RESIDEO TECHNOLOGIES, INC. (REZI)

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

(In millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help readers understand the results of our operations and financial condition for the three years ended December 31, 2024, and should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-K.

Overview and Business Trends

We are a leading global manufacturer, developer, and distributor of technology-driven sensing and controls products and solutions that help homeowners and businesses stay connected and in control of their comfort, security, energy use, and smart living. We are a leader in key product markets including home heating, ventilation, and air conditioning controls, smoke and carbon monoxide detection home safety and fire suppression, and security. Our global footprint serves residential and commercial end-markets. Our solutions and services can be found in over 150 million residential and commercial spaces globally, with tens of millions of new devices sold annually.

We manage our business operations through two business segments, Products and Solutions and ADI Global Distribution. In the second quarter of 2024, we expanded the business through the acquisition of Snap One, which has been incorporated into the ADI Global Distribution business segment. The acquisition expands our distribution into and reach with smart-living products, services, and software.

Our Products and Solutions segment offerings include temperature and humidity control, water and air solutions, smoke and carbon monoxide detection home safety products, residential and small business security products, video cameras, other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software.

Our ADI Global Distribution segment is a leading wholesale distributor of low-voltage products including security, fire, and access control, and participates significantly in the broader related markets of smart home, residential audio-visual, professional audio-visual, power management, networking, data communications, wire and cable, enterprise connectivity, and structured wiring products. In addition, ADI Global Distribution partners with a network of contract manufacturers and joint-development suppliers to produce a full range of proprietary smart-home technology products and solutions under our own exclusive brands. These products may be found in residential and commercial settings and utilize proprietary software platforms such as Control4 and OvrC for project commissioning and remote monitoring.

Our financial performance is influenced by macroeconomic factors underlying end user demand such as repair and remodeling activity, residential and non-residential construction, new and existing home sales, employment rates, interest rates and bank lending standards, and supply chain dynamics that can be influenced by geopolitics. The ongoing uncertainty and volatility in the global macroeconomic environment have affected, and could continue to affect, our visibility toward future performance. While supply chain and logistics continued to normalize over 2024, uncertainties remain including the potential for changes in inflation and interest rates, tariffs, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, unfavorable foreign currency impacts from a stronger U.S. dollar, shifts in energy policies, and potential market and other disruption from the ongoing conflict between Russia and Ukraine as well as the Middle East crisis.

Current Period Highlights

•Net revenue of $6.76 billion in 2024, up 8% from $6.24 billion in 2023

•Gross profit margin of 28.1%, compared to 27.2% in the prior year comparable period

•Income from operations of $520 million, or 7.7% of revenue, compared to $547 million, or 8.8% of revenue in 2023

•Fully diluted earnings per common share of $0.61, compared to $1.42 per common share in the same period last year

•Cash Flow From Operations was $444 million in 2024 as compared to $440 million in 2023

Outlook

For 2025, we anticipate executing our business against a global macro-economic environment that continues to be mixed. Despite some signals that new U.S. residential home building is back to normal levels and the outlook for U.S. repair and

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remodeling has reverted to modest low-single digit percentage growth, U.S. mortgage rates remain high, the existing U.S. home re-sale market is still soft, and inflation remains persistent globally. We expect these trends to support our 2025 year-over-year revenue outlook of up low-to-mid single-digits.

Basis of Presentation and Reclassifications

Refer to Note 1. Nature of Operations and Basis of Presentation to Consolidated Financial Statements.

Results of Operations

This section of the Form 10-K discusses fiscal 2024 and fiscal 2023 items and year-over-year comparisons of these periods. Discussions of fiscal 2022 items and year-over-year comparisons between fiscal 2023 and fiscal 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in the Company’s 2023 Annual Report on Form 10-K filed February 14, 2024 as reclassified in our Current Report on Form 8-K filed on June 4, 2024 to reflect the impacts of certain corporate functions being decentralized to align with the business strategy. Refer to Note 4. Segment Financial Data for additional information.

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

Net Revenue

Net revenue for the year ended December 31, 2024 was $6,761 million, an increase of $519 million, or 8.3%, from the prior year, primarily due to $553 million of revenue from the acquisition of Snap One and higher sales volume of $74 million driven by the ADI Global Distribution segment. The increase was partially offset by $105 million of lower sales from the divestiture of the Genesis business in 2023, and $6 million of unfavorable foreign currency fluctuations. The price increases at Product and Solutions were offset by the decreases at ADI Global Distribution, resulting in minimal impact from price on net revenue.

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Gross Profit

The chart below presents the drivers of the gross profit variance from the years ended December 31, 2023 to December 31, 2024.

(1) Includes only the Snap One acquisition and Genesis divestiture

Gross profit of $1,901 million increased $205 million and gross margin of 28.1% was up 90 basis points (“bps”) from the prior year. The increase in gross margin was primarily driven by lower manufacturing costs of 140 bps, favorable impacts from the acquisition of Snap One, net of Genesis divestiture of 80 bps, which was partially offset by net unfavorable price and mix shift of 90 bps and the impact from lower volumes of 30 bps.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2024, were $111 million, an increase of $2 million as compared to the same period in 2023. The increase was primarily driven by $17 million from the acquisition of Snap One, which was partially offset by $15 million from lower third-party spend and personnel costs. Key drivers of the lower spend relate to optimization efforts and a realignment of IT resources towards maintenance projects within the Products and Solutions segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2024, were $1,138 million, an increase of $178 million, or 18.5%, as compared to the same period in 2023. The increase was driven by $141 million of incremental operating expenses from the Snap One acquisition, and $45 million of acquisition and integration costs. The increase was partially offset by lower expenses of $8 million from the divestiture of the Genesis business in 2023.

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Intangible Asset Amortization

Intangible asset amortization increased $42 million for the year ended December 31, 2024, as compared to the same period in 2023. The increase was primarily due to additional amortization expense of $41 million associated with the new intangibles from the Snap One acquisition.

Restructuring, Impairment and Extinguishment Costs

Restructuring, impairment and extinguishment costs increased $10 million for the year ended December 31, 2024, as compared to the same period in 2023. The increase was primarily due to debt extinguishments and related costs associated with multiple credit agreement amendments throughout the year.

Other Expenses, Net

Other expenses, net increased $49 million for the year ended December 31, 2024, as compared to the same period in 2023. The increase was driven by $33 million of additional expense related to the Reimbursement Agreement as noted in Note 15. Commitments and Contingencies, and a net gain on sale of assets and divestiture of $22 million, which was partially offset by $6 million of other costs including pension and foreign currency impacts.

Interest Expense, Net

Interest expense, net increased $16 million for the year ended December 31, 2024 as compared to the same period in 2023, primarily due to an increase in our long-term debt resulting in $22 million of higher interest expense which was partially offset by $6 million of higher interest income as a result of effectively investing excess cash.

Tax Expense

Income tax expense of $105 million for the year ended December 31, 2024, includes $1 million of discrete tax benefit. The effective tax rate for the year ended December 31, 2024, excluding discrete tax benefits of $1 million, was 47.8% versus 37.9% for the same period in 2023, which excluded a discrete tax benefit of $16 million.

Income tax expense increased for the year ended December 31, 2024, primarily due to an increase in non-deductible expenses. The increase in the overall effective tax rate was primarily driven by non-deductible indemnification costs, other non-deductible expenses, and U.S. taxation of foreign earnings.

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Segment Results of Operations

Products and Solutions

The chart below presents net revenue and income from operations for the years ended December 31, 2024 and 2023.

Products and Solutions revenue decreased $108 million, or 4.0%, as compared to the same period in 2023, due to $105 million from the divestiture of the Genesis business, lower sales volume of $24 million and unfavorable foreign currency fluctuations of $10 million. The decrease was partially offset by price increases of $31 million.

Income from operations increased $57 million, or 12.8%, from the same period in 2023, primarily due to lower material, freight and other manufacturing costs of $101 million, lower restructuring expenses of $13 million, lower selling, general and administrative expenses of $5 million, and lower research and development expenses of $1 million. Partially offsetting the favorable impacts to income from operations were net unfavorable price and mix shift of $30 million, lower volumes of $20 million, and the impact from the divestiture of the Genesis business of $13 million.

ADI Global Distribution

The chart below presents net revenue and income from operations for the years ended December 31, 2024 and 2023.

ADI Global Distribution net revenue increased $627 million, or 17.6%, as compared to the same period in 2023, primarily due to $553 million of revenue from the acquisition of Snap One, $98 million from higher volumes, and favorable foreign currency fluctuations of $4 million. The increase was partially offset an unfavorable price impact of $31 million.

Income from operations decreased $43 million, or 18.1%, as compared to the same period in 2023, primarily due to an unfavorable sales mix and deflationary impact of $31 million, higher operational costs including freight and other costs of $27 million, Snap One acquisition and integration costs of $12 million, and higher restructuring expenses of $7 million.

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The decrease was partially offset by higher volumes of $18 million, and lower employee expenses of $13 million from prior restructuring efforts.

Corporate

Corporate costs for the year ended December 31, 2024, were $178 million, an increase of $41 million, or 29.9%, from $137 million in the same period of 2023. The increase was primarily due to $33 million of Snap One acquisition and integration costs, and $9 million of extinguishments and costs associated with the credit agreement amendments.

Capital Resources and Liquidity

As of December 31, 2024, total cash and cash equivalents were $692 million, of which 32% were held by foreign subsidiaries. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed. Additional liquidity may also be provided through access to the capital markets and our senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility”).

Liquidity

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

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

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Credit Agreement

In February 2021, we entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). In March 2022, we amended the A&R Credit Agreement adding $200 million in additional term loans. In June 2023, we amended the A&R Credit Agreement to replace the interest rate reference rate of LIBOR with the secured overnight financing rate (“SOFR”). Included in the A&R Term B Facility is a five-year senior secured revolving credit facility in an aggregate capacity of $500 million (the A&R Revolving Credit Facility and, together with the A&R Term B Facility, the “A&R Senior Credit Facilities”).

In May 2024, the A&R Term B Facility was amended to (i) reduce the interest rate margin from 2.25% to 2.00%, (ii) eliminate the SOFR credit spread adjustment, and (iii) reduce the SOFR floor from 0.50% to 0%.

In June 2024, we completed the acquisition of Snap One which was partially financed with $600 million in incremental term loans under our A&R Term B Facility, with a maturity date of May 14, 2031. We also extended the term of our A&R Revolving Credit Facility to June 2029.

In July 2024, we issued $600 million in aggregate principal of 6.500% Senior Notes due 2032. The net proceeds of the Senior Notes due 2032 were used to repay $596 million principal amount outstanding indebtedness due February 2028 under the Company’s A&R Term B Facility.

In December 2024, the A&R Term B Facility was further amended to reduce the interest rate margin from 2.00% to 1.75%.

As of December 31, 2024, we had $2,015 million of long-term debt outstanding under our A&R Credit Agreement, Senior Notes due 2029, and Senior Notes due 2032, of which $6 million is due in the next 12 months. We have entered into certain interest rate swap agreements to effectively convert a portion of our variable-rate debt to fixed-rate debt. Additionally, as part of our acquisition of Snap One, we assumed an interest rate cap agreement with a notional amount of $344 million and a strike rate of 4.79%.

Refer to Note 11. Long-Term Debt and Note 12. Derivative Financial Instruments to Consolidated Financial Statements for a description of our debt obligations and the timing of future principal and interest payments, including impacts from our Swap Agreements.

Senior Notes

In August 2021, we issued $300 million in principal amount of 4.000% Senior Notes due in 2029 (“the Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by our existing and future domestic subsidiaries, rank equally with all of our senior unsecured debt, and are senior to all of our subordinated debt.

In July 2024, we issued $600 million in aggregate principal of 6.500% Senior Notes due 2032 (the “Senior Notes due 2032”). The net proceeds from the Senior Notes due 2032 were used to repay $596 million principal amount of outstanding indebtedness due February 2028 under the Company’s A&R Term B Facility.

As of December 31, 2024, we were in compliance with all covenants related to the A&R Credit Agreement, Senior Notes due 2029, and Senior Notes due 2032.

Share Repurchase Program

In August 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period. During the twelve months ended December 31, 2024 and 2023, we repurchased 0.1 million and 2.6 million shares of common stock in the open market at a total cost of $1 million and $41 million, respectively. As of December 31, 2024, we had approximately $108 million of authorized repurchases remaining under the share repurchase program.

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Cash Flow Summary for the Years Ended December 31, 2024 and 2023

Our cash flows from operating, investing, and financing activities for the years ended December 31, 2024 and 2023, as reflected in the audited Consolidated Financial Statements are summarized as follows:

2024 compared with 2023

Net cash provided by operating activities for the year ended December 31, 2024 was $444 million, an increase of $4 million compared to the prior year. The increase was primarily driven by higher cash earnings partially offset by working capital investments.

Net cash used for investing activities for the year ended December 31, 2024 was $1,409 million, an increase of $1,365 million, compared to the prior year, primarily driven by acquiring Snap One for $1,337 million and lower net proceeds from the sale of business, acquisitions and investments of $85 million. These amounts were partially offset by a decrease in capital expenditures of $25 million from 2023 to 2024.

Net cash provided by financing activities for the year ended December 31, 2024 was $1,031 million, an increase of $1,095 million compared to the prior year, primarily due to proceeds of $1,176 million and $482 million from the issuance of long-term debt and preferred stock, respectively, to support the Snap One acquisition. This increase was partially offset by an increase in debt repayments of $593 million as well as a decrease in common stock repurchases of $40 million.

Contractual Obligations and Probable Liability Payments

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

Reimbursement Agreement Payments

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of December 31, 2024, a liability of $723 million was deemed probable and reasonably estimable; however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31, of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million. During the year ended December 31, 2024, we paid Honeywell $140 million under this agreement. For further discussion on the Reimbursement Agreement refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Environmental Liability

We make environmental liability payments for sites which we own and are directly responsible for. As of December 31, 2024, $22 million was deemed probable and reasonably estimable.

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Operating Leases

We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2024, we had operating lease payment obligations of $263 million, with $51 million payable within 12 months.

Purchase Obligations

We enter into purchase obligations with various vendors in the normal course of business. As of December 31, 2024, we had purchase obligations of $358 million, with $177 million payable within 12 months.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Significant Estimates

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”) and is based in part on the application of significant accounting policies, many of which require us to make estimates and assumptions. Critical accounting policies and significant estimates are those judgments that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We review our estimates and assumptions on an ongoing basis throughout the year and as new events or changes in our operating environment occur with our Audit Committee of the Board of Directors. We base our estimates and assumptions on extensive historical experience and/or other pertinent factors we believe are applicable and reasonable under the circumstances, such as forecasts of future performance, which serve as the foundation for determining how to recognize and measure assets and liabilities not readily apparent from other sources. We consider the below critical areas in the application of our accounting policies and estimates that involve a significant level of estimation uncertainty, complex judgment, subjectivity, and have had or are reasonably likely to have a material impact on our financial condition or results of operations and are critical to the understanding of our Consolidated Financial Statements. Actual results could differ from our estimates and assumptions. Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Goodwill

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

Warranties and Guarantees

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

Revenue

Revenue is measured as the amount of consideration expected to be received in exchange for our products. Allowances for cash discounts, volume rebates, and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume

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rebates and other customer incentive programs are based upon certain percentages agreed upon with various customers, which are typically earned by the customer over an annual period.

Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale date and the return date, while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components. Refer to Note 5. Revenue Recognition to Consolidated Financial Statements.

Reimbursement Agreement

In connection with the Spin-Off, we entered into the Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments, 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 to specified Honeywell properties contaminated through historical business operations prior to the Spin-Off (Honeywell Sites), including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable in respect of such liabilities arising in any given year is subject to a cap of $140 million. Reimbursement Agreement expenses are presented within other expense, net in the Consolidated Statements of Operations and within other accrued liabilities payable under Indemnification Agreements in the Consolidated Balance Sheets. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Income Taxes

Significant judgment is required in evaluating tax positions. We established additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, we, along with our subsidiaries, are examined by various federal, state, and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to a change in estimate become known. Refer to Note 17. Income Taxes to Consolidated Financial Statements.

Other Matters

Litigation, Environmental Matters and the Reimbursement Agreement

Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements for further discussion.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Cautionary Statement Concerning Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions, and projections about our industries and our business and financial results. Forward-looking statements often include words such as “anticipates,” “estimates,”

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“expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals,” and words and terms of similar substance in connection with discussions of future operating or financial performance. This Annual Report includes industry and market data that we obtained from various third-party sources, including forecasts based upon such data; as with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Annual Report are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

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

•compatibility and ease of integration of our products and solutions with third-party products and services and our ability to control such third party integrations;

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

•our reliance on independent integrators to sell and install our solutions;

•our reliance on certain suppliers;

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

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

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

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

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

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

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

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

•the failure to increase productivity through sustainable operational improvements;

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

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

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

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

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

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

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

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

•provisions in our governing documents discouraging takeovers;

•our ability to recruit and retain qualified personnel and to recruit a new CEO given the announced intended retirement of our current CEO;

•uncertainty in the development, deployment, and the use of artificial intelligence in our products and services, as well as our business interests more broadly;

•currency exchange rate, stock price, and effective tax rate fluctuations;

•the CD&R Stockholder’s interest in and influence over us that may diverge from, or event conflict with, interests of the holders of our common stock, and the reduction in the relative voting power of holders of our common stock resulting from the issuance of preferred stock;

•our ability to maintain effective internal controls, deliver timely financial statements, and avoid the financial statements to become impaired and damage public opinion;

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•impairment of other intangible assets and long-lived assets;

•being required to make significant cash contributions to our defined benefit pension plans;

•other risks detailed under the caption “Risk Factors” in this Annual Report, in Part I, Item 1A; and

•certain factors discussed elsewhere in this Form 10-K.

These risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report. Even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods.

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

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

(In millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of our operations and financial condition for the three years ended December 31, 2023, and should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-K.

Overview and Business Trends

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

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

Our ADI Global Distribution business is a leading wholesale distributor of low-voltage products including access control, fire detection, security, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. Our ADI Global Distribution strategy is focused on growth in our omni-channel presence, expansion into adjacent markets, and continued enhancements to our value-add services to support our professional installers’ efficiency and profitability.

Our financial performance is influenced by macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates and bank lending standards, supply chain dynamics, and the overall macroeconomic environment. The ongoing uncertainty and volatility in the global macroeconomic conditions have affected and could continue to affect our visibility toward future performance. While we believe supply chain and logistics will continue to normalize over 2024, customer demand continues to moderate as inventories rebalance over the period and uncertainties remain including the potential for changes in inflation and interest rates, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, unfavorable foreign currency impacts from a stronger U.S. dollar, and potential market and other disruption from the ongoing conflict between Russia and Ukraine as well as the Middle East crisis between Hamas and Israel.

Current Period Highlights

•Net revenue of $6.24 billion in 2023, down 2% from $6.37 billion in 2022

•Gross profit margin of 27.2%, compared to 27.7% in the prior year comparable period

•Income from operations of $547 million, or 8.8% of revenue, compared to $611 million, or 9.6% of revenue in 2022, including restructuring and impairment expenses of $42 million and $35 million in 2023 and 2022, respectively

•Fully diluted earnings per share of $1.42, compared to $1.90 per share in the same period last year

•Cash Flow From Operations was $440 million in 2023 as compared to $152 million in 2022

Outlook

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

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Recent Developments

On January 23, 2023, we acquired 100% of the outstanding equity of BTX Technologies, Inc., a leading distributor of professional audio, video, data communications and broadcast equipment. This acquisition will allow ADI to further expand our ProAV and private brand offerings across North America.

During the third quarter of 2023, we announced a restructuring program to align our cost structure with market conditions. For the twelve months ended December 31, 2023, we recognized restructuring and impairment expenses of $42 million. These expenses primarily related to workforce reductions.

On August 3, 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period. During the twelve months ended December 31, 2023, we repurchased 2.6 million shares of common stock in the open market at a total cost of $41 million.

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

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

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Results of Operations

This section of the Form 10-K discusses fiscal 2023 and fiscal 2022 items and year-over-year comparisons of these periods. Discussions of fiscal 2021 items and year-over-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in the Company’s 2022 Annual Report on Form 10-K filed February 21, 2023.

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

Net Revenue

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

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Gross Profit

The chart below presents the drivers of the gross profit variance from the year ended December 31, 2022 to December 31, 2023.

Gross profit dollars decreased in 2023 as noted in the chart above. Gross margin of 27.2% was 50 bps lower when compared to 27.7% in the prior year primarily due to lower unit volume and unfavorable product mix.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2023, were $109 million, a decrease of $2 million as compared to the same period in 2022. The decrease was primarily driven by net cost savings of $5 million offset by additional research and development costs of $3 million from the acquisition of First Alert, Inc. in first quarter of 2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2023, were $960 million, a decrease of $14 million, or 1.4%, as compared to the same period in 2022. The decrease was driven by cost savings from restructuring actions of $42 million that more than offset $18 million in costs related to the inclusion of First Alert, Inc. and $10 million of transaction costs incurred in the first quarter of 2022.

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Restructuring and Impairment Expenses

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

Restructuring and impairment expenses were allocated among our segments as follows:

Intangible Asset Amortization

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

Other Expenses, Net

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

Interest Expense, Net

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

Tax Expense

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

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

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Segment Results of Operations

Products and Solutions

The chart below presents net revenue and income from operations for the years ended December 31, 2023 and 2022.

Products and Solutions revenue decreased $111 million, or 4%, mainly due to lower sales volume of $307 million and unfavorable foreign exchange fluctuations of $5 million, partially offset by price increases of $102 million and $99 million of revenue from First Alert, Inc. Income from operations decreased $32 million, or 6.1%, from the same period in 2022, primarily due to lower sales volume of $166 million, restructuring expense of $27 million, and unfavorable price/mix of $38 million from mix shifts to lower priced products. Partially offsetting the unfavorable impacts to income from operations were $97 million of lower manufacturing input costs, primarily material and freight, due to the inflationary environment stabilizing and $20 million from the First Alert, Inc. acquisition.

ADI Global Distribution

The chart below presents net revenue and income from operations for the years ended December 31, 2023 and 2022.

ADI Global Distribution net revenue decreased $17 million, or 0.5%, driven by lower volume of $108 million, primarily in sales of residential security and AV categories, and $5 million of unfavorable foreign exchange fluctuations, partially offset by $55 million of revenue due to acquisitions and $41 million from price increases. Income from operations decreased $43 million, or 14%, due to $23 million of higher input costs, primarily material, $17 million of lower sales volume, and $12 million of restructuring expenses, slightly offset by other favorable impacts of $7 million.

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Corporate

Corporate costs for the year ended December 31, 2023, were $218 million, a decrease of $11 million, or 5%, from $229 million in the same period of 2022. The decrease was primarily due to the cost savings actions offsetting incremental selling, general and administrative costs from the acquisition of First Alert, Inc, which totaled $11 million.

Capital Resources and Liquidity

As of December 31, 2023, total cash and cash equivalents were $636 million, of which 50% were held by foreign subsidiaries. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed.

Additional liquidity may also be provided through access to the capital markets and our five-year senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility”).

Liquidity

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

We may from time to time take steps to reduce our debt or otherwise improve our financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt, raising additional capital or divesting certain assets. The amount of prepayments or the amount of debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of the debt, and we would continue to reflect the debt as outstanding on our Consolidated Balance Sheets.

Credit Agreement

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

On March 28, 2022, we entered into a First Amendment, which amended the A&R Credit Agreement to include an additional aggregate principal amount of $200 million in loans.

On June 30, 2023, we entered into a Second Amendment, which amended the A&R Credit Agreement to replace the interest rate reference rate of LIBOR with the secured overnight financing rate (“SOFR”).

Refer to Note 11. Long-Term Debt and Note 12. Derivative Financial Instruments to the Consolidated Financial Statements for a description of our debt obligations and the timing of future principal and interest payments, including impacts from our Swap Agreements.

Senior Notes due 2029

On August 26, 2021, we issued $300 million in principal amount of 4% senior unsecured notes due in 2029 (“the Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by our existing and future domestic subsidiaries, rank equally with all of our senior unsecured debt, and are senior to all of our subordinated debt.

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As of December 31, 2023, we had $1,419 million of long-term debt outstanding under our A&R Credit Agreement and Senior Notes due 2029, of which $12 million is due in the next 12 months. Refer to Note 11. Long-Term Debt to Consolidated Financial Statements.

Share Repurchase Program

On August 3, 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period. During the twelve months ended December 31, 2023, we repurchased 2.6 million shares of common stock in the open market at a total cost of $41 million. As of December 31, 2023, we had approximately $109 million of authorized repurchases remaining under the share repurchase program.

Cash Flow Summary for the Years Ended December 31, 2023 and 2022

Our cash flows from operating, investing and financing activities for the years ended December 31, 2023 and 2022, as reflected in the audited Consolidated Financial Statements are summarized as follows:

2023 compared with 2022

Net cash provided by operating activities for the year ended December 31, 2023, was $440 million. Compared to the prior year, net cash provided by operating activities increased $288 million primarily due to decreases in cash flows related to accounts receivable, inventory, and other current assets of $277 million, an increase in cash flows related to accounts payable and accrued liabilities of $48 million and an increase in other, net of $76 million primarily due to an increase in long-term liabilities. Those amounts were partially offset by a decrease in net income of $73 million.

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

Net cash used for financing activities was $64 million during the year ended December 31, 2023, a decrease of $234 million compared to 2022, primarily due to the $200 million of proceeds from the A&R Credit Agreement to support the First Alert, Inc. acquisition in 2022, partially offset by $41 million of common stock repurchases under our share repurchase program during 2023.

Contractual Obligations and Probable Liability Payments

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

Reimbursement Agreement Payments

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of December 31, 2023, a liability of $652 million was deemed probable and reasonably estimable; however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31, of the third consecutive year during which the annual reimbursement obligation (including in respect of

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deferred payment amounts) has been less than $25 million. During the year ended December 31, 2023, we paid Honeywell $140 million under this agreement. For further discussion on the Reimbursement Agreement refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Environmental Liability

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

Operating Leases

We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2023, we had operating lease payment obligations of $205 million, with $39 million payable within 12 months.

Purchase Obligations

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

Capital Expenditures

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

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We review our critical accounting policies throughout the year. We consider the accounting policies discussed below to be critical to the understanding of our Consolidated Financial Statements. Actual results could differ from our estimates and assumptions. Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Goodwill

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

Warranties and Guarantees

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

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provisions to reflect actual experience and other facts and circumstances that impact the status of existing claims. Refer to Note 15. Commitments and Contingencies for additional information.

Revenue

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

Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale date and the return date, while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components. Refer to Note 5. Revenue Recognition to Consolidated Financial Statements.

Reimbursement Agreement

In connection with the Spin-Off, we entered into the Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments, 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 to specified Honeywell properties contaminated through historical business operations prior to the Spin-Off (Honeywell Sites), including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable in respect of such liabilities arising in any given year is subject to a cap of $140 million. Reimbursement Agreement expenses are presented within other expense, net in the Consolidated Statements of Operations and within other accrued liabilities payable under Indemnification Agreements in the Consolidated Balance Sheets. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Income Taxes

Significant judgment is required in evaluating tax positions. We established additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, we, along with our subsidiaries, are examined by various federal, state and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a change in estimate become known. Refer to Note 17. Income Taxes to Consolidated Financial Statements.

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Other Matters

Litigation, Environmental Matters and the Reimbursement Agreement

Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Cautionary Statement Concerning Forward-Looking Statements

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

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

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

•our reliance on certain suppliers;

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

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

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

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

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

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

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

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

•the failure to increase productivity through sustainable operational improvements;

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

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

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

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

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

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

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

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

•our ability to recruit and retain qualified personnel;

•currency exchange rate fluctuations; and

•certain factors discussed elsewhere in this Form 10-K.

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

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

(In millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of our operations and financial condition for the three years ended December 31, 2022, and should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-K.

Overview and Business Trends

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

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

Our ADI Global Distribution business is the leading wholesale distributor of low-voltage security products including access control, fire detection, security, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. Our ADI Global Distribution strategy is focused on growth in our omni-channel presence, expand into adjacent markets, and continue to enhance our value-add services to support our professional installers’ efficiency and profitability.

Our financial performance is influenced by macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates, the COVID-19 pandemic, and the overall macroeconomic environment. Our visibility toward future performance is more limited than is typical due to the uncertainty surrounding the ultimate impact of COVID-19 and its variants and uncertainty surrounding the prevailing macroeconomic environment. For example, recent business conditions have been impacted by supply chain disruptions and global shortages in key materials and components, which have impacted our ability to supply certain products. We have also experienced various inflationary impacts, such as inventory destocking, increased labor rates, materials price inflation, and increased freight and other costs, and unfavorable foreign currency impacts from a stronger U.S. dollar. In response to these challenges, we have, among other measures, raised prices, aggressively managed supplier relationships to mitigate some of these shortages, developed contingency plans for future supply, aligned our production schedules with demand in a proactive manner, and pursued further improvements in the productivity and effectiveness of our manufacturing, selling, and administrative activities.

In February 2022, Russian military forces launched a military action in Ukraine. The length, impact and outcome is highly unpredictable, and this conflict could lead to significant market and other disruptions. To date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations. We continue to actively monitor the situation and assess its impact on our business.

Current Period Highlights

•Net revenue of $6,370 million in 2022, up 9.0% from $5,846 million in 2021

•Gross profit margin of 27.7%, compared to 27.1% in the prior year comparable period

•Income from operations of $611 million, or 9.6% of revenue, compared to $559 million, or 9.6% of revenue in 2021, including restructuring and impairment expenses of $35 million in the fourth quarter 2022

•Fully diluted earnings per share of $1.90, compared to $1.63 per share in the same period last year

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Recent Developments

On January 23, 2023, we acquired 100% of the outstanding equity of BTX Technologies, Inc., a leading distributor of professional audio, video, data communications and broadcast equipment. This acquisition will allow Resideo to further expand our Pro AV and private brand offerings across North America.

On December 23, 2022, we acquired 100% of the outstanding equity of Teknique Limited, a niche producer of edge-based, artificial intelligence-enabled video camera development and solutions.

In the fourth quarter of 2022, we executed multiple restructuring programs to lower costs, increase margins and position us for growth resulting in restructuring and impairment expenses of $35 million. We expect to fully execute our restructuring initiatives and programs over the next 12-24 months.

On July 5, 2022, we acquired 100% of the outstanding equity of Electronic Custom Distributors Inc., a regional distributor of residential audio, video, automation, security, wire and telecommunication products.

On March 31, 2022, we acquired 100% of the issued and outstanding capital stock of First Alert, a leading provider of home safety products. First Alert expands and leverages our footprint in the home with complementary smoke and carbon monoxide detection home safety products and fire suppression products.

On March 28, 2022, the Amended & Restated Credit Agreement with JP Morgan Chase Bank N.A. was further amended to increase the principal amount of the seven-year senior secured term B loan facility by $200 million.

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

Basis of Presentation and Reclassifications

Refer to Note 1. Nature of Operations and Basis of Presentation to Consolidated Financial Statements.

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Results of Operations

This section of the Form 10-K discusses fiscal 2022 and fiscal 2021 items and year-over-year comparisons of these periods. Discussions of fiscal 2020 items and year-over-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in the Company’s 2021 Annual Report on Form 10-K filed February 15, 2022.

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

Net Revenue

Net revenue for the year ended December 31, 2022 was $6,370 million, an increase of $524 million, or 9.0%, from the prior year, driven primarily by $427 million from acquisitions and higher selling prices of $368 million across both segments. Partially offsetting these increases were lower sales volume of $110 million and unfavorable foreign currency fluctuations of approximately $161 million.

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Gross Profit

The chart below presents the drivers of the gross profit variance from the year ended December 31, 2021 to December 31, 2022.

Gross profit dollars increased 11.5% in 2022 and gross margin improved 60 basis points to 27.7% compared to 27.1% in the prior year. Price increases and favorable sales mix resulted in a positive gross margin impact of 200 bps. This impact was offset by a 80 bps impact from higher costs as a result of the current inflationary environment and 60 bps from lower volume leverage primarily in the Products and Solutions segment.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2022, were $111 million, an increase of $25 million, or 29%, from $86 million for the year ended December 31, 2021. The increase was driven by additional year-over-year costs associated with the First Alert acquisition of $8 million, investments to support new product launches of $7 million, reallocation of engineering resources to new product development of $6 million, labor inflation of $2 million, and investment in software engineering to adopt new, upgrade or replace systems.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2022, were $974 million, an increase of $65 million, or 7.2%, from the prior year, primarily driven by additional year-over-year costs associated with the First Alert acquisition of $62 million, investment in marketing and sales of $21 million, labor inflation of $15 million, higher third-party spend of $5 million and transaction costs associated with acquisitions of approximately $11 million. These increases were partially offset by foreign currency impacts of $24 million, an indemnification accrual release of $8 million, lower impairment expenses resulting from the relocation of our Austin, Texas corporate headquarters in 2021 of $9 million and a decrease in the 2021 securities class action litigation settlement, net of insurance recoveries of $16 million.

Restructuring and Impairment Expenses

In the fourth quarter of 2022, we executed multiple restructuring programs to lower costs, increase margins and position us for growth resulting in restructuring and impairment expenses of $35 million. We expect to fully execute our restructuring initiatives and programs over the next 12 to 24 months.

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Intangible Asset Amortization

Intangible asset amortization increased $5 million for the year ended December 31, 2022, as compared to the same period in 2021 due to the additional amortization expense associated with acquired other intangible assets. For further information refer to Note 9. Goodwill and Intangible Assets, net to Consolidated Financial Statements.

Other Expenses, Net

Other expenses, net consists primarily of Reimbursement Agreement expenses. For further information refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements. Other expenses, net also includes foreign exchange gains and losses and other non-operating related expenses or income.

Interest Expense, Net

Interest expense, net increased $10 million for the year ended December 31, 2022 as compared to the same period in 2021 due to higher interest rates in 2022 compared to 2021 and additional borrowings of $200 million associated with our A&R Credit Agreement.

Tax Expense

Income tax expense of $135 million for the year ended December 31, 2022, includes $6 million of discrete tax benefit. Excluding discrete tax benefit of $6 million, the overall effective tax rate was 33.7% versus 31.3% for the year ended December 31, 2021.

Income tax expense increased for the year ended December 31, 2022, primarily due to an increase in pre-tax earnings. The increase in the overall effective tax rate was primarily driven by non-deductible indemnification costs and other non-deductible expenses.

Segment Results of Operations

Products and Solutions

The chart below presents net revenue and income from operations for the years ended December 31, 2022 and 2021.

Products and Solutions revenue increased $315 million, or 13%, mainly due to First Alert acquisition revenue of $341 million and price increases of $216 million, partially offset by lower volume of $146 million and unfavorable foreign exchange fluctuations of $95 million. Income from operations decreased $14 million, or 3%, from 2021 due to lower volume of $56 million, net of acquisitions, restructuring expenses of $29 million, and unfavorable foreign exchange fluctuations of $11 million. These decreases were partially offset by price, net of inflationary cost increases of $101 million.

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ADI Global Distribution

The chart below presents net revenue and income from operations for the years ended December 31, 2022 and 2021.

ADI Global Distribution net revenue increased $209 million, or 6.2%, driven by price increases of $153 million, the impact of acquisitions of $86 million, and higher volume of $36 million, partially offset by unfavorable foreign exchange fluctuations of $66 million. Income from operations increased $45 million, or 16.8%, due to positive sales mix and price, net of inflation of $51 million, impact of acquisitions of $6 million, offset by $12 million of primarily higher sales and marketing costs.

Corporate

Corporate costs the year ended December 31, 2022, were $229 million, a decrease of $21 million, or 8%, from $250 million in the same period of 2021. The decrease was due primarily to the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, lower impairment expenses resulting from the relocation of our Austin, Texas corporate headquarters in 2021 of $9 million, indemnification accrual releases of $8 million and other cost reductions. These positive impacts were partially offset by transaction costs associated with acquisitions of approximately $11 million.

Capital Resources and Liquidity

As of December 31, 2022, total cash and cash equivalents were $326 million, of which 54% were held by foreign subsidiaries. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed. Additional liquidity may also be provided through access to the financial capital markets and our $500 million Revolving Credit Facility.

Liquidity

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

We may from time to time take steps to reduce our debt or otherwise improve our financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt, raising additional capital or divesting certain non-core assets. The amount of prepayments or the amount of debt that may be refinanced, repurchased or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of the debt, and we would continue to reflect the debt as outstanding on our Consolidated Balance Sheets.

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Credit Agreement

On February 12, 2021, we entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (“the A&R Credit Agreement”). This agreement effectively replaced our previous senior secured credit facilities. On March 28, 2022, we entered into a First Amendment, which amends the A&R Credit Agreement to include an additional aggregate principal amount of $200 million in loans.

Senior Notes due 2029

On August 26, 2021, we issued $300 million in principal amount of 4% senior unsecured notes due in 2029 (“the Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by our existing and future domestic subsidiaries, rank equally with all of our senior unsecured debt, and are senior to all of our subordinated debt.

As of December 31, 2022, we had $1,431 million of long-term debt outstanding under our A&R Credit Agreement and Senior Notes due 2029, of which $12 million is due in the next 12 months. Refer to Note 11. Long-Term Debt to Consolidated Financial Statements.

Cash Flow Summary for the Years Ended December 31, 2022 and 2021

Our cash flows from operating, investing and financing activities for the years ended December 31, 2022 and 2021, as reflected in the audited Consolidated Financial Statements are summarized as follows:

2022 compared with 2021

Net cash provided by operating activities for the year ended December 31, 2022, was $152 million as a result of our earnings during the year. Compared to the prior year, net cash provided by operating activities was $163 million lower due to investments in working capital to support customer demand.

Net cash used for investing activities was $764 million during 2022, an increase of $699 million compared to prior year, as a result of acquisitions in the Products and Solutions and ADI Global Distribution segments to support growth opportunities.

Cash provided by financing activities was $170 million during 2022, an increase of $150 million compared to 2021. The increase was primarily due to $200 million of proceeds from the March 2022 Amended A&R Credit Agreement, offset by principal debt payments of $12 million and a year-over-year decrease of $35 million in payments of debt facility issuance and modification costs.

Contractual Obligations and Probable Liability Payments

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

Reimbursement Agreement Payments

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of December 31, 2022, a liability of $614 million was deemed probable and reasonably estimable, however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31, of the third consecutive year during which the annual reimbursement obligation (including in respect of

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deferred payment amounts) has been less than $25 million. During the year ended December 31, 2022, we paid Honeywell $140 million under this agreement. For further discussion on the Reimbursement Agreement refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Environmental Liability Payments

We make environmental liability payments for sites which we own and are directly responsible for. As of December 31, 2022, $22 million was deemed probable and reasonably estimable.

Operating Leases

We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2022, we had operating lease payment obligations of $203 million, with $37 million payable within 12 months.

Purchase Obligations

We enter into purchase obligations with various vendors in the normal course of business. As of December 31, 2022, we had purchase obligations of $115 million, with $51 million payable within 12 months.

Capital Expenditures

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We review our critical accounting policies throughout the year. We consider the accounting policies discussed below to be critical to the understanding of our consolidated financial statements. Actual results could differ from our estimates and assumptions. As there remains uncertainty around the impacts of the COVID-19 pandemic, we intend to address and evaluate the impacts frequently. Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Inventories

We state inventories at lower of cost or net realizable value. Inventories are valued using the first-in-first-out method. Inventory reserves are maintained for obsolete and surplus items.

Goodwill

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

Warranties and Guarantees

Expected warranty costs for products sold are recognized based on an estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors such as past experience, length of the warranty and

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various other considerations. Costs of product recalls, which may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to remove and replace the recalled part, are accrued as part of the warranty accrual at the time an obligation becomes probable and can be reasonably estimated. We periodically adjust these provisions to reflect actual experience and other facts and circumstances that impact the status of existing claims. Refer to Note15. Commitments and Contingencies for additional information.

Revenue

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

Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale date and the return date, while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components. Refer to Note 5. Revenue Recognition to Consolidated Financial Statements.

Reimbursement Agreement

In connection with the Spin-Off we entered into a Reimbursement Agreement, pursuant to which it has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments, which include amounts billed, with respect to certain environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case, including consequential damages (the liabilities) in respect to specified Honeywell properties contaminated through historical business operations prior to the Spin-Off (Honeywell Sites), including the legal and other costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable in respect of such liabilities arising in any given year is subject to a cap of $140 million. Reimbursement Agreement expenses are presented within other expense, net in the Consolidated Statements of Operations and within other accrued liabilities payable under Indemnification Agreements in the Consolidated Balance Sheets. Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Income Taxes

Significant judgment is required in evaluating tax positions. We established additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, we, along with our subsidiaries, are examined by various federal, state and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a change in estimate become known. Refer to Note 17. Income Taxes to Consolidated Financial Statements.

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Other Matters

Litigation, Environmental Matters and the Reimbursement Agreement

Refer to Note 15. Commitments and Contingencies to Consolidated Financial Statements.

Recent Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies to Consolidated Financial Statements.

Cautionary Statement Concerning Forward-Looking Statements

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

•industry and end market cyclicality;

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

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

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

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

•potentially volatile global market and economic conditions;

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

•inability to compete in the market for potential acquisitions;

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

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

•dependence upon IT infrastructure having adequate cyber-security functionality;

•economic, political, regulatory, foreign exchange and other risks of international operations, including the potential adverse effects of a global economic slowdown or recession, geo-political instability and recent world event that have increased the risks posed by international trade disputes, tariffs and sanctions;

•our failure to execute on key business transformation programs and activities;

•the failure to increase productivity through sustainable operational improvements;

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

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

•our ability to recruit and retain qualified personnel;

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

•changes in legislation or government regulations or policies;

•the significant failure or inability to comply with the specifications and manufacturing requirements of our OEMs customers;

•the operational constraints and financial distress of third parties;

•our ability to borrow funds and access capital markets;

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

•our reliance on Honeywell for the Honeywell Home trademark;

•potential material environmental liabilities;

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

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

•potential material litigation matters;

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

•currency exchange rate fluctuations; and

•certain factors discussed elsewhere in this Form 10-K.

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

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

(In millions, except per share amounts)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries (“Resideo” or “the Company”, “we”, “us” or “our”) for the three years ended December 31, 2021 and should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-K.

Overview and Business Trends

We are a leading global manufacturer and distributor of technology driven products and solutions that help homeowners and businesses stay connected and in control of their comfort, security and energy use. We are a leader in the home heating, ventilation and air conditioning controls and security markets. We have a global footprint serving commercial and residential end-markets. We manage our business operations through two operating segments, Products & Solutions and ADI Global Distribution. Our Products & Solutions segment offerings include temperature and humidity control, thermal and combustion solutions, water and air 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 low-voltage security products including intrusion, access control and video products and participates significantly in the broader related markets of smart home, fire, power, audio, ProAV, networking, communications, wire and cable, and data communications. The Products & Solutions segment, consistent with our industry, has a higher gross and operating profit margin profile in comparison to the ADI Global Distribution segment.

Our financial performance is influenced by several macro factors such as repair and remodeling activity, residential and non-residential construction, employment rates, and overall macro environment. The global outbreak of a novel coronavirus disease (“COVID-19”) in 2020 created economic disruption, and we experienced constrained supply and slowed customer demand, as well as temporary closures of several of our ADI Global Distribution branches, that adversely impacted business, results of operations, and overall financial performance. Although there remains uncertainty as to the continuing implications of COVID-19, customer demand improved throughout 2021 and ongoing cost actions and transformation efforts contributed to the Company’s operations and overall financial performance. However, we are experiencing global shortages in key materials and components in certain instances impacting our ability to supply certain products as well as labor shortages, materials price inflation, and increased freight costs.

During 2021, the Products & Solutions segment revenue increased 16% compared to 2020, driven by strong growth across all business segments as well as sales price increases. Operating profit increased 33% compared to 2020 and was positively impacted by higher revenue, a decrease in restructuring related expenses, favorable changes in sales mix, lower charges related to obsolete and surplus inventory, transformation program cost savings, and other cost reduction efforts totaling $324 million. These impacts were partially offset by increased material costs, increased freight costs, increased labor incentives expense, investments to support research and development, as well as labor inflation totaling $190 million.

Our ADI Global Distribution business revenue increased 15% compared to 2020. Throughout 2021, the business continued its strong performance, achieving solid growth in the U.S. and Canada, including the impact from the 2020 Herman ProAV acquisition and 2021 acquisitions of Norfolk Wire & Electronics and Shoreview Distribution; as well as in EMEA, and through the expansion of key product lines. ADI Global Distribution accelerated the adoption of digital tools, which is reflected in strong e-commerce growth. Operating profit grew 38% compared to 2020, driven by sales volume, favorable sales mix, pricing, and productivity totaling $108 million, partially offset by commercial investments, and other cost inflation of $34 million.

Current Period Highlights

Net revenue increased $775 million, or 15% in 2021 compared to 2020, primarily due to volume and sales price increases. Gross profit increased 19% compared to 2020. Gross profit as a percent of net revenue increased to 27% in 2021 compared to 26% in 2020. The primary items driving the increase in gross profit percentage were an approximately 200 basis point (“bps”) benefit from sales price increases and sales mix and an approximately 100 bps

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benefit resulting from higher revenue volume. These benefits were partially offset by an approximately 100 bps impact from increased freight costs and an approximately 100 bps impact from increased material costs.

Research and development expense for 2021 was $86 million, an increase of $9 million, or 12% from $77 million for 2020. The increase was driven by investments to support new product launches, labor inflation and other items totaling $17 million. These increases were partially offset by transformation program cost savings, lower restructuring related expenses, and other cost reductions totaling $8 million.

Selling, general and administrative expenses for the year ended December 31, 2021 was $916 million, a decrease of $9 million or 1% from $925 million for the year ended December 31, 2020. The decrease was driven by lower Spin-Off and restructuring related expenses, transformation program cost savings, and other cost reductions totaling $140 million. These decreases were partially offset by commercial investments, the pending securities class action litigation settlement net of insurance recoveries, increased labor incentives expense, foreign currency translation, impairment charges resulting from the relocation of our Austin, Texas corporate headquarters location to a lower cost site, increased stock-based compensation expense, and labor inflation and other items totaling $131 million.

Net income for 2021 was $242 million compared to $37 million for 2020, an increase of 554% year over year.

We ended 2021 with $779 million in cash and cash equivalents. Net cash provided by operating activities was $315 million for the year. At December 31, 2021, accounts receivable were $876 million, inventories were $740 million, accounts payable were $883 million, and there were no borrowings under our revolving credit facility.

Recent Developments

Amended and Restated Credit Facilities and Senior Notes

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

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

On August 26, 2021, we redeemed the remaining $260 million in principal amount of the Senior Notes due 2026 at a redemption price of 105.594% of par plus accrued interest and we issued $300 million in principal amount 4% senior unsecured notes due in 2029.

As a result of the Senior Notes redemption and the execution of the A&R Credit Agreement, debt extinguishment costs of $41 million were incurred in the year ended December 31, 2021 and recorded in Other expense, net.

COVID-19 Pandemic

The World Health Organization (“WHO”) declared COVID-19 a pandemic in March 2020. The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain, as viruses constantly change through mutation, with new variants of the COVID virus occurring and expected to continue over time. As new information emerges it may have an impact on potential restrictions globally in areas including travel, freight, shipping and commercial operations. As there remains uncertainty around the impacts of the COVID-19 pandemic, we address and evaluate the impacts frequently. See “Item 1A. Risk Factors” of this Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

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U.S. and international government responses to the COVID-19 outbreak have included “shelter in place,” “stay at home” and similar types of orders. In the United States, Canada and certain other countries globally, these orders exempted certain products and services needed to maintain continuity of operations of critical infrastructure sectors as determined by the federal government. If additional lockdown orders are put in place or if any of the applicable exemptions are curtailed or revoked in the future, that could adversely impact our business, operating results, and financial condition. Furthermore, to the extent these exemptions do not extend to our key suppliers and customers, this could also adversely impact our business, operating results, and financial condition. Finally, we are incurring increased costs associated with other employee safety measures.

Our visibility toward future performance is more limited than is typical due to the uncertainty surrounding the duration and ultimate impact of COVID-19 and its variants, and the mitigation measures that are implemented by governmental authorities. We also expect business conditions to remain challenging, with global shortages in key materials and components, in certain instances impacting our ability to supply certain products, as well as labor shortages, materials price inflation, and increased freight costs. In response to these challenges, we will continue to focus on those factors that we can control: closely managing and controlling our expenses; aligning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs; and pursuing further improvements in the productivity and effectiveness of our manufacturing, selling and administrative activities.

Basis of Presentation

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

Reclassification

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

Certain reclassifications have been made to prior period financial statements to conform to the classification adopted in the current period.

Components of Operating Results

Net Revenue

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

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

ADI Global Distribution: We generate revenue through the distribution of low-voltage electronic and security products, as well as smart home, fire, power, audio and ProAV, networking, communications, wire and cable, and data communications that are delivered through a comprehensive network of professional contractors, distributors and OEMs, as well as major retailers and online merchants. In addition to our own security products, ADI Global Distribution distributes products from industry-leading manufacturers and carries a line of private label products. We sell these products to contractors that service non-residential and residential end-users. 14% of ADI Global Distribution’s net revenue is supplied by our Products & Solutions Segment. Management estimates that in 2021 approximately two-thirds of ADI Global Distribution’s net revenue was attributed to non-residential end markets and one-third to residential end markets.

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Cost of Goods Sold

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

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

Research and Development Expense

Research and development expense includes expenses related to development of new products as well as enhancements and improvements to existing products that substantially change the product. These expenses are primarily related to employee compensation and consulting fees.

Selling, General and Administrative Expense

Selling, general and administrative expense includes trademark royalty expenses, sales incentives and commissions, professional fees, legal fees, promotional and advertising expenses, personnel-related expenses, including stock compensation expense and pension benefits.

Other Expense, Net

Other expense, net consists primarily of Reimbursement Agreement expenses. For further information see Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements for discussion of the Reimbursement Agreement. Other expense, net also includes debt extinguishment costs incurred as a result of the redemption of our Senior Notes due 2026 and the execution of the A&R Credit Agreement as well as foreign exchange gains and losses and other non-operating related expenses or income.

Interest Expense

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

Tax Expense

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

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Results of Operations

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

Consolidated Statements of Operations

(In millions except share and per share data)

A detailed discussion of the prior year 2020 to 2019 year-over-year changes are not included herein and can be found in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in the 2020 Annual Report on Form 10-K filed February 25, 2021.

The following discussions of year-over-year changes represent 2021 compared to 2020.

Net Revenue

Net revenue for the year ended December 31, 2021 was $5,846 million, an increase of $775 million, or 15% from the year ended December 31, 2020, which was negatively impacted by the emergence of COVID-19. The increase is mainly due to volume and sales price increases.

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

Cost of Goods Sold

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Cost of goods sold for the year ended December 31, 2021 was $4,285 million, an increase of $527 million, or 14%, from $3,758 million for the year ended December 31, 2020. This increase in cost of goods sold was driven by higher revenue volumes, increased material costs, increased freight costs, foreign currency translation, and labor inflation totaling $650 million. These increased costs were partially offset by favorable changes in sales mix, lower charges related to obsolete and surplus inventory, decreased restructuring related costs, transformation programs cost savings, and other cost savings totaling $123 million.

Gross profit percentage was 27% for the year ended December 31, 2021, compared to 26% for the year ended December 31, 2020. The primary items driving the increase in gross profit percentage were an approximately 200 bps benefit from sales price increases and sales mix and an approximately 100 bps benefit resulting from higher revenue volume. These benefits were partially offset by an approximately 100 bps unfavorable impact from increased freight costs and an approximately 100 bps unfavorable impact from increased material costs.

Research and Development Expense

Research and development expense for the year ended December 31, 2021 was $86 million, an increase of $9 million, or 12%, from $77 million for the year ended December 31, 2020. The increase was driven by investments to support new product launches, labor inflation and other items totaling $17 million. These increases were partially offset by transformation program cost savings, lower restructuring related expenses, and other costs reductions totaling $8 million.

Selling, General and Administrative Expense

Selling, general and administrative expense for the year ended December 31, 2021 was $916 million, a decrease of $9 million, or 1%, from $925 million for the year ended December 31, 2020. The decrease was driven by lower Spin-Off and restructuring related expenses, transformation program cost savings, and other cost reductions totaling $140 million. These decreases were partially offset by commercial investments, the pending securities class action litigation settlement net of insurance recoveries, increased labor incentives expense, foreign currency translation, impairment charges resulting from the relocation of our Austin, Texas corporate headquarters location to a lower cost site, increased stock-based compensation expense, and labor inflation and other items totaling $131 million.

Other Expense, Net

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Other expense, net for the year ended December 31, 2021 was $158 million, an increase of $11 million, or 7%, from $147 million for the year ended December 31, 2020. Other expense, net increased $41 million from debt extinguishment costs incurred as a result of the redemption of our Senior Notes due 2026 and the execution of the A&R Credit Agreement and $2 million in other non-operating expense, partially offset by an $11 million decrease in non-operating pension related expense, a $9 million reduction in the accruals related to the Tax Matters Agreement, an $8 million gain in sales of businesses, and $4 million of favorable foreign exchange impact.

Tax Expense

Our effective income tax rate is impacted by the mix of earnings across jurisdictions in which we operate, by U.S. taxation of foreign earnings, and by non-deductible expenses. Indemnification costs paid under the Reimbursement Agreement are generally non-deductible expenses for U.S. federal income tax purposes.

Income tax expense of $111 million in 2021 includes $1 million of discrete tax expense. Excluding discrete tax expense of $1 million, the overall effective tax rate was 30%.

Income tax expense increased in fiscal 2021 primarily due to an increase in pre-tax earnings. The decrease in the overall effective tax rate for 2021 is primarily driven by the effect higher earnings, compared with the prior year, have on the tax rate impact of non-deductible indemnification costs.

Review of Business Segments

Products & Solutions

Products & Solutions revenue increased 16% mainly due to increased volume driven by strong growth across all business lines as well as sales price increases. Operating profit increased from $407 million to $541 million or 33%. Operating profit increased 33% and was positively impacted by higher revenue, a decrease in restructuring related expenses, favorable changes in sales mix, lower charges related to obsolete and surplus inventory, transformation program cost savings, and other cost reduction efforts totaling $324 million. These impacts were partially offset by increased material costs, increased freight costs, increased labor incentives expense, investments to support research and development, as well as labor inflation totaling $190 million.

ADI Global Distribution

ADI Global Distribution revenue increased 15%, highlighted by strong growth in the U.S. and Canada, as well as EMEA. Operating profit increased 38% and was favorably impacted by favorable changes in sales mix, higher revenue, and other expense productivity totaling $108 million. These positive impacts were partially offset by commercial investments, increased freight costs, and increased labor incentives expense, as well as labor inflation totaling $34 million.

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Corporate

Corporate costs for 2021 were $250 million, a decrease of $40 million, or 14%, from $290 million in 2020.The decrease was driven by lower Spin-Off and restructuring related expenses, transformation programs cost savings, and other cost reductions totaling $95 million. These decreases were partially offset by the pending securities class action litigation settlement net of insurance recoveries, increased consulting expense, impairment charges resulting from the relocation of our Austin, Texas corporate headquarters location to a lower cost site, increased labor incentives expense, increased stock-based compensation expense, foreign currency translation, and labor inflation totaling $55 million.

Capital Resources and Liquidity

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

•
As of December 31, 2021, total cash and cash equivalents were $779 million, of which 25% were held by foreign subsidiaries. At December 31, 2021, there were no borrowings and no letters of credit issued under our $500 million Revolving Credit Facility.

•
Historically, we have delivered positive cash flows from operations. Operating cash flows from continuing operations were $315 million, $244 million and $23 million for the three years ended December 31, 2021, 2020 and 2019, respectively.

Liquidity

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

On February 6, 2022, we entered into an Equity Purchase Agreement to acquire First Alert, Inc. a leading provider of home safety products, for $593 million. The acquisition is subject to customary closing conditions, including regulatory approvals, and is anticipated to be completed in our first quarter of 2022. We intend to fund this acquisition with a combination of cash on hand, and incremental borrowings under our term loan facility. For additional information see Note 23. Subsequent Events of Notes to Consolidated Financial Statements.

Credit Agreement

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

See Note 18. Long-Term Debt of Notes to Consolidated Financial Statements for further discussion.

Senior Notes due 2029

On August 26, 2021, we issued $300 million in principal amount 4% senior unsecured notes due in 2029 (the “Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by Resideo’s existing and future domestic subsidiaries and rank equally with all of Resideo’s senior unsecured debt and senior to all of Resideo’s subordinated debt.

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See Note 18. Long-Term Debt of Notes to Consolidated Financial Statements for further discussion.

Reimbursement Agreement

In connection with the Spin-Off, we entered into the Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for certain Honeywell environmental-liability payments, which include amounts billed, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million. During 2020 and 2021, we entered into amendments with Honeywell. See Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements of this Form 10-K for a further discussion of the Reimbursement Agreement and amendments. The amount paid during the year ended December 31, 2021 was $140 million.

See Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements for further discussion.

Cash Flow Summary for the Years Ended December 31, 2021, 2020 and 2019

Our cash flows from operating, investing and financing activities for the years ended December 31, 2021, 2020 and 2019, as reflected in the audited Consolidated Financial Statements are summarized as follows:

2021 compared with 2020

Cash provided by operating activities for 2021 increased by $71 million, due to higher earnings, offset by an increase in working capital balances as accounts receivable balances were higher due to strong revenue growth, inventories were higher due to higher costs and volumes required to support higher revenues, and lower accounts payable attributable to managing vendor supply chain issues and the timing of certain vendor payments.

Cash used for investing activities for 2021 decreased by $38 million, primarily due to a 2021 decrease of $24 million cash paid for acquisitions compared to 2020, a $7 million decrease in capital expenditures, and a $7 million decrease in other investing activities.

Cash provided by financing activities for 2021 decreased by $233 million. The decrease was primarily due to $279 million of net proceeds from the issuance of common stock received in 2020, partially offset by $31 million of net proceeds resulting from the A&R Credit Agreement and redemption of the Senior Notes due 2026, $14 million of decreased debt repayments, and $1 million of other financing activities.

Contractual Obligations and Probable Liability Payments

Our material cash requirements include the following contractual obligations.

Long-term debt and interest payments

As of December 31, 2021, remaining maturities on our notes and term loan were $1,230 million, with $10 million payable within 12 months. See Note 18. Long-term Debt and Credit Agreement to Notes to Consolidated

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Financial Statements for more information about our debt and the timing of expected future principal and interest payments.

Reimbursement Agreement Payments

In connection with the Spin-Off, we entered into the Reimbursement Agreement with Honeywell. As of December 31, 2021, $597 million was deemed probable and reasonably estimable, however, it is possible we could pay $140 million per year (exclusive of any late payment fees up to 5% per annum) until the earlier of: (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual reimbursement obligation (including in respect of deferred payment amounts) has been less than $25 million. For further discussion on the Reimbursement Agreement refer to Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements.

Environmental Liability Payments

We make environmental liability payments for sites which we own and are directly responsible for. As of December 31, 2021, $22 million was deemed probable and reasonably estimable.

Operating Leases

We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2021, we had operating lease payment obligations of $179 million, with $39 million payable within 12 months.

Purchase obligations

We enter into purchase obligations with various vendors in the normal course of business. As of December 31, 2021, we had purchase obligations of $103 million, with $34 million payable within 12 months.

Capital Expenditures

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed below to be critical to the understanding of our Consolidated Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences could be material to our Consolidated Financial Statements. As there remains uncertainty around the impacts of the COVID-19 pandemic, we intend to address and evaluate the impacts frequently. See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements of this Form 10-K for a discussion of the accounting policies.

Revenue — Product and service revenues are recognized when we transfer control of the promised products or services to the customer, in an amount we expect to receive in exchange for transferring goods or providing services. Each distinct performance obligation within a contract is identified, and a contract’s transaction price is then allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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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, rebates, and the right of return. We estimate variable consideration at the most likely amount that will be received from customers and reduces revenues recognized accordingly. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Reimbursement Agreement — In connection with the Spin-Off, we entered into the Reimbursement Agreement further described in the Capital Resources and Liquidity section.

Through the Reimbursement Agreement, we are subject to a number of environmental claims, remediation and potential, hazardous exposure or toxic tort claims. We continually assess the likelihood of any adverse judgments or outcomes related to the Reimbursement Agreement, as well as potential amounts or ranges of probable losses, and recognize a liability, if any, for these contingencies based on a thorough analysis of each matter with the assistance of outside legal counsel and Honeywell, and, if applicable, other experts. Such analysis includes making judgments concerning matters such as the costs associated with environmental matters, the outcome of negotiations, the number and cost of pending and future claims related to the sites covered by the Reimbursement Agreement, and the impact of evidentiary requirements. Because most contingencies are resolved over long periods of time, we do not currently possess sufficient information to reasonably estimate the amounts of the Reimbursement Agreement liabilities to be recorded upon future completion of studies, litigations or settlements, and neither the timing nor the amount of the ultimate costs associated with environmental matters can be determined. Expenses related to the indemnification are presented within Other expense, net in the Consolidated Statements of Operations. See Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements for a discussion of management’s judgment applied in the recognition and measurement of our environmental liabilities.

Goodwill — We perform goodwill impairment testing annually on the first day of the fourth quarter of each year or more frequently if indicators of potential impairment exist. The goodwill impairment test is performed at the reporting unit level. We have two reporting units, Products & Solutions and ADI Global Distribution. In determining if goodwill is impaired, we compare the fair value of a reporting unit with its’ carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value provided the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit. As of December 31, 2021, the Products & Solutions and ADI Global Distribution reporting units had estimated fair values in excess of carrying value of at least 90% and 20%, respectively, and we concluded that our goodwill was not impaired as of the 2021 annual impairment test.

For the 2021 annual impairment test, we determined the fair value of each reporting unit using a weighting of fair values derived from the income approach and the market approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of operating results, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and management’s expectations. Under the market approach, we estimate the fair value based on market multiples of cash flow and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium. The weight assigned to the multiples requires judgement in qualitatively and quantitatively evaluating the size, profitability, and the nature of the business activities of the reporting units as compared to the comparable publicly traded companies. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

We believe the estimates and assumptions used in the calculations are reasonable. In addition, the extent to which COVID-19 may adversely impact our business depends on future developments, which are uncertain and unpredictable, depending upon the severity and duration of the outbreak, and the effectiveness of actions taken globally to contain or mitigate its effects. Any resulting financial impact cannot be reasonably estimated at this time

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but may adversely affect our business and financial results. It is possible that into 2022, macroeconomic conditions may have unexpected impacts on our business. If there was an adverse change in facts and circumstances, then an impairment charge may be necessary in the future. Should the fair value of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its reporting units to determine if there is an indicator of potential impairment.

Income Taxes — We utilize the asset and liability approach in accounting for income taxes. We recognize income taxes in each of the jurisdictions in which we have a presence. For each jurisdiction, we estimate the actual amount of income taxes currently payable or receivable, as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which they are expected to be realized. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets.

At December 31, 2021, we recorded net deferred tax assets of $57 million. The assets included $49 million for the value of net operating loss and credit carryforwards. A valuation allowance of $63 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce deferred tax assets.

In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions. We believe we made adequate provisions for income taxes for all years that are subject to audit based upon the latest information available. The Company maintains a reserve for uncertain tax benefits that are currently unresolved and routinely monitors the potential impact of such situations. The liability for unrecognized tax benefits, accrued interest and penalties was $16 million as of December 31, 2021.

Pension — We have defined benefit plans covering certain employees. The benefits are accrued over the employees’ service periods. We use actuarial methods and assumptions in the valuation of defined benefit obligations and the determination of net periodic pension income or expense. Differences between actual and expected results or changes in the value of defined benefit obligations and plan assets, if any, are not recognized in earnings as they occur but rather systematically over subsequent periods when net actuarial gains or losses are in excess of 10% of the greater of the fair value of plan assets or the plan’s projected benefit obligation.

A 25 basis point increase in the discount rate would result in a decrease of approximately $3 million to the net periodic benefit cost for 2021, while a 25 basis point decrease in the discount rate would result in an increase of approximately $3 million. The resulting impact on the pension benefit obligation would be a decrease of $20 million and an increase of $22 million, respectively.

Other Matters

Litigation, Environmental Matters and the Reimbursement Agreement

See Note 17. Commitments and Contingencies of Notes to Consolidated Financial Statements for a discussion of environmental and other litigation matters.

Recent Accounting Pronouncements

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

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Cautionary Statement Concerning Forward-Looking Statements

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

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

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

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

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

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

•
inability to compete in the market for potential acquisitions;

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

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

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

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

•
changes in prevailing global and regional economic conditions;

•
our failure to execute on key business transformation programs and activities;

•
the failure to increase productivity through sustainable operational improvements;

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

•
our ability to recruit and retain qualified personnel;

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

•
changes in legislation or government regulations or policies;

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

•
the operational constraints and financial distress of third parties;

•
our ability to borrow funds and access capital markets;

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

•
our reliance on Honeywell for the Honeywell Home trademark;

•
potential material environmental liabilities;

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

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

•
potential material litigation matters; including the Securities Litigation described in this Form 10-K;

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

•
certain factors discussed elsewhere in this Form 10-K.

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

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