During the three and nine months ended September 30, 2018, the Company was allocated $66 million and $203 million, respectively, of general corporate expenses incurred by Honeywell and such amounts are included within Selling, general and administrative expenses in the unaudited Combined Interim Statement of Operations for the nine months ended September 30, 2018. As certain expenses reflected in the unaudited Combined Interim Financial Statements include allocations of corporate expenses from Honeywell, these statements could differ from those that would have been prepared had the Company operated on a stand-alone basis.

All significant intercompany transactions between the Company and Honeywell have been included in these unaudited Combined Interim Financial Statements. Sales to Honeywell during the three and nine months ended September 30, 2018 were $8 million and $23 million, respectively. Costs of goods sold to Honeywell during the three and nine months ended September 30, 2018 were $5 million and $18 million, respectively. Purchases from Honeywell during the three and nine months ended September 30, 2018 were $32 million and $149 million, respectively. The total net effect of the settlement of these intercompany transactions is reflected in the unaudited Combined Interim Statement of Cash Flows as a financing activity.

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

Subsequent to the Spin-Off on October 29, 2018, transactions with Honeywell were not considered related party transactions. Accordingly, no related party transactions with Honeywell were recorded for the three and nine months ended September 30, 2019.

During the second quarter of 2019, management began a repositioning plan to reduce operating costs and better align the Company’s workforce with the needs of the business going forward. Repositioning and related expenses were $9 million and $34 million for the three and nine months ended September 30, 2019, respectively, and primarily related to severance.

The following table summarizes the pretax distribution of total net repositioning charges by unaudited Consolidated and Combined Statement of Operations classification:

The following table summarizes the pretax impact of total net repositioning charges by segment:

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

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. Less than 2% of the Company’s revenue is satisfied over time. As of September 30, 2019, contract assets and liabilities are not material.

The Company recorded a tax benefit of $329 million for the three months ended September 30, 2018 as compared to nil for the three months ended September 30, 2019. The decrease in the tax benefit is primarily the result of tax benefits generated in 2018 related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings, and adjustments to the provisional tax amount related to U.S. Tax Reform.

The effective tax rate for the three months ended September 30, 2019 was lower than the U.S. federal statutory rate of 21% primarily due to a decrease in the forecast of full-year non-deductible expenses and a decrease in the forecast of full-year U.S. taxation of foreign earnings.

The effective tax rate for the nine months ended September 30, 2019 was higher than the U.S. federal statutory rate of 21% primarily attributable to non-deductible expenses and U.S. taxation of foreign earnings.

The effective tax rate for the three months ended September 30, 2018 was higher than the U.S. federal statutory rate of 21% primarily due to tax benefits related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings, and adjustments to the provisional tax amount related to U.S. Tax Reform. The combined effect of the tax benefits recorded in the quarter ended September 30, 2018 resulted in a tax benefit (negative tax expense). As a result of the tax benefits and in conjunction with a net loss in the quarter ended September 30, 2018, the effective tax rate for the quarter is a positive percentage and significantly more than the US statutory rate.

The effective tax rate for the nine months ended September 30, 2018 was lower than the U.S. federal statutory rate of 21% primarily from tax benefits related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings and adjustments to the provisional tax amount related to U.S. Tax Reform.

Refer to “Note 15. Commitments and Contingencies” of this Form 10-Q for further details on Obligations payable to Honeywell.

The Company’s debt at September 30, 2019 and December 31, 2018 consisted of the following:

In October of 2018, the Company issued $400 million in principal amount of its 6.125% senior unsecured notes (the “Senior Notes”), entered into term loan facilities in the form of a seven-year LIBOR plus 2.00% senior secured first-lien term B loan facility in an aggregate principal amount of $475 million and a five-year LIBOR plus 2.00% senior secured first-lien term A loan facility in an aggregate principal amount of $350 million (the “Term Loans”) and established a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $350 million (the "Revolving Credit Facility"). The interest rate on the Revolving Credit Facility borrowings are based on, at the option of the Company, either (i) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (ii) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (iii) the one month adjusted LIBOR rate, plus 1.00% per annum.

As of September 30, 2019, there were $60 million of borrowings and no of letters of credit issued under the $350 million Revolving Credit Facility. The Company assessed the amount recorded under the Term Loans, the Senior Notes, and the Revolving Credit Facility and determined the Term Loans and the Revolving Credit Facility approximated fair value, and the Senior Notes’ fair value is approximately $422 million. The fair values of the debt are based on the quoted inactive prices and are therefore classified as Level 2 within the valuation hierarchy.

At September 30, 2019, the interest rate for the Term Loans was 4.11% and the weighted average interest rate for the Revolving Credit Facility was 4.09%. The interest expense for the Revolving Credit Facility, Term Loans and Senior Notes during the three and nine months ended September 30, 2019 was $16 million and $51 million, respectively, which includes the amortization of debt issuance cost and debt discounts.

For more information, please refer to “Note 15. Long-term Debt” in our 2018 Annual Report on Form 10-K.

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

The Company’s operating lease costs for the three and nine months ended September 30, 2019 consisted of the following:

Total operating lease costs include variable lease costs of $3 million and $8 million for the three and nine months ended September 30, 2019. Total operating lease costs also include offsetting sublease income which is immaterial for the three and nine months ended September 30, 2019.

Future minimum lease payments under operating leases having initial or remaining non-cancellable lease terms in excess of one year as of December 31, 2018 were as follows:

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

As of September 30, 2019, 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 September 30, 2019 was not material.

The changes in Accumulated other comprehensive loss are provided in the tables below.

Foreign
Exchange
Translation
Adjustment

Changes in
Fair Value of
Effective
Cash Flow
Hedges

Total
Accumulated
Other
Comprehensive
Income (Loss)

Balance at December 31, 2016

$
(170
)

$
1

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

70

(4
)

66

Amounts reclassified from accumulated other comprehensive (loss)

-

2

2

Net current period other comprehensive income (loss)

70

(2
)

68

Balance at September 30, 2017

$
(100
)

$
(1
)

$
(101
)

Balance at December 31, 2017

$
(100
)

$
-

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

(23
)

(2
)

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

-

1

1

Net current period other comprehensive income (loss)

(23
)

(1
)

(24
)
Balance at September 30, 2018

$
(123
)

$
(1
)

$
(124
)

	Foreign Exchange Translation Adjustment			Pension Adjustments			Changes in Fair Value of Effective Cash Flow Hedges			Accumulated Other Comprehensive Loss
Balance at December 31, 2017	$	(100	)	$	-		$	-		$	(100	)
Other comprehensive income before reclassifications		31			-			-			31
Amounts reclassified from accumulated other comprehensive income		-			-			(1	)		(1	)
Net current period other comprehensive income		31			-			(1	)		30
Balance at March 31, 2018	$	(69	)	$	-		$	(1	)	$	(70	)
Other comprehensive loss before reclassifications		(49	)		-			-			(49	)
Balance at June 30, 2018	$	(118	)	$	-		$	(1	)	$	(119	)
Other comprehensive loss before reclassifications		(5	)	-				(2	)		(7	)
Amounts reclassified from accumulated other comprehensive income	-			-			$	2		$	2
Balance at September 30, 2018	$	(123	)	$	-		$	(1	)	$	(124	)

Balance at December 31, 2018	$	(177	)	$	(12	)	$	-		$	(189	)
Other comprehensive income before reclassifications		6			-			-			6
Balance at March 31, 2019	$	(171	)	$	(12	)	$	-		$	(183	)
Other comprehensive loss before reclassifications		(4	)		-			-			(4	)
Balance at June 30, 2019	$	(175	)	$	(12	)	$	-		$	(187	)
Other comprehensive loss before reclassifications		(35	)		-			-			(35	)
Balance at September 30, 2019	$	(210	)	$	(12	)	$	-		$	(222	)

~~We are subject to various federal, state, local and foreign government requirements relating to~~

During the ~~protection~~nine months ended September 30, 2019, as part of the ~~environment. We believe that,~~Company’s annual long-term compensation under the 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates (the “Stock Incentive Plan”), it granted 319,771 performance-based RSUs and 1,255,440 time-based RSUs to eligible employees. The weighted average grant date fair value per share for these shares was $22.06.

During the nine months ended September 30, 2019, as part of the Company’s annual long-term compensation under the Stock Incentive Plan, 1,155,566 stock options were granted to eligible employees at a ~~general matter, our policies, practices~~weighted average exercise price per share of $24.37 and ~~procedures are properly designed to prevent unreasonable risk~~weighted average grant date fair value per share of environmental damage and personal injury and that our handling, manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and regulations. We have incurred remedial response and voluntary cleanup costs for site contamination and are a party to lawsuits and claims associated with environmental and safety matters, including products containing hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future.$6.71.

With respect to environmental matters involving site contamination, we continually conduct studies, individually or jointly with other potentially responsible parties, to determine the feasibility of various remedial techniques. It is our policy to record appropriate liabilities for environmental matters when remedial efforts or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on our best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology and information related to individual sites, we do not believe it is possible to develop an estimate of the range of reasonably possible environmental lossRESIDEO TECHNOLOGIES, INC.

(Dollars in excess of our recorded liabilities. We expect to fund expenditures for these matters from operating cash flow. The timing of cash expenditures depends on a number of factors, including the timing of remedial investigations and feasibility studies, the timing of litigation and settlements of remediation liability, personal injury and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties.millions, unless otherwise noted)

~~We accrue costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site and the amount can be reasonably estimated.~~ ~~Environmental-related expenses are presented within Cost of goods sold for operating sites and Other expense for non-operating sites in the Combined Interim Statements of Operations~~.(Unaudited)

~~The following table summarizes information concerning our recorded liabilities for environmental costs:~~

~~Current and non-current environmental liabilities are included in the following balance sheet accounts, respectively:~~

We do 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 our combined results of operations and operating cash flows in the periods recognized or paid.

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

In the normal course of business we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Products warranties and product performance guarantees are included in Accrued liabilities. The following table summarizes information concerning our recorded obligations for product warranties and product performance guarantees.

~~We globally manage our business operations through two reportable operating segments, Products~~15. Commitments and ~~Distribution:~~Contingencies

~~Products~~ - Our Products business is a leading global provider of residential security and intrusion products, consumer thermostats, consumer HVAC and consumer awareness systems, residential thermal solutions and residential water controls that allow owners of homes to stay connected and in control of their comfort, security and energy use.

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

The Company is ~~consistent with how management reviews~~subject to various federal, state, local and foreign government requirements relating to the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company’s chief operating decision maker (CODM) evaluates segment performance based on segment profit. Segment profit is measured as segment income (loss) before taxes excluding, pension expense, repositioning and other charges, other expense, and interest and other charges, net.

~~A reconciliation of segment profit to combined income (loss) from continuing operations before taxes are as follows:~~

~~On October 29, 2018, the date of consummation~~protection of the ~~Spin-Off, 122,966,558 shares~~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 expenses are presented within Cost of goods sold for operating sites, which are the Company’s Common Stock, par value $0.001 per share, were distributed to Honeywell shareholders of record as of the October 16, 2018 Record Date. This share amount is being utilized for the calculation of basic earnings per share for all periods presented as no common stock was outstanding prior to the date of the Spin-Off. On October 29, 2018, the Company issued 1,601,037 time-based restricted stock units in connection with the Spin-Off. These restricted stock units were not included in the computation of diluted earnings per share forowned sites. For the three and nine months ended September 30, ~~2018.~~

~~The Company evaluated subsequent events for recognition or disclosure through November 13,~~2019 and September 30, 2018, ~~the date the Combined Financial Statements~~environmental expenses related to these operating sites were ~~available to be issued.~~

not material. On October 29, 2018, ~~the Company became an independent publicly-traded company through a pro rata distribution by Honeywell of 100%~~upon consummation of the ~~outstanding shares~~Spin-Off, certain environmental liabilities became subject to the Honeywell Reimbursement Agreement (defined below) and were reclassified to Obligations payable to Honeywell. The expenses related to these sites were recorded within Other expense, net in the unaudited Consolidated and Combined Interim Statement of ~~Resideo to Honeywell's shareowners.~~Operations. For the three and nine months ended September 30, 2018, environmental expense within Other expense, net was$146 million and $322 million, respectively. Liabilities for environmental cost were $21 million and $735 million as of September 30, 2019 and September 30, 2018, respectively. For additional ~~details, refer~~information, see Honeywell Reimbursement Agreement below.

The Company does not currently possess sufficient information to ~~Note 1. Organization, Operations~~reasonably estimate the amounts of environmental liabilities to be recorded upon future completion of studies, litigation or settlements, and ~~Basis~~neither the timing nor the amount of ~~Presentation .~~the ultimate costs associated with environmental matters can be determined although they could be material to our unaudited consolidated and combined results of operations and operating cash flows in the periods recognized or paid.

On October ~~19,~~29, 2018, in connection with the Spin-Off, the Company entered into ~~several agreements with Honeywell that set forth the principal actions taken or to be taken in connection with the Spin-Off~~an indemnification and ~~that govern the relationship of the parties following the Spin-Off, including the following:~~

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

~~In connection with the Spin-Off, a subsidiary of the Company (the “Company Subsidiary”) an Indemnification and Reimbursement Agreement~~reimbursement agreement with Honeywell (the ~~“Indemnification and~~“Honeywell Reimbursement Agreement”)~~, which was entered into on October 14, 2018, and~~ pursuant to which the Company ~~Subsidiary~~ has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for certain Honeywell environmental-liability payments, which include amounts billed with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case, including consequential damages (the “liabilities”(“payments”) ~~in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities,~~, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property ~~sales.~~sales (the “recoveries”). The amount payable by the Company in respect of such liabilities arising in respect of any given year will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum). The scope of the Company’s current environmental remediation obligations subject to the Honeywell Reimbursement Agreement relates to approximately 230 sites or groups of sites that are undergoing environmental remediation under U.S. federal or state law and agency oversight for contamination associated with Honeywell legacy business operations. The ongoing environmental remediation is designed to address contaminants at upland and sediment sites, which include, among others, metals, organic compounds and polychlorinated biphenyls, through a variety of methods, which include, among others, excavation, capping, in-situ stabilization, groundwater treatment and dredging. In addition, the Company obligations subject to the Honeywell Reimbursement Agreement will include certain liabilities with respect to (i) hazardous exposure or toxic tort claims associated with the specified sites that arise after the Spin-Off, if any, (ii) currently unidentified releases of hazardous substances at or associated with the specified sites, (iii) other environmental claims associated with the specified sites and (iv) consequential damages.

~~On October 19, 2018, Resideo issued $400 million~~Payments in ~~principal~~respect of the liabilities arising in a given year will be made quarterly throughout such year on the basis of an estimate of the liabilities and recoveries provided by Honeywell. Following the end of any such year, Honeywell will provide the Company with a calculation of the amount ~~6.125% senior unsecured notes due in 2026 (the “Senior Notes”).~~

~~On October 25, 2018, the Company incurred substantial additional indebtedness~~RESIDEO TECHNOLOGIES, INC.

~~The net proceeds of $1.2 billion, net of $29 million of transaction costs, from the sale of the Senior Notes, together with borrowings~~Payment amounts under the ~~Senior Credit Facilities were used by~~Honeywell Reimbursement Agreement will be deferred to the extent that a specified event of default has occurred and is continuing under certain indebtedness, including under the Company’s principal credit agreement, or the payment thereof causes the Company to ~~(i) repay intercompany~~not be compliant with certain financial covenants in certain indebtedness, including the Company’s principal credit agreement on a pro forma basis, including the maximum total leverage ratio (ratio of consolidated debt to consolidated EBITDA, which excludes any amounts owed to Honeywell under the Honeywell Reimbursement Agreement), and the minimum interest coverage ratio. A 5% late payment fee will accrue on all amounts that are not otherwise entitled to be deferred under the terms of the Honeywell Reimbursement Agreement, without prejudice to any other rights that Honeywell may have for late payments.

The obligations under the Honeywell Reimbursement Agreement will continue until the earlier of: (1) December 31, 2043; or ~~a subsidiary~~(2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million.

The following table summarizes information concerning our Honeywell ~~of approximately $1.2 billion, (ii) to pay fees, costs~~Reimbursement Agreement liabilities:

For the three and nine months ended September 30, 2019, expenses related to the ~~Senior Notes offering~~Honeywell Reimbursement Agreement were $35 million and $57 million, respectively and are recorded in Other expense, net. Honeywell Reimbursement Agreement liabilities are included in the ~~Senior Credit Facilities~~following balance sheet accounts:

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 ~~(iii)~~neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined although they could be material to our unaudited consolidated and combined results of operations and operating cash flows in the periods recognized or paid.

In connection with the Spin-Off, the Company entered into a tax matters agreement (the “Tax Matters Agreement”) with Honeywell pursuant to which it is responsible and will indemnify Honeywell for all taxes, including income taxes, sales taxes, VAT and payroll taxes, relating to the business for all periods, including periods prior to the consummation of the Spin-Off. As of September 30, 2019, the Company has indemnified Honeywell for $152 million, which is included in Obligations payable to Honeywell.

The Company and Honeywell entered into a 40-year Trademark License Agreement (the “Trademark Agreement”) that authorizes the Company’s use of certain licensed trademarks in the operation of Resideo’s business for the advertising, sale and distribution of certain licensed products. In exchange, the Company will pay a royalty fee of 1.5% on net revenue to Honeywell related to such licensed products which is recorded in Selling, general and administrative expense on the unaudited Consolidated and Combined Interim Statement of Operations. For the three and nine months ended September 30, 2019, royalty fees were $6 million and $20 million, respectively.

The Company is subject to other lawsuits, investigations and disputes arising out of the conduct of its business, including matters relating to commercial transactions, settlement agreements, government contracts, product liability, prior acquisitions and divestitures, employee matters, intellectual property, antitrust 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 of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. The Company recorded legal expense of $1 million and $20 million for the three and nine months ended September 30, 2019, respectively. Prior to the Spin-off, legal expenses were paid by Honeywell and then allocated to the Company as part of a corporate ~~purposes.~~

~~On November 13,~~expense allocation that did not separately identify the specific expenses. As of September 30, 2019 and December 31, 2018, the Company ~~drew $135~~has a legal reserve of $18 million and $7 million, respectively.

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 performance guarantees based on contract terms and historical experience at the ~~Revolving Credit Facility~~time of sale. Adjustments to ~~support~~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:

Prior to the Spin-Off, certain of Resideo’s employees participated in multiple U.S. and non-U.S. defined benefit pension plans (the “Shared Plans”) sponsored by Honeywell which includes participants from other ~~Spin-Off~~Honeywell subsidiaries and operations. The Company accounted for participation in the Shared Plans as a multiemployer benefit plan. Accordingly, it did not record an asset or liability to recognize the funded status of the Shared Plans. The related ~~settlements.~~pension expense was allocated based on annual service cost of active participants and reported within Costs of goods sold and Selling, general and administrative expenses in the unaudited Combined Interim Statement of Operations. The pension expense related to participation in the Shared Plan for the three and nine months ended September 30, 2018 was $3 million and $10 million, respectively.

As of the date of separation from Honeywell, these employees’ and certain former Honeywell employees’ entitlement to benefits in Honeywell’s plans were transferred to Resideo sponsored plans.

The Resideo defined benefit pension plans have substantially similar benefit formulas as the Honeywell defined benefit pension plans. Moreover, vesting service, benefit accrual service and compensation credited under the Honeywell defined benefit pension plans apply to the determination of pension benefits under the Resideo defined benefit pension plan.

The Company sponsors multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of its U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. It also sponsors defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, Switzerland, and the Netherlands. The pension obligations as of September 30, 2019 and December 31, 2018 were $93 million and $88 million, respectively, and are included in Other liabilities in the unaudited Consolidated Interim Balance Sheet. Net periodic benefit cost recognized in Comprehensive income for the three and nine months ended September 30, 2019 is $2 million and $5 million, respectively.

The components of net periodic benefit costs other than the service cost are included in Other expense, net in the unaudited Consolidated and Combined Interim Statement of Operations for the three and nine months ended September 30, 2019 and 2018.

The Company globally manages its business operations through two reportable operating segments, Products & Solutions and ADI Global Distribution:

Products & Solutions—The Products & Solutions business is a leading global provider of products, software solutions and technologies that help homeowners stay connected and in control of their comfort, security and energy use.

ADI Global Distribution—The ADI Global Distribution business is a leading global distributor of low-voltage electronic and security products.

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

Prior to the first quarter of 2019, the Company’s Chief Operating Decision Maker (“CODM”) managed and evaluated its segment performance based on segment profit defined as segment income (loss) before taxes excluding Other expense, net (primarily environmental cost now subject to the Honeywell Reimbursement Agreement), interest expense, pension expense, environmental expense related to Resideo’s owned sites and repositioning charges. Beginning in the first quarter of 2019, the Company’s CODM changed the way segment performance is evaluated by making financial decisions and allocating resourcesbased on Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as segment net income before income taxes, net interest (income) expense, depreciation and amortization plus environmental expense, Honeywell Reimbursement Agreement expense, stock compensation expense, repositioning charges and other adjustments.

The table below provides a reconciliation of net income to Segment Adjusted EBITDA:

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries (“Resideo” or “the Company”, “we”, “us” or “our”) for the three and nine months ended September 30, ~~2018 and 2017~~2019 and should be read in conjunction with the unaudited Consolidated and Combined Interim Financial Statements and the notes thereto contained elsewhere in this ~~Quarterly~~Form 10-Q. The financial information as of September 30, 2019 should be read in conjunction with the consolidated and combined financial statements for the year ended December 31, 2018 contained in our 2018 Annual Report on Form ~~10-Q, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations section contained in~~ ~~Exhibit 99.1 to Amendment No. 2 to the Company’s Registration Statement~~10-K (the “2018 Annual Report on Form ~~10 as filed with the Securities and Exchange Commission ) (“SEC”) on October 2, 2018, which became effective on October 3, 2018 (the “Information Statement”~~10-K”). ~~As more fully described below, our financial information and this Management’s Discussion and Analysis (except as otherwise noted) reflects a carve-out basis. See “Basis of Presentation”.~~

We are a leading global provider of ~~critical~~products, software solutions and technologies that help homeowners 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 and security ~~solutions primarily in residential environments.~~markets. Our products consist of solutions in Comfort, ~~& Care~~Residential Thermal Solutions (“RTS”) and Security ~~& Safety~~ categories and include temperature and humidity control, thermal, water and air solutions and remote patient monitoring software solutions as well as 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 ~~security~~low-voltage electronic and ~~low voltage electronic~~security products which include video surveillance, intrusion, access control, fire and life safety, wire, networking and professional audio visual systems. We manage our business operations through two segments, Products & Solutions and ADI Global Distribution. The Products & Solutions segment offerings include our Comfort, ~~& Care~~RTS and Security ~~& Safety~~ products, which, consistent with our industry, ~~has~~have a higher gross and operating margin profile in comparison to the ADI Global Distribution segment.

Our financial performance ~~over the last three years has been supported~~is influenced by several macro ~~trends. Steady growth in~~factors such as repair and remodeling activity, residential and non-residential construction, employment rates, and ~~growth~~overall macro environment. In the third quarter 2019, the ADI Global Distribution business continued its strong performance, enhanced by an ongoing focus on digital transformation, designed to create a seamless experience for professionals online and in ~~renovation~~the 200 stocking locations around the world. ADI continued to expand its footprint, including recent opening and remodeling of branches in Eastern Europe.

In the third quarter 2019, the Products & Solutions segment experienced revenue declines in the ~~United States has had~~Comfort and RTS businesses. Segment adjusted EBITDA declined due to revenue decline, negative product and channel mix, inventory write-downs, and high product rebates from a ~~positive~~pre-spin contract. The RTS business experienced a slowdown across large original equipment manufacturers (“OEMs”) customers, which included impacts by recent regulatory changes. The Comfort business revenue declines were primarily due to lower thermostat sales. We expect the third-quarter headwinds to continue into the peak winter demand period.

Net revenues increased $26 million in the recent quarter compared to the third quarter of fiscal 2018, primarily due to increased volume and price partially offset by foreign exchange translation. Gross profit as a percent of net revenues decreased to 24%, or $58 million, in the recent quarter compared to 29% in the third quarter of fiscal 2018. The primary drivers to the decrease in gross profit percentage were a 300 bps impact onfrom sales mix changes, 100 bps impact from material and labor inflation and fixed production costs which include inventory write-downs, and 100 bps impact from headquarter allocations previously classified in selling, general and administrative expense in the ~~growth~~carve-out financials. Third-quarter net income was $8 million for the three months ended September 30, 2019 compared to $311 million for the three months ended September 30, 2018, which included an income tax benefit of ~~our Products~~$329 million.

Selling, general, and ~~Distribution businesses.~~ administrative expenses increased by $11 million in the recent quarter compared to the third quarter of fiscal 2018.The ~~financial performance~~increase was driven by spin related costs, license fees associated with the Trademark License Agreement, repositioning costs, impact of ~~our Products business has further benefited~~acquisitions, and labor cost inflation totaling $43 million. These increases were partially offset by the impact of headquarter cost allocations previously classified in selling, general and administrative expense in the carve-out financials, foreign currency translation, and miscellaneous cost reductions totaling $32 million.

We ended the third quarter with $132 million in cash and cash equivalents. Net cash used in operating activities was $70 million for the nine months ended September 30, 2019. At September 30, 2019, Accounts receivable were $845 million and Inventories were $729 million.

Separation from increasing penetration of wireless connectivity and the proliferation of connected devices. The financial performance of our Distribution business has been further aided by increasing contractor needs for training and technical expertise, and increasing demand for same day order fulfilment.

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

~~We have~~In connection with the Spin-Off, we entered into certain agreements with Honeywell, ~~that were not effective prior to the Spin-Off,~~ such as the ~~Indemnification and~~Honeywell Reimbursement Agreement, the Trademark License Agreement, Tax Matters Agreement, Employee Matters Agreement, Patent Cross-License Agreement and Transition Services Agreement, which ~~will cause~~caused us to incur new costs. See “Certain Relationships and Related Party Transactions—Agreements with Honeywell,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Indemnification and Reimbursement Agreement,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Trademark License Agreement,” “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Tax Matters Agreement” and “Certain Relationships and Related Party Transactions—Agreements with Honeywell—Transition Services Agreement” in the Information Statementour 2018 Annual Report on Form 10-K for a description of the material terms thereof.

On October 22, 2019, we announced the commencement of a comprehensive operational and financial review focused on product cost and gross margin improvement, and general and administrative expenses simplification. The review will be overseen by the independent directors of our board. We have retained industry-recognized experts in supply chain optimization and organizational excellence to assist in the review.

Prior to the Spin-Off on October 29, 2018, our historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October 29, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented are referred to as “Consolidated and Combined Interim Financial Statements”). The ~~accompanying~~Consolidated and Combined Interim Financial Statements have been prepared ~~on a carve-out basis and were derived from the Consolidated Financial Statements and~~in accordance with accounting records of Honeywell. These Combined Interim Financial Statements reflect the combined historical results of operations, financial position and cash flows of the Company as they were historically managed in conformity with ~~Generally Accepted Accounting Principles~~principles generally accepted in the United States of America (“U.S. GAAP”). ~~Therefore, the~~ The historical combined financial informationprior to the Spin-Off may not be indicative of our future performance and does not necessarily reflect what our consolidated and combined results of operations, financial condition and cash flows would have been had ~~the Company~~we operated as a separate, publicly traded company during the periods presented, particularly because of changes that we ~~expect~~have experienced and may continue to experience as a result of our separation from Honeywell, including changes in the financing, cash management, operations, cost structure and personnel needs of our Company. ~~All periods presented concluded~~

The unaudited Combined Interim Financial Statements prior to the ~~Distribution Date.~~

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

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

Our environmental expenses prior to Spin-Off and our Honeywell reimbursement expenses are ~~primarily~~ reported within Other expense, net in our unaudited Consolidated and Combined Interim Statement of Operations, which reflect an estimated liability for resolution of pending and future environmental-related ~~liabilities,~~liabilities. Prior to the Spin-Off, this estimated liability was calculated as if we were responsible for 100% of the environmental-liability payments associated with certain sites. See ~~Environmental Matters in Note 18. Commitments and Contingencies of Notes to Combined Financial Statements in the Information Statement~~our 2018 Annual Report on Form 10-K for additional information. In connection with ~~the Company’s~~our separation from Honeywell, ~~a subsidiary of the Company (the “Company Subsidiary”) is~~we became a party to ~~an Indemnification and~~the Honeywell Reimbursement Agreement, which was entered into on October 14, 2018, pursuant to which ~~the Company Subsidiary has~~we agreed to indemnify Honeywell in amounts equal to 90% of payments which include amounts billed with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case including consequential damages (the “liabilities”), in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. Pursuant to the ~~Indemnification and~~Honeywell Reimbursement Agreement, ~~the Company Subsidiary is~~we are responsible for paying to Honeywell such amounts, up to a cap of $140 million in respect of liabilities arising in any given calendar year (exclusive of any late payment fees up to 5% per annum).

Our fiscal quarter ended on September 30. The ~~payments~~ key elements of our operating results include:

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

Products & Solutions. We generate the majority of our Product 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 distributors (e.g. HVAC, Plumbing, Security, Electrical), OEMs, and service providers such as HVAC contractors, Security dealers and Plumbers including our ADI business. 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 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 distributes products from industry-leading manufacturers including Assa Abloy, Axis Communications, Honeywell and Nortek Security & Control, and ADI also carries a line of private label products. We sell these products to contractors that service non-residential and residential end-users. 13% of ADI’s net revenue is supplied by our Products & Solutions Segment. Management estimates that in 2018 approximately two-thirds of ADI’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; costs of certain intangible assets; and costs of research and development. Research and development expense consists primarily of development of new products and product applications.

ADI Global Distribution: 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, and personnel-related expenses, including stock compensation expense and pension benefits. In addition, prior to the ~~Company Subsidiary is required~~Spin-Off our selling, general and administrative expense included an allocated portion of general corporate expenses.

Other expense, net consists primarily of Honeywell reimbursement expenses (partially offset by certain reductions) for certain environmental claims related to ~~make~~approximately 230 sites or groups of sites that are undergoing environmental remediation under U.S. federal or state law and agency oversight for contamination associated with Honeywell legacy business operations. Prior to the Spin-Off other expenses also included the environmental expenses related to these same sites. For further information see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Honeywell ~~pursuant~~Reimbursement Agreement” and “Note 15. Commitments and Contingencies” of Notes to unaudited Consolidated and Combined Interim Financial Statements of this ~~agreement are not deductible~~Form 10-Q.

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

Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for U.S. ~~federal income tax purposes. See “Certain Relationships~~taxation of foreign earnings and ~~Related Party Transactions—Agreements with Honeywell—Indemnification~~other non-deductible expenses.

The following table sets forth our selected unaudited consolidated interim statement of operations for the periods presented:

(Dollars in millions except share and ~~Reimbursement Agreement” in the Information Statement.~~per share data)

Results of Operations for the ~~three~~Three and ~~nine months~~Nine Months ended September 30, ~~2018 compared with the three~~2019 and ~~nine months ended September 30, 2017~~2018

The change in net ~~sales~~revenue compared to prior year period is attributable to the following:

A discussion of net ~~sales~~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.

The foreign currency translation impact for the three months ended September 30, 2018 compared to the prior period was unfavorable due to the weakening of both the Euro and the Canadian Dollar against the U.S. Dollar. The foreign currency translation impact for the nine months ended September 30, 2018 compared to the prior year period was favorable due to the strengthening of both the Euro and British Pound against the U.S. Dollar.

Cost of goods sold for the three months ended September 30, ~~2018~~2019 was ~~$853~~$937 million, an increase of ~~$37~~$84 million, or ~~approximately 4.5%~~10%, from ~~$816~~$853 million for the three months ended September 30, ~~2017.~~2018.

This increase in cost of goods sold was primarily driven by ~~$37 million~~the Products & Solutions segment changes in ~~higher product cost~~sales mix, material and labor inflation and increased production costs including inventory write-downs, headquarter allocations previously classified in selling, general and administrative expense in the carve-out financials. In addition, higher revenue in the ADI Global Distribution segment ~~driven~~also increased cost of goods sold. Both segments had repositioning costs and spin related costs. The total impact of these increases was $94 million. The increased costs were partially offset by ~~an increase~~foreign currency translation and savings in ~~sales volume and material inflation, partially driven by lower vendor rebates.~~other miscellaneous costs of goods sold totaling $10 million.

The primary drivers to the decrease in gross profit percentage ~~was primarily due to~~were a 300 bps impact from sales mix changes, 100 bps impact from material and labor inflation and fixed production costs, and 100 bps impact from headquarter allocations previously classified in selling, general and administrative expense in the impact of material inflation, net of productivity (approximately 1.2 percentage point impact) and product mix (approximately 0.7 percentage point impact), partially offset by the impact of higher selling prices (approximately 1.6 percentage point impact).carve-out financials.

Cost of goods sold for the nine months ended September 30, ~~2018~~2019 was ~~$2,525~~$2,786 million, an increase of ~~$170~~$261 million, or ~~approximately 7.2%~~10%, from ~~$2,355~~$2,525 million for the nine months ended September 30, ~~2017.~~2018.

This increase in cost of goods sold was primarily driven by ~~$121 million~~higher revenue in ~~higher product cost~~both the ADI Global Distribution and Products & Solutions segments, material and labor inflation and increased production costs including inventory write-downs, changes in sales mix, headquarter allocations previously classified in selling, general and administrative expense in the ~~Distribution segment~~carve-out financials, repositioning costs and ~~$55 million~~spin related costs totaling $306 million. The increased costs were partially offset by foreign currency translation and savings in ~~higher direct material cost in the Products segment driven by the increase in sales volume and the strengthening~~other miscellaneous costs of ~~both the Euro and British Pound against the U.S. Dollar.~~goods sold totaling $45 million.

The ~~increase~~primary drivers to the decrease in gross profit percentage ~~was primarily due to~~were a 200 bps impact from material and labor inflation and fixed production costs, 200 bps impact from sales mix changes and 100 bps impact from headquarter allocations previously classified in selling, general and administrative expense in the impact of higher selling prices (approximately 1.2 percentage point impact), partially offset by the impact of higher inflation, net of material productivity (approximately 0.6 percentage point impact) and unfavorable product mix (approximately 0.5 percentage points).carve-out financials.

Selling, general and administrative expense for the three months ended September 30, 2019 was $230 million, an increase of $11 million, from $219 million for the three months ended September 30, 2018. The increase was driven by spin related costs, license fees associated with the Trademark License Agreement, repositioning costs, impact of acquisitions and labor cost inflation totaling $43 million. These increases were partially offset by headquarter cost allocation now partially classified in cost of goods sold, foreign currency translation, and miscellaneous cost reductions totaling $32 million.

Selling, general and administrative expense for the nine months ended September 30, 2019 was $712 million, an increase of $64 million, from $648 million for the nine months ended September 30, 2018. The increase was driven by spin related costs, license fees associated with the Trademark License Agreement, legal expenses, impact of acquisitions, repositioning costs, and labor cost inflation totaling $126 million. These increases were partially offset by headquarter cost allocation now partially classified in cost of goods sold, foreign currency translation, and miscellaneous cost reductions totaling $62 million.

Other expense, net for the three months ended September 30, 2019, was $35 million, a decrease of $109 million from $144 million for the three months ended September 30, 2018. The decrease is due to lower remediation expenses in 2019 resulting from the Honeywell Reimbursement Agreement as compared to environmental expense prior to the Spin-Off. Following the Spin-Off, these environmental expenses are now subject to the Honeywell Reimbursement Agreement where cash payments are capped at $140 million per year.

Other expense, net for the nine months ended September 30, 2019, was $54 million, a decrease of $266 million from $320 million for the nine months ended September 30, 2018. The decrease is due to lower remediation expense during the period as well as an $81 million reduction in indemnification liabilities related to a provision in the Honeywell Reimbursement Agreement that reduces the obligation due to Honeywell for any proceeds received from a property sale of a site under the agreement.

We recognized a $329 million tax benefit for the three months ended September 30, 2018 ~~was $219 million, an increase~~as compared to tax expense of ~~$5 million, or 2.3%, from $214 million for~~nil in the three months ended September 30, ~~2017.~~

2019. The decrease in ~~expenses as a percentage~~the tax benefit is primarily the result of ~~sales was primarily due to the impact of labor productivity on higher sales volume.~~

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

~~The decrease in expenses as a percentage of sales was primarily due to the impact of labor productivity on higher sales volume.~~

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

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

~~The effective tax rate increased for the quarter year-over-year primarily due to increased~~ tax benefits ~~attributable~~generated in 2018 related to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off, ~~that resulted in a $79 million reduction in tax expense,~~ currency impacts ~~for~~on withholding taxes on undistributed foreign earnings and adjustments to the provisional tax amount related to U.S. Tax ~~Reform that resulted~~Reform.

The effective tax rate for the three months ended September 30, 2019 was lower than the U.S. federal statutory rate of 21% primarily due to a decrease in the forecast of full-year non-deductible expenses and a ~~$259 million reduction~~decrease in ~~tax expense, and decreased income before taxes.~~the forecast of full-year U.S. taxation of foreign earnings.

The effective tax rate for the nine months ended September 30, 2019 was higher than the U.S. federal statutory rate of 21% which is primarily attributable to non-deductible expenses and U.S. taxation of foreign earnings.

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

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

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

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

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

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

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

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

We operate two segments: Products & Solutions and ADI Global Distribution. ~~Management~~Our Chief Operating Decision Maker evaluates segment performance based on ~~segment profit.~~ Segment ~~profit~~Adjusted EBITDA. Segment Adjusted EBITDA is ~~measured~~defined as segment net income ~~(loss)~~ before income taxes, ~~excluding other~~net interest (income) expense, ~~(primarily~~depreciation and amortization plus or minus, environmental ~~costs), interest~~expense, Honeywell Reimbursement Agreement expense, stock compensation expense, repositioning charges and other ~~charges, net, pension expense and repositioning charges.~~adjustments.

Products ~~sales~~& Solutions revenue declined 3% primarily in the Comfort and RTS businesses, partially offset by increased revenue in the Security business. The RTS business experienced a slowdown across large OEM customers, which included impacts by 1%recent regulatory changes. The Comfort business revenue declines were primarily due to ~~an increase in selling prices in~~lower thermostats sales. Segment Adjusted EBITDA declined from $107 million to $66 million, or 38%. Segment Adjusted EBITDA was negatively impacted $48 million from unfavorable product mix, volume, production cost increases including inventory write-downs, high product rebates from a pre-spin contract, impact of acquisitions and the ~~Comfort & Care product line,~~license fee paid to Honeywell associated with the Trademark License Agreement. These negative impacts were partially offset by $7 million of profit from increased selling prices and material productivity.

Products & Solutions revenue increased 2% driven primarily by the Security business and the first quarter launch of a new residential intrusion security platform. Segment Adjusted EBITDA declined from $333 million to $222 million, or 33%. Segment Adjusted EBITDA was negatively impacted $150 million from unfavorable product mix, inventory variances, production cost increases including inventory write-downs, high product rebates from a pre-spin contract, impact of ~~unfavorable currency translation~~acquisitions and the license fee paid to Honeywell associated with the Trademark License Agreement. These negative impacts ~~of a temporary supply chain issue as a result of the Spin-Off.~~

~~Products segment profit increased by 2% primarily due to higher prices,~~were partially offset by ~~inflation, net~~$40 million of profit from increased volume, increased selling prices and material productivity.

ADI Global Distribution revenue increased 6% on a reported basis, and 7% on a constant currency basis. ADI Global Distribution segment constant currency performance was driven by ~~7% primarily due to an increase in external~~increased sales volume in the ~~Comfort & Care product line, the impact of favorable currency translation~~Americas, EMEA and ~~the impact of higher prices.~~

~~Products segment profit~~APAC regions. Segment Adjusted EBITDA increased ~~by 21% primarily~~from $43 million to $48 million, or 12%. This increase was due to ~~higher selling prices~~increased volume and ~~external sales volume,~~productivity, net of inflation which was partially offset by ~~higher product costs on that higher sales volume.~~

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

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

ADI Global Distribution revenue increased 5% on a reported basis, and 6% on a constant currency basis. ADI Global Distribution segment constant currency performance was driven by increased sales volume primarily in the Americas and EMEA regions, partly impacted by one less selling day year over year in the first quarter. Segment Adjusted EBITDA increased ~~by 8% primarily~~from $124 million to $141 million, or 14%. This increase was due to increased volume ~~growth across all~~and productivity, net of ~~our key geographic markets, higher selling prices, and the favorable impact of foreign currency translation.~~

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

During the second quarter of ~~Notes~~2019, management began a repositioning plan to ~~Combined Interim Financial Statements for a discussion~~reduce operating costs and better align our workforce with the needs of ~~our repositioning charges incurred in~~ the ~~three and nine months ended September 30, 2018 and 2017.~~business going forward. These repositioning actions are expected to generate incremental pre-tax savings of ~~$24~~$15 million in ~~2018~~2019 compared with ~~2017~~2018 principally from planned workforce reductions. Cash spending related to our repositioning actions was $22 million for the nine months ended September 30, 2019 and was funded through operating cash flows. We expect to incur an additional $3 million of repositioning expense in 2019.

On October 22^nd, 2019, we announced the commencement of a comprehensive operational and financial review focused on product cost and gross margin improvement, and general and administrative expense simplification. As we are still identifying the actions that will be undertaken, we currently cannot estimate the total costs expected to be incurred.

Net repositioning and related expenses were $9 million and $34 million for the three and nine months ended September 30, ~~2018, respectively,~~2019 and ~~was funded through operating cash flows.~~ primarily related to severance.

For ~~the full year 2018, we expect cash spending for~~further discussion of repositioning ~~actions~~activities, refer to ~~be approximately $11 million~~Note 6. Repositioning and Other Charges of Notes to ~~be funded through operating cash flows.~~unaudited Consolidated and Combined Interim Financial Statements.

~~Historically, we have generated~~Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations.

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

All intracompany transactions have been eliminated. All significant transactions between the Company and Honeywell have been included in these Combined Interim Financial Statements and were settled for cash prior Additional liquidity may also be provided through access to the ~~Spin-Off or will be settled for cash as described in Section 2.08 of the Separation~~financial capital markets and Distribution Agreement entered into between the Company and Honeywell on October 19, 2018, and the schedules thereto. These transactions, are reflected in the Combined Interim Balance Sheet as Due from related parties, current or Due to related parties, current. In the Combined Interim Statement of Cash Flows, thea committed global credit facility.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities. We believe our existing cash, cash equivalents, investments and credit under our Credit Facilities are sufficient to meet our capital requirements through at least the next 12 months. We are in discussions with our credit agreement agent bank to consider amendments to our leverage covenant and related definitions to support expenditure for our planned operational review and to maintain flexibility to pursue tuck-in acquisitions. We anticipate any resulting amendment transaction to be undertaken in the fourth quarter of fiscal 2019.

~~On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital expenditures, payments under~~In connection with the ~~Indemnification and~~Spin-Off, we entered into the Honeywell 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 ~~interest payments. Our ability~~less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to ~~fund these needs will depend,~~such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable by us in ~~part, on our ability to generate or raise cash~~respect of such liabilities arising in ~~the future, which~~any given year is subject to ~~general economic, financial, competitive, regulatory and other factors that are beyond our control.~~

~~Since we separated from Honeywell on October 29, 2018, our capital structure and sources~~a cap of ~~liquidity have changed from its historical capital structure because we no longer participate in Parent’s centralized cash management program. Our ability~~$140 million (exclusive of any late payment fees up to fund our operating needs depends on our future ability to continue to generate positive cash flow from operations and raise capital in the capital markets. Based upon our history of generating strong cash flows, we believe we will be able to meet our short-term liquidity needs. We believe we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances and available borrowings under our credit agreements. We expect our primary cash requirements in 2018 will primarily be to fund capital expenditures and to meet our obligations under the debt instruments and the Indemnification and Reimbursement Agreement described below, as well as other tax matters as described in “Certain Relationships and Related Party Transactions–Agreements with Honeywell–Tax Matters Agreement” in the Information Statement.

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

On October 25, 2018, the Company entered into a Credit Agreement, by and among the Company, Resideo Holding Inc., Resideo Intermediate Holding Inc., Resideo Funding Inc. (the “Borrower” or the “Issuer”), the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”), which provides for (i) a seven-year senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the “Term B Facility”); (ii) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $350 million (the “Term A Facility” and, together with the Term B Facility, the “Term Loan Facilities”); and (iii) a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $350 million (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Senior Credit Facilities”)5% per annum). The ~~Company incurred indebtedness under the Term Loan Facilities in an aggregate principal~~ amount ~~of approximately $825 million on October 25, 2018, and $135 million under the Revolving Credit Facility on November 13, 2018.~~

We are obligated to make quarterly principal payments throughout the term of the Term Loan Facilities according to the amortization provisions in the Credit Agreement and in addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility. Borrowings under the Credit Agreement are prepayable at our option without premium or penalty other than a 1.00% prepayment premium that may be payable in connection with certain repricing transactions within a certain period of time after the closing date. Up to $75 million may be utilized under the Revolving Credit Facility for the issuance of letters of credit to the Borrower or any of its subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms and conditions customary for financings of this kind, which issuances will reduce the available funds under the Revolving Credit Facility.

The Senior Credit Facilities are subject to an interest rate and interest period which we will elect. If we choose to make a base rate borrowing on an overnight basis, the interest rate will be based on the highest of (1) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (2) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR rate, plus 1.00% per annum. If we choose to make a LIBOR borrowing on a one, two, three or six-month basis, the interest rate will be based on an adjusted LIBOR rate (which shall not be less than zero) based on the interest period for the borrowing. The applicable margin for the Term B Facility is currently 2.00% per annum (for LIBOR loans) and 1.00% per annum (for base rate loans). The applicable margin for each of the Term A Facility and the Revolving Credit Facility varies from 2.00% per annum to 1.50% per annum (for LIBOR loans) and 1.00% to 0.50% per annum (for base rate loans) based on our leverage ratio. Accordingly, the interest rates for the Senior Credit Facilities will fluctuatepaid during the ~~term~~nine months ended September 30, 2019 was $105 million. See “Note 21. Commitments and Contingencies” of ~~the Credit Agreement based on changes in the base rate, LIBOR or future changes~~Notes to Consolidated and Combined Financial Statements in our ~~leverage ratio. Interest payments with respect to the borrowings are required either~~2018 Annual Report on ~~a quarterly basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months.~~Form 10-K for further discussion.

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

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

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

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

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

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

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

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

Cash Flow Summary for the Nine Months ~~ended~~Ended September 30, ~~2018~~2019 and ~~2017~~2018

Our cash flows from operating, investing and financing activities for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, as reflected in the unaudited Consolidated and Combined Interim Financial Statements are summarized as follows:

~~Cash provided by operating activities~~ September 30, 2019 increased by ~~$206~~$445 million, primarily ~~driven by tax benefits related~~due to ~~the internal restructuring~~lower margins on higher sales volume. This drove a $190 million increase in cash usage as a result of ~~Resideo’s business in advance of its Spin-Off and~~ an increase in ~~gross profit, offset by an increase~~accounts receivable and a decrease in inventory ~~due to new product launch.~~payables.

Cash used for investing activities increased by ~~$18~~$27 million, primarily due to an increase of $17 million cash paid for acquisitions, an increase of $3 million cash paid for capital expenditures, and a decrease of $7 million in ~~expenditures on property plant and equipment of $25 million due~~proceeds received related to ~~new product introduction and spin related cost offset by payments~~amounts due from related ~~parties of $13 million.~~parties.

~~Cash used for~~Net cash provided by financing activities increased by ~~$50 million~~$208 million. The increase in cash provided was primarily due to ~~a decrease~~$185 million in pre-spin activity related to cash outflows of invested equity ~~of $158 million offset by an increase in~~to Honeywell and cash pooling ~~of $105 million as a result of pre-spin activities.~~

~~Expenses for environmental matters deemed probable and reasonably estimable was $322 million for~~during the nine months ended September 30, 2018 ~~and $165 million for~~that is no longer applicable to the post Spin-Off period. For the nine months ended September 30, ~~2017. This increase~~2019, $60 million of cash was provided by proceeds from the Revolving Credit Facility. These cash proceeds were partially offset by $24 million of non-operating obligations paid to Honeywell, $11 million of long-term debt repayments and $3 million of tax payments related to ~~expenses accrued for final remediation plans and corrective measures at certain sites.~~

~~Spending related to environmental matters was $124 million for~~stock vestings during the nine months ended September 30, 2018 and $107 million for nine months ended September 30, 2017. We do 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 our combined results of operations and operating cash flows in the periods recognized or paid.2019.

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

We believe our capital spending in recent years has been sufficient to maintain efficient production capacity, to implement important product and process redesigns and to expand capacity to meet increased demand. Productivity projects have freed up capacity in our manufacturing facilities and are expected to continue to do so. We expect to continue investing to expand and modernize our existing facilities and to create capacity for new product development. ~~We expect capital~~Capital expenditures for full year ~~2018~~2019 are expected to be ~~approximately $60~~$93 million, ~~excluding spin related expenditures.~~of which $35 million relates to costs associated with investments in infrastructure as a stand-alone company.

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

The preparation of our unaudited Consolidated and Combined Interim Financial Statements in accordance with ~~generally accepted accounting principles~~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 ~~below~~in our 2018 Annual Report on Form 10-K for the year ended December 31, 2018, to be critical to the understanding of our unaudited Consolidated and Combined Interim Financial ~~Statements and are consistent with GAAP included~~Statements. There have been no changes in our critical accounting policies as compared to what was disclosed in the ~~unaudited Combined Interim Financial Statements, which include allocations of corporate expenses from Honeywell, that could differ from those that would have been prepared had~~2018 Annual Report on Form 10-K for the ~~Company operated on a stand-alone basis.~~year ended December 31, 2018. Actual results could differ from our estimates and assumptions, and any such differences could be material to our unaudited Consolidated and Combined Interim Financial Statements.

As of September 30, 2019, Goodwill recorded on our Consolidated and Combined Interim Balance sheet was $2.6 billion. —We ~~accrue costs related to environmental matters when it~~perform goodwill impairment testing annually on October 1, or more frequently if indicators of impairment exist. The goodwill impairment test is ~~probable that~~performed at the reporting unit level, Products & Solutions and ADI Global Distribution.

In the fourth quarter of 2018, we ~~have incurred~~performed our annual goodwill impairment test of each of reporting unit using a ~~liability related to a contaminated site~~weighting of fair values derived from the income approach and the ~~amount can be reasonably estimated. Environmental-related expenses are presented within Cost~~market approach. Fair value under the income approach was based on the present value of ~~goods sold for operating sites~~estimated future cash flows and ~~Other expense for non-operating sites~~under the market approach utilized the public company guideline method. Resulting fair values of both reporting units exceeded the respective carrying values in excess of 40%.

During the third quarter of 2019, performance in the ~~Combined Interim Statements~~Products & Solutions reporting unit experienced revenue, as well as Segment EBITDA, declines. Additionally, during the third quarter of ~~Operations. For additional information, see Note 18. Commitments~~2019, the Company’s stock price experienced a decline, opening the quarter at $21.76 per share on July 1, 2019 and ~~Contingencies of Notes to Combined Financial Statements included in~~closing at $14.35 per share on September 30, 2019.

~~Goodwill—Goodwill has an indefinite life and is not amortized, but is subject to annual, or more frequent if necessary, impairment testing. In testing goodwill,~~substantial margin by which the fair value ~~is estimated utilizing a discounted cash flow approach utilizing cash flow forecasts~~of our reporting units exceeded carrying value in our ~~five year strategic~~2018 annual impairment test, and ~~annual operating plans adjusted for terminal~~market capitalization exceeding the carrying value assumptions. These impairment tests involve the use of accounting estimates and assumptions, changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions. To address this uncertainty we perform sensitivity analysis on key estimates and assumptions.

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

Our provision for income tax expense is based on our income, the statutory tax rates and other provisions of the tax laws applicable to us in each of these various jurisdictions. These laws are complex, and their application to our facts is at times open to interpretation. The process of determining our combined income tax expense includes significant judgments and estimates, including judgments regarding the interpretation of those laws. Our provision for income taxes and our deferred tax assets and liabilities incorporate those judgments and estimates, and reflect management’s best estimate of current and future income taxes to be paid.

~~Deferred tax assets and liabilities relate to temporary differences between the financial reporting and income tax bases~~ of our net assets ~~and liabilities, as well as~~throughout the ~~impact of tax loss carryforwards or carrybacks. Deferred income tax expense or benefit represents the expected increase or decrease~~third quarter, these events were not considered significant enough to ~~future tax payments as these temporary differences reverse over time. Deferred tax assets are specific to the jurisdiction in which they arise, and are recognized subject to management’s judgment~~indicate that realization of those assets is “more likely than not.” In making decisions regarding our ability to realize tax assets, we evaluate all positive and negative evidence, including projected future taxable income, taxable income in carryback periods, expected reversal of deferred tax liabilities, and the implementation of available tax planning strategies.

Significant judgment is required in evaluating tax positions. We establish additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax positionit is more likely than not that goodwill is impaired and therefore, an interim impairment analysis was not performed.

On October 22, 2019, we revised guidance for the full year of 2019 and our stock declined below our book value per share. If the market price of our common stock does not increase from current levels in the near future, or if circumstances change that would more likely than not reduce the fair value of our reporting units below their respective carrying values, such as projections of future cash flows and financial performance not being achieved, all or a portion of our goodwill may be impaired in future periods. Any impairment charges that we may take in the future could be material to ~~be sustained upon examination by~~our results of operations and financial condition. We will perform our annual goodwill testing in the ~~applicable taxing authority. In~~fourth quarter and will consider the ~~normal course of business, Honeywell and its subsidiaries are examined by various federal, state and foreign tax authorities. We regularly assess~~decline in the ~~potential outcomes of these examinations~~stock price, reduced operating performance, and any ~~future examinations~~other applicable market conditions in the analysis.

See “Note 15. Commitments and Contingencies” of Notes to unaudited Consolidated and Combined 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 unaudited Consolidated and Combined 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 ~~current or prior years in determining the adequacy~~use of derivative financial instruments.

As of September 30, 2019, $874 million of our ~~provision for income taxes. We continually assess the likelihood and amount~~total debt of ~~potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes~~$1.3 billion carried variable interest rates. The fair market values of our fixed-rate financial instruments are sensitive to changes in ~~the period~~interest rates. At September 30, 2019, an increase or decrease in ~~which the facts that give rise to a change in estimate become known.~~interest rate on our Term Loans by 100 basis points would have an approximate $8 million impact on our annual interest expense on long-term debt.

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

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

We hedge monetary assets and liabilities denominated in non-functional currencies. Prior to conversion into U.S. Dollars, these assets and liabilities are re-measured at spot exchange rates in effect on the balance sheet date. The effectshedging contracts. As of changes in spot rates are recognized in earnings and included in Non-operating (income) expense. We partially hedge forecasted sales and purchases, which occur in the next twelve months and are denominated in non-functional currencies, with foreign currency exchange contracts. Changes in the forecasted non-functional currency cash flows due to movements in exchange rates are substantially offset by changes in the fair value of the foreign currency exchange contracts designated as hedges. Market value gains and losses on these contracts are recognized in earnings when the hedged transaction is recognized. Open foreign currency exchange contracts mature in the next twelve months. At September 30, ~~2018 and December 31, 2017,~~2019, we ~~had contracts with notional amounts of $80 million and $25 million, respectively, to exchange foreign currencies, principally the Euro and Canadian Dollar.~~have no outstanding hedging arrangements.

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

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

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

~~The Company maintains~~We maintain a system of disclosure controls and procedures designed to give reasonable assurance that information required to be disclosed in the Company’s 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 Interim 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 ~~were~~was no ~~changes with respect to the Company’s~~change in our internal control over financial reporting ~~or in other factors~~ that ~~materially affected, or are reasonably likely to materially affect, internal control over financial reporting~~occurred during the quarter ended September 30, ~~2018.~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have implemented, and continue to refine, internal controls and key system functionality to enable the preparation of financial information related to the new lease standard (ASU No. 2016-02) upon adoption on January 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new lease standard.

We are subject to various of lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, settlement agreements, government contracts, product liability, prior acquisitions and divestitures, employee ~~benefit plans,~~matters, intellectual property, antitrust and environmental, health and safety matters. ~~See Note 11. Commitments~~We recognize a liability for any contingency that is probable of occurrence and ~~Contingencies~~reasonably estimable. We continually assess the likelihood of ~~Notes to Combined Interim Financial Statements for~~adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a ~~discussion~~careful analysis of ~~environmental~~each matter with the assistance of outside legal counsel and, if applicable, other ~~litigation matters.~~experts.

Additionally, in connection with our entry into the ~~Indemnification and~~Honeywell Reimbursement Agreement, ~~the Company Subsidiary has an obligation~~we will be required to make ~~cash~~ payments to Honeywell in amounts equal to 90% of payments, which include amounts billed, with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case including consequential damages in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable in respect of such liabilities arising in any given year will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum). See in Note 14. Subsequent EventsFor further information, see “Note 15. Commitments and Contingencies” of Notes to unaudited Consolidated and Combined ~~Interim~~ Financial Statements ~~for a further discussion~~ of ~~the Indemnification and Reimbursement Agreement.~~this Form 10-Q.

We face a variety of risks that are inherent in our business and our industry, including operational, legal and regulatory risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. There have been no material changes ~~from~~to the risk factors ~~disclosed~~described in our 2018 Annual Report on Form 10-K, except as reflected in the ~~Information Statement under “Risk Factors” except~~revised risk factors and one additional risk factor set forth below.

We operate in highly competitive markets and compete directly with global, national, regional and local providers of our products, services and solutions including manufacturers, distributors, service providers, retailers and online commerce providers. The most significant competitive factors we face are product and service innovation, reputation of our Company and brands, sales and marketing programs, product performance, quality of product training and events, product availability, speed and accuracy of delivery, service and price, technical support, furnishing of customer credit and product reliability and warranty, with the relative importance of these factors varying among our segments and products. In addition to ~~note~~current competitive factors, there may be new market entrants with non-traditional business and customer service models or disruptive technologies and products, resulting in increased competition and changing business dynamics. See “Risks Relating to Our Business—The market for connected home solutions is fragmented, highly competitive, continually evolving and subject to disruptive technologies.” Existing or future competitors may seek to gain or retain market share by reducing prices, and we may be required to lower prices or may lose business, which could adversely affect our business, financial condition, results of operations and cash flows. Also, to the extent that we do not meet changing customer preferences or demands or other market changes, or if one or more of our competitors introduces new products, becomes more successful with private label products, online offerings or establishes exclusive supply relationships, our ability to attract and retain customers could be adversely affected. In the third quarter of 2019, we experienced lower sales of our non-connected thermostats due in part to a poor pre-spin cutover from the prior generation of non-connected thermostats to the T-Series line which resulted in loss of sales of certain thermostats to competition.

We also have long-standing relationships with customers whose business models may be subject to the risks articulated above. For example, changes in the security system market, such as a shift away from subscription monitoring services, could adversely impact certain of our large customers or cause them to change their business models in ways that adversely impact our business and cash flows. As new market entrants emerge there can be no

guarantee that we will be successful in developing customer relationships with them, or that such relationships will be as mutually beneficial as our current relationships. Furthermore, if new technologies or business models become ascendant in our customers’ markets our relationships and service commitments with incumbent businesses may become a disadvantage.

To remain competitive, we will need to invest continually in product development, marketing, customer service and support, manufacturing and our distribution networks. We may not have sufficient resources to continue to make such investments and we may be unable to maintain our competitive position. In addition, we anticipate that we may have to reduce the prices of some of our products or solutions to stay competitive, potentially resulting in a reduction in the profit margin for, and inventory valuation of, these products. It is possible that competitive pressures resulting from consolidation, including customers taking manufacturing or distribution in house, moving to a competitor and consolidation among our customers, could affect our growth and profit margins. In addition, competitors in certain high growth regions may have lower costs than we do due to lower local labor costs and favorable government regulation. Countries in high growth regions may have differing codes and standards impacting the cost of doing business and may have fewer protections for, or offer less ability to utilize, existing intellectual property. We may not be able to compete effectively with new competitors from such regions. Existing or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing the price for, and reducing the number of, suitable acquisitions.

Responses to climate change may cause a shift away from fossil fuels to alternative power sources. Many of our thermal solutions are designed for application with oil and gas systems. A shift away from fossil fuels could affect our OEM customers’ business and result in a loss of business for them and for us. If we fail to adapt our solutions to alternative power sources, it could have an adverse effect on our business, financial condition, results of operations and cash flows.

Cooler than normal summers and warmer than normal winters may depress our sales. In addition, stable temperatures may result in less wear and tear on cooling and heating equipment which may depress Comfort and RTS sales. Demand for our products and our services, particularly our products and solutions geared toward the home construction repair and remodel industry, including our Comfort and RTS businesses, is seasonal and strongly affected by the weather. Cooler than normal summers depress our sales of replacement controls for heating, ventilation, cooling and water heating equipment in certain larger markets. Similarly, warmer than normal winters have the same effect on our heating products and services. Increased public awareness and concern regarding global climate change have led to our development of social responsibility, sustainability and other business policies, which in some instances are more restrictive than current laws and regulations. In light of the current regulatory environment, we also face uncertainty with respect to future climate change initiatives, including regional and/or federal requirements to reduce greenhouse gas emissions.

Moreover, climate change itself creates financial risk to our business. Unseasonable weather conditions may impact the availability and cost of materials needed for manufacturing and increase insurance and other operating costs and, especially in the case of disruptions at our ADI stores, our ability to make sales during the pendency of site closures. These factors may influence our decisions to construct new facilities or maintain existing facilities in areas that are prone to physical climate risks. We could also face indirect financial risks passed through the supply chain, and process disruptions due to physical climate changes could result in price modifications for our products and the resources needed to produce them. In the third quarter of 2019, we experienced lower sales of our RTS products due in part to wet weather that slowed housing construction earlier in the year and a relatively mild start to the heating season.

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

A number of our customers are large and contribute significantly to our net revenue and operating income. Consolidation or change of control, particularly among our OEM customers, or a decision by any one or more of our customers to outsource all or most manufacturing work to a single equipment manufacturer, may concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a smaller number of customers. By virtue of our largest customers’ size and the significant portion of revenue that we derive

from them, they are able to exert significant influence in the negotiation of our commercial agreements and the conduct of our business with them. Furthermore, there is significant consolidation of companies focused on security products, and we have had customers combine with companies with whom we have little or no prior relationship, putting us at risk of loss of sales. If we are unable to retain and expand our business with these large customers on favorable terms, our business, financial condition, results of operations and cash flows will be adversely affected. In the third quarter of 2019, we became aware that a significant customer delayed the start date of expected purchases beyond the fourth quarter.

We can provide no assurance that the ~~Spin-Off was effectuated.~~operational and financial review we are conducting will result in the effects we are expecting.

In the third quarter of 2019, we experienced lower sales and lower margins than we expected. As a result, we are conducting a comprehensive operational and financial review of our business. However, there can be no assurance that this will review will appropriately identify the actions we need to take, or that we will be able to implement actions, in a manner that will resolve the issues we have identified or achieve the results we are forecasting. In addition, uncertainty around the review could lead to disruption in our business, including our relationships with our customers, suppliers and employees.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2 of the Notes to the Consolidated and Combined Financial Statements included in the 2018 Annual Report on Form 10-K. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. If the assumptions used in our analysis are not realized, it is possible that an impairment charge may need to be recorded in the future. During the third quarter of 2019, performance in the Products & Solutions reporting unit experienced revenue, as well as Segment EBITDA, declines. On October 22, 2019, we revised guidance for the full year of 2019 and our stock declined below our book value per share. If the market price of our common stock does not increase from current levels in the near future, or if circumstances change that would more likely than not reduce the fair value of our reporting units below their respective carrying values, such as projections of future cash flows and financial performance not being achieved, all or a portion of our goodwill may be impaired in future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition. There were no impairment charges taken during the years ended 2018, 2017, and 2016.

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

Certain schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish copies of any of the omitted schedules and similar attachments upon request by the U.S. Securities and Exchange Commission.

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.)

~~1985 Douglas Drive North~~901 E 6^th Street ~~Golden Valley, Minnesota~~Austin, Texas		~~55422~~78702
(Address of principal executive offices)		(Zip Code)

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

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

	September 30,		December 31,
	2019		2018
Raw materials	$	143	$	167
Work in process		19		34
Finished products		567		427
	$	729	$	628

	Financial Statement Line Item	At September 30, 2019
Operating right-of-use assets	Other assets	$	130
Operating lease liabilities - current	Accrued liabilities	$	29
Operating lease liabilities - noncurrent	Other liabilities	$	106

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Sales
Total Products sales	$	603	$	603	$	1,803	$	1,719
Less: Intersegment sales		77		84		236		258
External Products sales		526		519		1,567		1,461
External Distribution sales		674		633		1,994		1,849
Total sales	$	1,200	$	1,152	$	3,561	$	3,310


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

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

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

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

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

Deferred income taxes		100			377
Other liabilities		557			346

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

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

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

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

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

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

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

	At September 30, 2019
2019	$	9
2020		35
2021		32
2022		27
2023		20
Thereafter		36
Total lease payments		159
Less: imputed interest		24
Present value of operating lease liabilities	$	135
Weighted-average remaining lease term (years)		5.64
Weighted-average incremental borrowing rate		6.00	%

	At December 31, 2018
2019	$	39
2020		33
2021		28
2022		22
2023		15
Thereafter		17
	$	154

	Nine Months Ended
	September 30, 2019
Operating cash outflows	$	28
Operating right-of-use assets obtained in exchange for operating lease liabilities	$	47

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

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

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

December 31, 2017	$	17
Accruals for warranties/guarantees issued during the year		12
Adjustment of pre-existing warranties/guarantees		(2	)
Settlement of warranty/guarantee claims		(12	)
September 30, 2018	$	15

			Three Months Ended	Nine Months Ended
	Three months	Year to Date	September 30, 2019	September 30, 2019
Volume	2.6%	4.1%	1 %	3 %
Price	2.3%	1.8%	2 %	2 %
Foreign currency translation	(0.7)%	1.7%	(1)%	(2)%
% change compared with prior period	4.2%	7.6%	2 %	3 %

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

	2018 vs. 2017				2019 vs. 2018
	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended September 30,						Nine Months Ended September 30,
Factors Contributing to Year-Over-Year Change	Sales (%)	Segment Profit (%)	Sales (%)	Segment Profit (%)	Revenue (%)			Segment Adjusted EBITDA (%)			Revenue (%)			Segment Adjusted EBITDA (%)
Organic Growth/Operational segment profit	2%	3%	5%	18%
Constant Currency Growth (Decline)						(1	)%		(36	)%		5	%		(30	)%
Foreign currency translation	(1)%	(1)%	2%	3%		(2	)%		(2	)%		(3	)%		(3	)%
Total % Change	1%	2%	7%	21%		(3	)%		(38	)%		2	%		(33	)%

	9 Months ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash provided by (used for):
Cash (used for) provided by:
Operating activities	$	375		$	180		$	(70	)	$	375
Investing activities		(56	)		(38	)		(83	)		(56	)
Financing activities		(186	)		(136	)		22			(186	)
Effect of exchange rate changes on cash		(5	)		4
Net increase in cash and cash equivalents	$	128		$	10
Effect of exchange rate changes on cash and cash equivalents								(2	)		(5	)
Net (decrease) increase in cash and cash equivalents							$	(133	)	$	128


Exhibit ~~No.~~ Number		Exhibit Description
10.1		Resideo Deferred Compensation Plan for Non-Employee Directors‡ (filed herewith)

10.2		Resideo Director Deferred Election Form‡ (filed herewith)

10.3		2018 Stock Plan for Non-Employee Directors of Resideo Technologies, Inc. Form of Restricted Stock Unit Agreement (Annual Grants)‡ (filed herewith)

10.4		Non-Employee Director Form of Deferred Stock Unit Agreement (Deferred Director Fees)‡ (filed herewith)

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

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

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

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

			Resideo Technologies, Inc.

Date: November ~~13, 2018~~	6th, 2019	By:	/s/ Joseph D. Ragan III
			Joseph D. Ragan III Executive Vice President and Chief Financial Officer (on behalf of the Registrant and as the Registrant’s Principal Financial Officer)