2019 ANNUAL REPORT
AND NOTICE OF
2020 ANNUAL MEETING
OF SHAREHOLDERS AND
PROXY STATEMENT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission File Number 001-38635
Resideo Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
82-5318796
(I.R.S. Employer Identification No.)
901 E 6th Street
Austin, Texas
(Address of principal executive offices)
78702
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (512) 726-3500
Title of each class:
Common Stock, par value $0.001 per share
Trading Symbol:
REZI
Name of each exchange on which registered:
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☒ N ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer
☐
Accelerated filer
☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price
of the shares of common stock on the New York Stock Exchange as of June 28, 2019, was $2.7 billion.
The number of shares outstanding of the Registrant’s common stock, par value $0.001 per share as of February 21, 2020 was 122,936,579
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with the registrant’s 2020 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by
reference into Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120
days following the end of the registrant’s fiscal year ended December 31, 2019.
TABLE OF CONTENTS
Item
Page
Part I.
1.
Business .......................................................................................................................
Part II.
1A.
1B.
2.
3.
4.
5.
6.
7.
Risk Factors ................................................................................................................
Unresolved Staff Comments ......................................................................................
Properties ....................................................................................................................
Legal Proceedings.......................................................................................................
Mine Safety Disclosures .............................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.......................................................................
Selected Financial Data..............................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of
Operations...................................................................................................................
7A. Quantitative and Qualitative Disclosures About Market Risk ..............................
8.
9.
9A.
9B.
Financial Statements and Supplementary Data ......................................................
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ....................................................................................................................
Controls and Procedures ...........................................................................................
Other Information......................................................................................................
Part III. 10.
Directors, Executive Officers and Corporate Governance.....................................
11.
12.
13.
14.
Executive Compensation............................................................................................
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.....................................................................................
Certain Relationships and Related Transactions, and Director Independence ...
Principal Accounting Fees and Services...................................................................
Part IV. 15.
Exhibits, Financial Statement Schedules .................................................................
16.
Form 10-K Summary .................................................................................................
Signatures....................................................................................................................
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9
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39
40
41
42
44
59
59
107
107
108
109
109
109
109
109
110
113
114
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RESIDEO TECHNOLOGIES, INC.
PART I.
Item 1.
Business
In this Annual Report on Form 10-K, unless the context otherwise dictates, references to “Resideo”, “the
Company”, “we,” “us” or “our” means Resideo Technologies, Inc. and its consolidated subsidiaries.
This Annual Report includes industry and market data that we obtained from various third-party industry
and market data sources. While we believe the projections of the industry sources referenced in this Annual Report
are reasonable, forecasts based upon such data involve inherent uncertainties, and actual results are subject to
change based upon various factors beyond our control. All such industry data is available publicly or for purchase
and was not commissioned specifically for us. While we are not aware of any misstatements regarding any market,
industry or similar data presented herein, forecasts based upon such data involve inherent uncertainties, and actual
results regarding the subject matter of such forecasts are subject to change based upon various factors, including
those beyond our control and those discussed under the headings “Risk Factors” and “Cautionary Statement
Concerning Forward-Looking Statements” in this Annual Report.
Separation from Honeywell
The Company was incorporated in Delaware on April 24, 2018. We separated from Honeywell
International Inc. (“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result
of a pro rata distribution of our common stock to shareholders of Honeywell (the “Spin-Off”). The Spin-Off is
further described in Note 1. Organization, Operations and Basis of Presentation of Notes to the Consolidated and
Combined Financial Statements included in Item 8 of this Form 10-K.
Description of Business
Resideo is a leading global provider of critical comfort, residential thermal solutions and security solutions
primarily in residential environments. We manage our business operations through two segments, Products &
Solutions and ADI Global Distribution, which contributed 43.6% and 56.4%, respectively, of our net revenue for the
year ended December 31, 2019. In addition, Products & Solutions sold $312 million to ADI Global Distribution for
the year ended December 31, 2019. The Products & Solutions segment offerings consist of solutions in Comfort,
Residential Thermal Solutions (“RTS”) and Security categories and include temperature and humidity control,
thermal, 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 security and low-voltage
electronic and security products which include intrusion and smart home, fire, video surveillance, access control,
power, audio and video, Pro AV, networking, communications, wire and cable, enterprise connectivity and
structured wiring.
Our critical comfort, residential thermal and security solutions have a presence in over 150 million homes
globally. Our products benefit from the trusted, well-established Honeywell Home brand. Over 15 million systems
are installed in homes annually, allowing us to launch innovative technologies and services at scale. Included in our
Products & Solutions segment are 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.
Approximately 6.7 million of our customers are connected via our software solutions, providing access to control,
monitoring and alerts, and we have approximately 35 million installed sensors generating more than 400 billion data
transmissions annually. Our broad portfolio of innovative products is delivered through a comprehensive network of
over 110,000 professional contractors, more than 3,000 distributors and over 1,200 original equipment
manufacturers (“OEMs”), as well as major retailers and online merchants.
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RESIDEO TECHNOLOGIES, INC.
Our ADI Global Distribution business is the leading wholesale distributor of low-voltage security products
and is independently recognized for superior customer service. Through over 200 stocking locations in 17 countries,
ADI Global Distribution distributes more than 350,000 products from over 1,000 manufacturers to a customer base
of over 100,000 contractors. We believe this global footprint gives us distinct scale and network advantages in our
core products over our competitors. Further, we believe our customers derive great value from the advice and
recommendations of our knowledgeable design specialists, allowing our customers to better meet the technical and
systems integration expertise requirements to install and service professional security systems. We continue to be a
leader in the industry with value-added services including presales system design, 24/7 order pick-up, and the
selective introduction of new product categories such as professional audio-visual. Additionally, ADI Global
Distribution has long been an important channel to market for our security products, providing a level of end-
customer intimacy that drives our ability to develop successful new products at an accelerated rate and insights into
current market trends that help us quickly adapt our product portfolio to meet evolving customer needs. Similarly,
ADI Global Distribution is an important channel to market for third-party manufacturers, whose products represent a
significant majority of ADI Global Distribution’s net revenue.
Addressable Markets and Competition
Products & Solutions
The addressable market for Comfort and RTS solutions is analyzed by IHS Markit (Information Handling
Services, “IHS”), Navigant Consulting, Building Services Research and Information Association (“BSRIA”), and
BRG Enterprise Solutions. Based on our analysis of these sources, we believe that the addressable market is
approximately $8 billion for Comfort and approximately $3 billion for RTS in annual sales for 2020 in the markets
and geographies that we compete in. The addressable market for Security solutions is analyzed by IHS and based on
our analysis of this source, we believe that the addressable market is approximately $6 billion in annual sales for
2020 in the markets and geographies that we compete in, which includes security monitoring services and remote
video services.
Some examples of the product categories that we compete in include: Comfort – thermostats, humidity
controls, air filters, thermostatic radiator valves, backflow preventers, etc.; RTS – gas valves, ignition controls, air
pressure switches, etc.; and Security – security panels, cellular communicators, motion sensors, smoke & carbon
monoxide sensors, etc.
Our industries and markets are highly competitive. In our Products & Solutions segment we compete with
global, national, regional and local providers for our products, services and solutions, including established
manufacturers, distributors and service providers, as well as new entrants, in particular in connected home and smart
products.
Our Security, Comfort and RTS solutions are generally installed professionally, and our channel partners
rely on our high-quality OEM parts for repair and remodel services to meet their customers’ needs. We believe our
relationship and investment into the professional channel is one of the key differentiating factors to allow us to
compete more effectively over our competitors. We also have long-standing relationships with important OEMs.
ADI Global Distribution
Based on IHS, we estimate that the global addressable market for the distribution of security and low-
voltage products (which include intrusion and smart home, fire, video surveillance, access control, power, audio and
video, Pro AV, networking, communications, wire and cable, enterprise connectivity and structured wiring) is
approximately $22 billion in annual sales for 2020 in the markets and geographies in which we participate.
Examples of select product categories we distribute via ADI Global Distribution include video surveillance,
intrusion systems, access control, fire and life safety systems, professional audio-visual systems, and networking
products, etc.
In our ADI Global Distribution segment, we compete against manufacturer direct sales, other distributors
and other sellers, including retail and e-commerce.
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RESIDEO TECHNOLOGIES, INC.
The most significant competitive factors we face are product and service innovation, our reputation and the
reputation of our brands, sales and marketing programs, product performance, quality of product training and events,
product availability, speed and accuracy of delivery, service and price, technical support, credit availability and
product reliability and warranty. In addition to current competitive factors, there may be new market entrants with
non-traditional business and customer service models or disruptive technologies and products, resulting in increased
competition and changing industry dynamics.
Materials and Suppliers
Purchased materials in our manufacture of products include copper, steel, aluminum, plastics, printed
circuit boards, semiconductors and passive electronics. Purchased materials cover a wide range of supplier value-
add, from raw materials and single components to subassemblies and complete finished goods, and there are
considerable expenditures on both commercial off-the-shelf and make-to-print items. Although execution of material
substitutions or supplier changes may be resource intensive, alternatives usually exist in the event that a supplier
becomes unable to provide material. Unforeseen shortages and supply disruptions occur from time to time but are
typically manageable such that adverse impact to customers can be avoided. Raw material price fluctuations, the
ability of key suppliers to meet quality and delivery requirements, and catastrophic events can increase the cost of
our products and services, and impact our ability to meet commitments to customers.
Inventory
Our inventory levels vary by distribution channel. We typically maintain approximately three to six weeks
of inventory for retail distribution and two to four weeks of inventory for professional installers, distributors and
OEMs. In addition, ADI Global Distribution operates over 200 stocking locations globally and is contractually
obligated to maintain four weeks of inventory for certain customers.
Customers
The end-users for our products are residential and commercial consumers throughout the world. We reach
these end-users through sales to professional installers and OEMs, and through retail distribution including e-
commerce. The global end-user customer base for the Products & Solutions segment includes over 150 million
homes globally and greater than 15 million systems installed in homes annually. Our products and solutions are
carried by major distributors in our relevant industries across North America and Western Europe, including our
ADI Global Distribution business. We also have relationships with over 1,200 OEMs.
In the distribution segment, ADI Global Distribution has a customer base of over 100,000 contractors and
covers a variety of product categories comprising over 350,000 products from over 1,000 leading manufacturers.
Regulatory and Environmental Compliance
We are subject to various federal, state, local and foreign government requirements relating to the
protection of the environment. We believe that, as a general matter, our policies, practices and procedures are
properly designed to prevent unreasonable risk of environmental damage and personal injury and that our handling,
manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and
regulations. However, mainly because of past operations and operations of predecessor companies, we, like other
companies engaged in similar businesses, have incurred and will continue to incur and manage remedial response
and voluntary cleanup costs for site contamination. Lawsuits, claims and costs involving environmental matters may
arise in the future.
As of December 31, 2019, we have recorded a liability for environmental investigation and remediation of
approximately $22 million related to sites owned and operated by Resideo (“Resideo Sites”). We do not currently
possess sufficient information to reasonably estimate the amounts of environmental liabilities to be recorded upon
future completion of studies, litigation or settlements, and we cannot determine either the timing or the amount of
the ultimate costs associated with environmental matters, which could be material to our consolidated and combined
results of operations and operating cash flows in the periods recognized or paid. However, considering our past
experience and existing reserves, we do not expect that environmental matters will have a material adverse effect on
our consolidated and combined financial position.
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RESIDEO TECHNOLOGIES, INC.
Furthermore, we are required to indemnify Honeywell in amounts equal to 90% of payments, which
include amounts billed, with respect to certain environmental claims, remediation and, to the extent arising after the
Spin-Off, hazardous exposure or toxic tort claims, in each case including consequential damages in respect of
specified Honeywell properties contaminated through historical business operations prior to the Spin-Off
(“Honeywell Sites”), including the legal and other costs of defending and resolving such liabilities, less 90% of
Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by
Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties
relating to such liabilities and (iii) certain property sales. As of December 31, 2019, we have recorded a liability of
approximately $585 million in relation to our reimbursement obligation to Honeywell under the Honeywell
Reimbursement Agreement. See Note 19. Commitments and Contingencies of Notes to Consolidated and Combined
Financial Statements for a description of the material terms thereof.
Employees
As of December 31, 2019, we employ approximately 13,000 employees. Of this total, approximately 10.1%
of our employees were covered by collective bargaining agreements and represented worldwide by numerous unions
and works councils. We believe that our relations with our employees and labor unions have generally been good.
Seasonality
Our business experiences a moderate level of seasonality. Sales activity is generally highest during the
early winter months, with the highest sales at the end of the fourth quarter and into the first quarter in the majority of
our geographical markets.
Backlog
In general, we do not manufacture our products against a backlog of orders and do not consider backlog to
be a significant indicator of the level of future sales activity. Therefore, we believe that backlog information is not
material to understanding our overall business and should not be considered a reliable indicator of our ability to
achieve any particular level of revenue or financial return.
Research and Development and Intellectual Property
We have software centers of excellence in Austin, Texas and Bengaluru and Madurai, India. In addition,
our laboratories are certified to meet various industry standards, such as through UL, enabling us to test products
internally. We also have a user experience design group that consists of researchers and product and user experience
designers across three primary studios in Austin, Texas; Golden Valley, Minnesota; and Bengaluru, India. As of
December 31, 2019, we employed over 1,100 engineers.
Our deep domain expertise, proprietary technology and brands are protected by a combination of patents,
trademarks, copyrights, trade secrets, non-disclosure agreements and contractual provisions. We own approximately
3,000 worldwide active patents and pending patent applications to protect our research and development investments
in new products and services. We have and will continue to protect our products and technology by asserting our
intellectual property rights against third-party infringers. See Note 19. Commitments and Contingencies of Notes to
Consolidated and Combined Financial Statements for more information.
Segments
We manage our business operations through two segments, Products & Solutions and ADI Global
Distribution. The Products & Solutions segment offerings include our Comfort, RTS, and Security products, which,
consistent with our industry, has a higher gross and operating margin profile in comparison to the ADI Global
Distribution segment.
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RESIDEO TECHNOLOGIES, INC.
Products & Solutions
We estimate that our net revenue generated from our Products & Solutions segment is primarily from
residential end-markets. Included in our Products & Solutions segment are 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. Products & Solutions consist of solutions in the following Comfort, RTS and
Security categories:
(cid:129) Comfort: Our Comfort solutions have historically been marketed and sold primarily under the Honeywell
brand, and following the Spin-Off, these products and solutions are now marketed and sold under the
Honeywell Home brand. These solutions include home products, services and technologies including:
○ Temperature and Humidity Control Solutions: Products to control air conditioners and heating
equipment, thermostats and zoning devices, control panels, dampers and actuators.
○ Water Solutions: Products to control hydronic heating, cooling, and potable water solutions, including
control panels, zone valves, balancing valves, thermostatic radiator valves, temperature valves, floor
temperature sensors and accessories, pressure regulators, backflow preventers and potable water care
products to filter, clean and soften water.
○ Air Solutions: Products to control air quality, such as whole home humidifiers and dehumidifiers, air
filters, air purification and odor control solutions and ventilation systems and controls.
○ Software Solutions: Global software platforms and mobile applications that provide contractors and
consumers with access to services such as demand response, energy management, auto-replenishment
services and predictive appliance diagnostics.
(cid:129) RTS: Our RTS solutions have historically been marketed and sold under the Honeywell Home brand as
part of our portfolio. These solutions include:
○ Boiler Products: Solutions that provide safe and efficient combustion for standard and high efficiency
Boiler Systems. Key technology in gas adaptivity, gas pre-mix, and diagnostics used in critical
components such as gas valves, electronic and ignition controls.
○ Gas Storage Water Heating Solutions: Solutions that provide safe and efficient combustion for Water
Heating Systems. Key technology in gas pressure regulation, set-point control, and temperature
accuracy used in critical components such as gas valves, electronic and ignition controls.
○ Ducted Solutions: Solutions that provide safe and efficient combustion for Warm Air Furnaces. Key
technology in ignition, gas pressure regulation, fan control, and system monitoring used in critical
components such as air pressure switches, gas valves and ignition controls.
○ Thermal Adjacency Solutions: Solutions that provide safe and efficient combustion for other gas
burning appliances. Key technology in gas ignition and gas pressure regulation used in critical
components such as air pressure switches, gas valves, electronic and ignition controls for use in
Agricultural heaters, Commercial Cooking gas appliances, Pool heaters, Unit and Duct heaters. In
addition, agricultural heaters, equipped with our gas valve, electronic and ignition control.
Security: Our Security solutions are sold under the Honeywell Home and various OEM brands. They
include professionally-installed and monitored intrusion and life safety detection and alarm systems, as
well as self-installed and self-monitored awareness solutions including:
○ Security Panels: Product solutions that communicate with sensors that receive event or condition
signals and send those signals to a monitoring station and cloud infrastructure.
○ Sensors: Product solutions that detect intrusion (for example, motion, opening of doors and windows
and breaking of glass), smoke, carbon monoxide and water and transmit a signal to a security panel.
○ Peripherals: Accessory solutions that interact with security systems, such as keypads and key-fobs.
○ Wire and Cable: Low voltage electrical wiring and category cable.
○ Software Solutions: Global software platforms and mobile applications that provide contractors and
consumers with access to services such as alarm monitoring, communication, automation and video
services. In addition, we provide our contractors with data analytics tools, through our AlarmNet 360
software suite.
○ Communications: Solutions that transmit notifications and security information from security systems
to monitoring stations, such as cellular radios and internet and telephone line communicators.
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RESIDEO TECHNOLOGIES, INC.
○ Video Cameras: Battery-operated indoor and outdoor video motion viewers that detect motion and
enable live “look-in” remotely, and Wi-Fi cameras for indoor and outdoor use.
○ Awareness: Self-installed and self-monitored systems that include a home gateway/hub, cameras and
awareness sensors to detect motion and sounds, opening and closing of doors, entry and exit of known
users of the system (facial recognition) and provide alerts to the user via a mobile app.
○ Cloud Infrastructure: Network operating center that routes signals between home and monitoring
station and enables secured, remote data transmissions.
○ Installation and Maintenance: Software tools and applications to enable security contractors to install,
program and maintain security systems.
ADI Global Distribution
ADI Global Distribution is the leading wholesale distributor of security and low-voltage electronics
products, which include security, safety and audio-visual products and related accessories. These products, which
are commonly referred to as “low-voltage”, are traditionally defined as products operating at or below 24 volts.
According to IHS data, ADI Global Distribution has the leading global market share in security equipment
distribution. ADI Global Distribution operates through a distribution network of over 200 stocking locations
throughout the world, delivering to over 100,000 contractors.
Through ADI Global Distribution, we distribute a broad selection of our products as well as third-party
products to meet customer needs, including:
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Security products
○ Video Surveillance: Internet protocol and high-definition analog cameras, recording and storage
devices, video management and analytics software, and related system accessories.
○ Intrusion: Residential and commercial alarm systems, keypads, detection and sensing devices, alarm
communication equipment, and related systems accessories.
○ Access Control: Access control panels and software, readers, credentials, locking hardware, gate
control, intercoms and related system accessories.
(cid:129) Other products
○ Fire and Life Safety: Fire alarm control panels, fire detection equipment, fire notification equipment,
manual call points/stations and related system accessories.
○ Wire, networking and professional audio-visual systems.
In addition to our own Security products, which make up 13% of total ADI Global Distribution product line
revenue, ADI Global Distribution distributes products from industry-leading manufacturers and also carries a line of
private label products. We sell these products to contractors that service non-residential and residential end-users.
Management estimates that in 2019 approximately two-thirds of ADI Global Distribution net revenue were
attributed to non-residential end markets and one-third to residential end markets.
Other Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to those reports are available free of charge on our website (www.resideo.com) under the heading
Investors (see SEC Filings) immediately after they are filed with, or furnished to, the SEC. All of the reports that we
file or furnish with the SEC are also available on the SEC’s website at www.sec.gov. In addition, in this Form 10-K,
we incorporate by reference certain information from parts of our Proxy Statement for the 2020 Annual Meeting of
Stockholders and which will also be available free of charge on our website. Information contained on, or connected
to, our website does not and will not constitute part of this Form 10-K.
We are a Delaware corporation incorporated on April 24, 2018. Our principal executive offices are located
at 901 E. 6th Street, Austin, Texas 78702. Our telephone number is (512) 726-3500. Our website address is
www.resideo.com.
We disclose public information to investors, the media and others interested in our Company through a
variety of means, including our investor relations website (https://investor.resideo.com), press releases, SEC filings,
blogs, public conference calls and presentations, webcasts and social media, in order to achieve broad, non-
exclusionary distribution of information to the public. We use these channels to communicate with our stockholders
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RESIDEO TECHNOLOGIES, INC.
and the public about our Company, our products, solutions and other issues. It is possible that the information we
post on social media could be deemed to be material information. We encourage investors, the media and others
interested in our Company to review the information we post on our website and the social media channels listed
below. The list of social media channels we use may be updated from time to time on our investor relations website.
The Company’s News Page (https://www.resideo.com/news)
The Company’s Facebook Page (www.facebook.com/resideo)
The Company’s Twitter Feed (https://twitter.com/resideo)
The Company’s LinkedIn Feed (https://www.linkedin.com/company/resideo1/)
References to our website and other social media channels are made as inactive textual references and
information contained on them is not incorporated by reference into this Annual Report.
Item 1A. Risk Factors
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-K contains “forward-looking statements” that involve risks and uncertainties. These
statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are
based on current expectations, estimates, assumptions and projections about our industries and our business and
financial results. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,”
“projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and words and terms of
similar substance in connection with discussions of future operating or financial performance. As with any
projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in
circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking
statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on
our behalf. Although we believe that the forward-looking statements contained in this 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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limited operating history as an independent, publicly traded company and unreliability of historical pre-
Spin-Off combined financial information as an indicator of our future results;
the level of competition from other companies in our markets and segments, as well as in new markets and
emerging markets;
ability to successfully develop new technologies and introduce new products;
inability to attract and retain new leadership personnel, including the CEO and CFO and to manage
successfully through leadership transitions;
inability to recruit and retain qualified personnel;
changes in prevailing global and regional economic conditions;
natural disasters or inclement or hazardous weather conditions, including, but not limited to cold weather,
flooding, tornadoes and the physical impacts of climate change;
fluctuation in financial results due to seasonal nature of portions of our business;
failure to achieve and maintain a high level of product and service quality;
dependence upon investment in information technology;
failure or inability to comply with relevant data privacy legislation or regulations, including the European
Union’s General Data Protection Regulation and the California Consumer Privacy Act ;
technical difficulties or failures;
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(cid:129) work stoppages, other disruptions, or the need to relocate any of our facilities;
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economic, political, regulatory, foreign exchange and other risks of international operations, including the
impact of tariffs and the recently negotiated USMCA, which, when legislatively approved by each of the
U.S., Mexico and Canada, will serve to replace NAFTA;
changes in legislation or government regulations or policies;
our growth strategy is dependent on expanding our distribution business;
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RESIDEO TECHNOLOGIES, INC.
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inability to obtain necessary product components, production equipment or replacement parts;
the significant failure or inability to comply with the specifications and manufacturing requirements of our
OEM customers;
inability to implement and execute on actions to achieve the expected results from our operational and
financial review disclosed in connection with our 2019 third-quarter results;
the possibility that our goodwill or other intangible assets become impaired;
increases or decreases to the inventory levels maintained by our customers;
difficulty collecting receivables;
the failure to protect our intellectual property or allegations that we have infringed the intellectual property
of others;
our inability to maintain intellectual property agreements;
our inability to service our indebtedness;
the failure to increase productivity through sustainable operational improvements;
inability to grow successfully through future acquisitions;
the operational constraints and financial distress of third parties;
changes in the price and availability of raw materials that we use to produce our products;
labor disputes;
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 Honeywell 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 fully comply with data privacy laws and regulations;
potential material losses and costs as a result of warranty claims, including product recalls, and product
liability actions that may be brought against us;
potential business and other disruption due to cyber security threats or concerns;
potential material litigation matters, including the shareholder litigation described in this Form 10-K;
unforeseen U.S. federal income tax and foreign tax liabilities;
(cid:129)
(cid:129)
(cid:129)
(cid:129) U.S. federal income tax reform;
(cid:129)
(cid:129)
the inception or suspension in the future of any dividend program; and
certain factors discussed elsewhere in this Form 10-K.
These and other factors are more fully discussed in the “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” sections and elsewhere in this Form 10-K. These risks
could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-K.
Even if our results of operations, financial condition and liquidity and the development of the industry in which we
operate are consistent with the forward-looking statements contained in this Form 10-K, 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.
Risk Factors
You should carefully consider all of the information in this Form 10-K and each of the risks described
below, which we believe are the principal risks that we face. Some of the risks relate to our business, others to the
Spin-Off. Some risks relate principally to the securities markets and ownership of our common stock.
Any of the following risks, as well as other risks not currently known to us or that we currently consider
immaterial, could materially and adversely affect our business, financial condition, results of operations and cash
flows and the actual outcome of matters as to which forward-looking statements are made in this Form 10-K.
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RESIDEO TECHNOLOGIES, INC.
The following risk factors are not necessarily presented in order of relative importance and should not be
considered to represent a complete set of all potential risks that could affect us.
Risks Relating to Our Business
We have limited operating history as an independent, publicly traded company, and our historical consolidated
and combined financial information for the periods prior to the Spin-Off is not necessarily representative of the
results we would have achieved as an independent, publicly traded company and may not be a reliable indicator
of our future results.
We derived the historical combined financial information for periods prior to the Spin-Off included in this
Form 10-K from Honeywell’s consolidated financial statements, and this information does not necessarily reflect the
results of operations and financial position we would have achieved as an independent, publicly traded company
during the periods presented, or those that we will achieve in the future.
We operate in highly competitive markets.
We operate in highly competitive markets and compete directly with global, national, regional and local
providers of our products, services and solutions including manufacturers, distributors, service providers, retailers
and online commerce providers. The most significant competitive factors we face are product and service innovation,
reputation of our Company and brands, sales and marketing programs, product performance, quality of product
training and events, product availability, speed and accuracy of delivery, service and price, technical support,
furnishing of customer credit and product reliability and warranty, with the relative importance of these factors
varying among our segments and products. In addition to current competitive factors, there may be new market
entrants with non-traditional business and customer service models or disruptive technologies and products,
resulting in increased competition and changing business dynamics. See “Risks Relating to Our Business—The
market for connected home solutions is fragmented, highly competitive, continually evolving and subject to
disruptive technologies.” Existing or future competitors may seek to gain or retain market share by reducing prices,
and we may be required to lower prices or may lose business, which could adversely affect our business, financial
condition, results of operations and cash flows. Also, to the extent that we do not meet changing customer
preferences or demands or other market changes, or if one or more of our competitors introduces new products,
becomes more successful with private label products, online offerings or establishes exclusive supply relationships,
our ability to attract and retain customers could be adversely affected. For example, in the third quarter of 2019, and
continuing through the fourth quarter, we experienced lower sales of our non-connected thermostats due in part to a
pre-Spin-Off cutover from the prior generation of non-connected thermostats to the T-Series line which resulted in
loss of sales of certain thermostats to competition.
We also have long-standing relationships with customers whose business models may be subject to the
risks articulated above. For example, changes in the security system market, such as a shift away from subscription
monitoring services, could adversely impact certain of our large customers or cause them to change their business
models in ways that adversely impact our business and cash flows. As new market entrants emerge there can be no
guarantee that we will be successful in developing customer relationships with them, or that such relationships will
be as mutually beneficial as our current relationships. Furthermore, if new technologies or business models become
ascendant in our customers’ markets our relationships and service commitments with incumbent businesses may
become a disadvantage.
To remain competitive, we will need to invest continually in product development, marketing, customer
service and support, manufacturing and our distribution networks. We may not have sufficient resources to continue
to make such investments and we may be unable to maintain our competitive position. In addition, we anticipate that
we may have to reduce the prices of some of our products or solutions to stay competitive, potentially resulting in a
reduction in the profit margin for, and inventory valuation of, these products. It is possible that competitive
pressures resulting from consolidation, including customers taking manufacturing or distribution in house, moving
to a competitor and consolidation among our customers, could affect our growth and profit margins. In addition,
competitors in certain high-growth regions may have lower costs than we do due to lower local labor costs and
favorable government regulation. Countries in high growth regions may have differing codes and standards
impacting the cost of doing business and may have fewer protections for, or offer less ability to utilize, existing
intellectual property. We may not be able to compete effectively with new competitors from such regions. Existing
or future competitors also may seek to compete with us for acquisitions, which could have the effect of increasing
the price for, and reducing the number of, suitable acquisitions.
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RESIDEO TECHNOLOGIES, INC.
Our competitors may have more substantial resources than we do.
Our current and potential competitors may have greater resources, access to capital, including greater
research and development or sales and marketing funds, more customers, and more advanced technology platforms,
particularly with our products and services in connected services and in new geographic regions. Many of our
competitors may be able to develop offerings that have alternate income streams such as data and advertising
revenue which we may not have, and therefore may be able to offer their service products for a lower price or for
free and offset any business losses with profits from the rest of their broad product portfolios. Some of our
competitors may also be able to deliver their service solutions more quickly to market than we can by capitalizing on
technology developed in connection with their substantial existing service models. In addition, some of our
competitors have significant bases of customer adoption in other services and in online content, which they could
use as a competitive advantage in the growing connected home solutions services market or otherwise in our product
or distribution businesses. New entrants into the wholesale distribution business or products business could include
companies with significant presence in residential environments and could put us at a competitive disadvantage if
they enter the market. Current and future competitive pressures may cause us to reduce our prices or lose market
share, or could negatively affect our cash flow, all of which could have an adverse effect on our business, financial
condition, results of operations and cash flows.
The market for connected home solutions is fragmented, highly competitive, continually evolving and subject to
disruptive technologies.
The market for connected home solutions is fragmented, highly competitive, continually evolving and
subject to disruptive technologies. Cable and telecommunications companies actively focusing on competing in
connected home solutions and expanding into the monitored security space, and the recent expansion by large
technology companies into connected home solutions, could result in pricing pressure, a shift in customer
preferences towards the services of these companies and a reduction in our market share. New market entrants with
non-traditional business and customer service models or disruptive technologies and products could result in
increased competition and changing business dynamics. Continued pricing pressure from these competitors or other
new entrants, failure to successfully partner with these companies or failure to achieve pricing based on competitive
advantages could prevent us from maintaining competitive price points for our products and services, resulting in
loss of customers or in our inability to attract new customers and have an adverse effect on our business, financial
condition, results of operations and cash flows. Based on these or other factors described herein, we may not be able
to grow our connected home solutions business as anticipated.
Competition in the distribution business is significant.
If end customers of our distribution business are not convinced of the reputation of our Company and
brands and of our ability to compete on product performance, quality of product training and events, product
availability, speed and accuracy of delivery, service and price, technical support, credit availability and product
reliability and warranty, we could lose business, which could have an adverse effect on our business, financial
condition, results of operations and cash flows. In addition, most of our products are available from several sources
and our customers tend to have relationships with several distributors. Furthermore, if retail outlets, including online
commerce or big box stores were to increase their participation in wholesale distribution markets, or if buying
patterns for our products become more retail or e-commerce based through these outlets, we may not be able to
effectively compete, which could have an adverse effect on our business, financial condition, results of operations
and cash flows. Consolidation and entry of larger players via acquisition of companies in our industry can increase
competition. Also, other sources of competition are buying groups that consolidate purchasing power, which if
successful could have an adverse effect of our business, financial condition, results of operations and cash flows.
The security industry is undergoing consolidation as many residential and commercially-focused companies
combine to leverage product and vertical market expertise and expand their service footprint. In recent years, this
trend of consolidation has accelerated, and many of our customers have combined with companies with whom we
have little or no prior relationship. In addition, if manufacturers of products sold through our distribution business
increase their direct-to-customer or retail distribution, it could have an adverse effect on our business, financial
condition, results of operations and cash flows.
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RESIDEO TECHNOLOGIES, INC.
Growth of the retail market and e-commerce market could adversely affect our business.
Our solutions are primarily sold through a network of professional contractors, distributors, OEMs, retailers
and online merchants. Growth of the retail market, including the self-installed or do-it-yourself retail markets and e-
commerce markets could affect our business by attracting new competitors, some of whom may be larger and have
more resources than we do. In addition, growth of these retail markets relative to the professional installation
markets may negatively impact our margins, which could negatively affect our cash flow and have an adverse effect
on our business, financial condition and results of operations and cash flows.
Technology in our markets is changing rapidly and our future results and growth are largely dependent upon our
ability to develop new technologies and introduce new products that achieve market acceptance.
Technology in our markets is in a continuing and often rapid state of change as new technologies and
enhancements to existing technologies continue to be introduced both in our traditional and connected product
markets. There is increasing customer demand for connected home solutions and the development of new
technologies as well as increasing emphasis on product efficiency in our traditional products. Our future results
depend upon a number of factors, including our ability to (i) identify emerging technological trends, (ii) develop and
maintain competitive products, in part by adding innovative features that differentiate our products from those of our
competitors and prevent commoditization of our products, (iii) grow our market share, (iv) develop, manufacture
and bring compelling new products to market quickly and cost-effectively, (v) find and effectively partner with and
continue to partner with home connected device platforms and (vi) attract, develop and retain individuals with the
requisite technical expertise and understanding of customers’ needs to develop new technologies and introduce new
products.
We can offer no assurance that we will be able to keep pace with technological developments, nor that we
will achieve commercial success with any new products introduced to market. It is also possible that one or more of
our competitors could develop a significant technical advantage or breakthrough that allows them to provide
additional or superior products or services, or to lower their price for similar products or services, that could put us
at a competitive disadvantage. Our inability to predict the growth of and respond in a timely way to customer
preferences and other developments could have an adverse effect on our business, financial condition, results of
operations and cash flows.
Our customer service model has historically been based largely around individualized product support,
primarily through telephone communications. Although this allows a high degree of personalized and interactive
dialogue, it differs from the highly scalable and rapid electronic response systems utilized by technology companies
that operate in or may enter our markets. As such, we may be disadvantaged in terms of cost and overall customer
satisfaction if we are unable to successfully adapt our support model to changes in customer expectations for our
products.
Our connected solutions platform allows for integration and connection to third-party solutions and for
application designs. This interoperability is designed to reduce the barriers to using our software and panels with
different devices but could also have the effect of encouraging competitors to produce devices that operate on our
platform, which could lower sales of our products. Adoption rates of our connected home solutions will also depend
on a number of factors, including development of competitive and attractive products and the cost to customers of
installation of new solutions or upgrade or renovation from older connected platforms or products. In addition to our
application products, we rely on third-party designers to create applications connecting our products to other
platforms. If developers choose not to develop on our system, the accessibility of our solutions across other systems,
devices and platforms might not expand in line with our competitors.
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RESIDEO TECHNOLOGIES, INC.
In addition, if we are unable to effectively protect our trade secreted or proprietary technology from third
parties or other competitors that may have access to our technology through our open architecture model, our
business and competitive position may be harmed.
We expect that the growth of our business may depend on our development of new technologies in
response to legislation and regulation related to efficiency standards, safety, privacy and security and environmental
concerns. Agreement on legislation and regulation may be slow and implementation of any such reforms may take
many years. As a result, any growth related to solutions that are responsive to such reforms may be delayed.
Our connected solutions and other products and services rely on enabling technology, connectivity, software and
intellectual property that in certain instances we do not own or control.
Our operations depend upon third-party technologies, software and intellectual property. Additionally, our
connected solutions and our security monitoring services may be accessed through the Internet and using
connectivity infrastructures (for example, 4G, LTE, 5G and other wireless technologies) and cloud-based
technologies. We rely on cloud service providers, cellular and other telecommunications and network providers to
communicate signals to and from customers using our connected solution applications in a timely, cost-efficient and
consistent manner.
The failure of one or more of these providers or technologies to transmit and communicate signals in a
timely manner could affect our ability to provide services to our customers or for our connected solution products to
work as designed. There can be no assurance that third-party telecommunications and network providers and signal-
processing centers will continue to transmit and communicate signals to or from our third-party providers and the
monitoring stations without disruption. Any such disruption, particularly one of a prolonged duration, could have an
adverse effect on our business, financial condition, results of operations and cash flows. In addition, failure to renew
contracts with existing providers or licensors of technology, software, intellectual property or connectivity solutions,
or to contract with other providers or licensors on commercially acceptable terms or at all may adversely impact our
business, financial condition, results of operations and cash flows.
We have experienced significant management turnover and need to retain key management personnel.
Our Board is conducting a search for a new Chief Executive Officer and a new Chief Financial Officer. In
December 2019, we announced that the Board was conducting a search for a successor for our Chief Executive
Officer. Our current Chief Executive Officer, Michael Nefkens, has agreed to remain with the company until his
successor is appointed, subject to his right to leave the company sooner on at least 60 days advance notice. In
November 2019, we announced the termination of employment of our former Chief Financial Officer, and the
appointment of an Interim Chief Financial Officer. In January 2020, the Board appointed Sach Sankpal as our new
President of Products & Solutions, at which time Niccolo de Masi who previously served as President of Products &
Solutions and Chief Innovative Officer continued to be our Chief Innovation Officer, but he ceased to be an
executive officer. In some cases, we are required to pay significant amounts of severance in connection with these
management terminations and transitions. Transitions in senior executive leadership can adversely affect
relationships with our clients, suppliers, and employees, make it difficult to attract and retain talent and disrupt
execution of our strategy and our efforts to enhance our operations. In addition, the absence of permanent leaders in
the Chief Executive Officer and Chief Financial Officer roles can pose challenges in planning for the future. In
addition, we must successfully integrate any new management personnel whom we hire within our organization in
order to achieve our operating objectives. Changes in other key management positions may temporarily affect our
financial performance and results of operations as the new management becomes familiar with our business.
Accordingly, our future financial performance will depend to a significant extent on our ability to motivate and
retain key management personnel.
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RESIDEO TECHNOLOGIES, INC.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such
personnel could adversely affect our business, financial condition, results of operations and cash flows.
Due to the complex nature of our business, our future performance is highly dependent upon the continued
services of our employees and management who have significant industry expertise, including our engineering and
design personnel and trained sales force. Our performance is also dependent on the development of additional
personnel and the hiring of new qualified engineering, design, manufacturing, marketing, sales and management
personnel for our operations. Competition for qualified personnel in our markets is intense, and we may not be
successful in attracting or retaining qualified personnel. The loss of key employees, our inability to attract new
qualified employees or adequately train employees, or the delay in hiring key personnel could negatively affect our
business, financial condition, results of operations and cash flows.
Market and economic conditions may adversely affect the economic conditions of our customers, demand for our
products and services and our results of operations.
As a global provider of Comfort, RTS and Security products, services and technologies for the home, as
well as a worldwide wholesale distributor of security and low-voltage electronics products, our business is affected
by the performance of the global new and repair and remodel construction industry. Our markets are sensitive to
changes in the regions in which we operate and are also influenced by cyclical factors such as interest rates, inflation,
availability of financing, consumer spending habits and confidence, employment rates and other macroeconomic
factors over which we have no control, and which could adversely affect our business, financial condition, results of
operations and cash flows. For example, downward changes in the housing market would be expected to depress
sales to professional contractors and result in substantially all of our professional contractor and OEM customers
lowering production schedules, which would have a direct impact on our business, financial condition, results of
operations and cash flows.
Our sales are also affected by fluctuations in demand for Internet-connected devices. If the market for
connected home solutions grows more slowly than anticipated, whether as a result of unfavorable economic
conditions, uncertain geopolitical environments, budgetary constraints of our consumers or other factors, we may
not be able to increase our revenue and earnings.
Portions of our revenue and cash flow are seasonal, which could cause our financial results and liquidity to
fluctuate.
A portion of our revenue is seasonal, which impacts the comparison of our financial condition and results
of operations on a quarter-by-quarter basis. Sales activity is generally highest during the early winter months, with
the highest sales at the end of the fourth quarter and into the first quarter in the majority of our geographical markets.
Global climate change could negatively affect our business.
Responses to climate change may cause a shift away from fossil fuels to alternative power sources. Many
of our thermal solutions are designed for application with oil and gas systems. A shift away from fossil fuels could
affect our OEM customers’ business and result in a loss of business for them and for us. If we fail to adapt our
solutions to alternative power sources, it could have an adverse effect on our business, financial condition, results of
operations and cash flows.
Cooler than normal summers and warmer than normal winters may depress our sales. In addition, stable
temperatures may result in less wear and tear on cooling and heating equipment which may depress Comfort and
RTS sales. Demand for our products and our services, particularly our products and solutions geared toward the
home construction repair and remodel industry, including our Comfort and RTS businesses, is seasonal and strongly
affected by the weather. Cooler than normal summers depress our sales of replacement controls for heating,
ventilation, cooling and water heating equipment in certain larger markets. Similarly, warmer than normal winters
have the same effect on our heating products and services. For example, in the third quarter of 2019, we experienced
lower sales of our RTS products due in part to weather that slowed housing construction earlier in the year and a
relatively mild start to the heating season. Increased public awareness and concern regarding global climate change
have led to our development of social responsibility, sustainability and other business policies, which in some
instances are more restrictive than current laws and regulations. In light of the current regulatory environment, we
also face uncertainty with respect to future climate change initiatives, including regional and/or federal requirements
to reduce greenhouse gas emissions.
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RESIDEO TECHNOLOGIES, INC.
Moreover, climate change itself creates financial risk to our business. Unseasonable weather conditions
may impact the availability and cost of materials needed for manufacturing and increase insurance and other
operating costs and, especially in the case of disruptions at our ADI Global Distribution stores, our ability to make
sales during the pendency of site closures. These factors may influence our decisions to construct new facilities or
maintain existing facilities in areas that are prone to physical climate risks. We could also face indirect financial
risks passed through the supply chain, and process disruptions due to physical climate changes could result in price
modifications for our products and the resources needed to produce them.
We could be adversely affected by any violations of the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K.
Bribery Act, and other foreign anti-bribery laws.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper
payments or offers of payments to foreign government officials and political parties for the purpose of obtaining or
retaining business or otherwise securing an improper business advantage. We do business and may do additional
business in the future in countries and regions in which we may face, directly or indirectly, corrupt demands by
officials. We face the risk of unauthorized payments or offers of payments by one of our employees, contractors or
consultants. Our existing safeguards and any future improvements may prove to be less than effective in preventing
such unauthorized payments, and our employees and consultants may engage in conduct for which we might be held
responsible. Any such violation, even if prohibited by our policies, could subject us and such persons to criminal
and/or substantial civil penalties or other sanctions, which could have a material adverse effect on our business,
financial condition, cash flows, and reputation.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to
earnings.
We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2 of the
Notes to the Consolidated and Combined Financial Statements included in the 2019 Annual Report on Form 10-K.
The estimates and assumptions about future results of operations and cash flows made in connection with the
impairment testing could differ from future actual results of operations and cash flows. If the assumptions used in
our analysis are not realized or if there was an adverse change in facts and circumstances, it is possible that an
impairment charge may need to be recorded in the future. Specifically, the fair value of our Products & Solutions
reporting unit, with goodwill of approximately $2,004 million, exceeded its carrying value by 10% and therefore is
highly sensitive to adverse changes in the facts and circumstances that could result in a possible future impairment.
If the fair value of the Company’s reporting units falls 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. Any such charges may have a material negative impact on our results of operations. There were no
impairment charges taken during the years ended 2019, 2018, and 2017.
Failure to achieve and maintain a high level of product and service quality could damage our image with
customers and negatively impact our results.
Product and service quality issues could result in a negative impact on customer confidence in our
Company and our brand image. If our product and service offerings do not meet applicable safety standards or our
customers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be
exposed to legal, financial and reputational risks. Actual, potential or perceived product safety concerns could
expose us to litigation as well as government enforcement action. In addition, in the event that any of our products
fail to perform as expected, we may face direct exposure to warranty and product liability claims or may be required
to participate in a government or self-imposed recall involving such products which could result in costly product
recalls and other liabilities. As a result, our reputation as a manufacturer and distributor of high-quality products and
services could suffer and impact customer loyalty.
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RESIDEO TECHNOLOGIES, INC.
We maintain strict quality controls and procedures, including the testing of raw materials and safety testing
of selected finished products. However, we cannot be certain that our testing will reveal latent defects in our
products or the materials from which they are made, which may not become apparent until after the products have
been sold into the market. We also cannot be certain that our suppliers will always eliminate latent defects in
products we purchase from them. Accordingly, there is a risk that product defects will occur, which could require a
product recall. Product recalls can be expensive to implement, and, if a product recall occurs during the product’s
warranty period, we may be required to replace the defective product. In addition, a product recall may damage our
relationship with our customers which may result in a loss of market share.
In many jurisdictions, product liability claims are not limited to any specified amount of recovery. If any
such claims or contribution requests exceed our available insurance or if there is a product recall, there could be an
adverse impact on our results of operations. In addition, a recall claim could require us to review our entire product
portfolio to assess whether similar issues are present in other product lines, which could result in significant
disruption to our business and could have a further adverse impact on our business, financial condition, results of
operations and cash flows. We cannot assure you that we will not experience any material warranty or product
liability claim losses in the future or that we will not incur significant costs to defend such claims. There can be no
assurance that we will have adequate reserves to cover any recalls, repair and replacement costs. Our customers that
are not end-users of our products, including our OEM customers, may face similar claims or be obliged to conduct
recalls of their own, which could result in lost business to us, or these customers may seek contribution from us for
defects.
Our business is dependent upon substantial investment in information technology.
The efficient operation of our business requires substantial investment in technology infrastructure systems,
including enterprise resource planning (“ERP”) systems, supply chain management systems, digital commerce
systems and connected solutions platforms. The inability to fund, acquire and implement these systems may impact
our ability to respond effectively to changing customer expectations, manage our business, scale our solutions
effectively or impact our customer service levels, which may put us at a competitive disadvantage and negatively
impact our financial results. Repeated or prolonged interruptions of service, due to problems with our systems or
third- party technologies, whether or not in our control, could have a significant negative impact on our reputation
and our ability to sell products and services.
We are highly dependent upon a variety of internal computer and telecommunication systems to operate
our business. In order to support our continued operational ability and growth, we must maintain and continuously
upgrade our ERP and other information systems, which are critical to our operational, accounting and financial
functions. Failure to properly or adequately invest in and maintain these systems could result in the diversion of
management’s attention and resources and could materially adversely affect our results of operations and impact our
ability to efficiently manage our business. Our existing information systems may become obsolete, requiring us to
transition our systems to a new platform. Such a transition would be time consuming and costly and would require
management resources in excess of those we currently have.
Further, as we are dependent upon our ability to gather and promptly transmit accurate information to key
decision makers, our business, results of operations, financial condition and cash flows may be adversely affected if
our information systems do not allow us to transmit accurate information, even for a short period. Failure to properly
or adequately address these issues could impact our ability to perform necessary business operations, which could
adversely affect our reputation, competitive position, business, results of operations, financial condition and cash
flows.
We must attract and retain qualified people to operate our systems, expand and improve them, integrate
new programs effectively with our existing programs, and convert to new systems efficiently when required. Any
disruption to our business due to such issues, or an increase in our costs to cover these issues that is greater than
what we have anticipated, could have an adverse effect on business, financial condition, results of operations and
cash flows. Our customers rely increasingly on our electronic ordering and information systems as a source for
product information, including availability and pricing. There can be no assurance that our systems will not fail or
experience disruptions, and any significant failure or disruption of these systems could prevent us from making sales,
ordering and delivering products and otherwise conducting our business. Many of our customers use our website to
check real-time product availability, see their customized pricing and place orders, and to access our connected
solution platforms. Any material disruption of our website, our connected solution applications, or the Internet in
general could impair our order processing or prevent our manufacturers and customers from accessing information
and cause us to lose business or damage our reputation.
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RESIDEO TECHNOLOGIES, INC.
Risks associated with data privacy issues, including evolving laws and regulations and associated compliance
efforts, could adversely affect our business, financial condition, results of operations and cash flows.
Our business depends on the processing of data (some of which contains personal data and protected health
information), including the transfer of data between our affiliated entities, to and from our business partners and
customers, and with third-party service providers. The laws and regulations relating to personal data constantly
evolve, as federal, state and foreign governments continue to adopt new measures addressing data privacy and
processing (including collection, storage, transfer, disposal and use) of personal data. Moreover, the interpretation
and application of many existing or recently enacted privacy and data protection laws and regulations in the
European Union, the U.S. and elsewhere are uncertain and fluid, and it is possible that such laws and regulations
may be interpreted or applied in a manner that is inconsistent with our existing data management practices or the
features of our products and services. Any such new laws or regulations, any changes to existing laws and
regulations and any such interpretation or application may affect demand for our products and services, impact our
ability to effectively transfer data across borders in support of our business operations, or increase the cost of
providing our products and services. Additionally, any actual or perceived breach of such laws or regulations may
subject us to claims and may lead to administrative, civil or criminal liability, as well as reputational harm to us or
our employees. We could also be required to fundamentally change our business activities and practices, or modify
our products and services, which could have an adverse effect on our business, financial condition, results of
operations and cash flows.
In the U.S., various laws and regulations apply to the collection, processing, transfer, disposal,
unauthorized disclosure and security of personal data. For example, data protection laws passed by most states
within the U.S. require notification to users when there is a security breach for personal data. Additionally, the
Federal Trade Commission (“FTC”) and many state attorneys general are interpreting federal and state consumer
protection laws as imposing standards for the online collection, use, transfer and security of personal data. In
particular, our privacy policy and other statements we publish provide promises and assurances about privacy and
security that could subject us to potential regulatory action or other liabilities if such statements are found to be
deceptive or misrepresentative of our privacy and data security practices. The U.S. Congress and state legislatures,
along with federal regulatory authorities have recently increased their attention to matters concerning personal data,
and this may result in new legislation which could increase the cost of compliance.
In California, some of our operations are subject to the California Consumer Privacy Act of 2018 (CCPA)
which came into force in 2020. CCPA grants California residents new individual data privacy rights and imposes
new obligations on our business, including enhanced transparency and security obligations. The CCPA envisages
significant fines and allows for class actions to be brought that may have an adverse effect on our business, financial
condition, results of operations and cash flows in the event of a security breach or other contravention of the
CCPA’s obligations. We must dedicate financial resources and management time to ensure ongoing compliance,
particularly as the interpretation and application of the CCPA becomes clearer. As such, there can be no assurance
that the measures we have taken for the purposes of compliance will be successful in preventing breach of the CCPA.
Other U.S. states are in the process of passing similar privacy legislation which may require us to further
change our business practices. Sector-specific laws such as Illinois’ Biometric Information Privacy Act of 2008 and
California’s IoT Security Law of 2018 also affect how we can market and maintain our products and the associated
costs of development and support.
In addition to government regulation, privacy advocacy and industry groups may propose new and different
self-regulatory standards that either legally or contractually apply to us or our customers.
In the European Union, some of our operations are subject to the European Union’s General Data
Protection Regulation (“GDPR”), which took effect May 25, 2018. The GDPR introduced a number of new
obligations for subject companies and we will continue dedicating financial resources and management time to
GDPR compliance in the future. The GDPR also provides that supervisory authorities in the European Union may
impose administrative fines for certain infringements of the GDPR of up to EUR 20,000,000 or 4% of a company’s
total, worldwide, annual turnover of the preceding financial year, whichever is higher. Individuals who have
suffered damage as a result of a subject company’s non-compliance with the GDPR also have the right to seek
compensation from such company. Given the breadth of the GDPR, compliance with its requirements is likely to
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continue to require significant expenditure of resources on an ongoing basis, and there can be no assurance that the
measures we have taken for the purposes of compliance will be successful in preventing breach of the GDPR. Given
the potential fines, liabilities and damage to our reputation in the event of an actual or perceived breach of the GDPR,
such a breach may have an adverse effect on our business, financial condition, results of operations and cash flows.
Outside of the U.S. and the European Union, many jurisdictions (including Russia and China) have adopted
or are adopting new data privacy laws that may impose further onerous compliance requirements, such as data
localization, which prohibits companies from storing outside the jurisdiction data relating to resident individuals.
The proliferation of such laws within the jurisdictions in which we operate may result in conflicting and
contradictory requirements, particularly in relation to evolving technologies. Any failure to successfully navigate the
changing regulatory landscape could result in legal liability or impairment to our reputation in the marketplace,
which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Privacy-related claims or lawsuits initiated by governmental bodies, customers or other third parties,
whether meritorious or not, could be time consuming, result in costly regulatory proceedings, litigation, penalties
and fines, or require us to change our business practices, sometimes in expensive ways, or other potential liabilities.
Unfavorable publicity regarding our privacy practices could injure our reputation, harm our ability to keep existing
customers or attract new customers or otherwise adversely affect our business, assets, revenue, brands and
reputation which may have an adverse effect on our business, financial condition, results of operations and cash
flows.
Cyber or other security incidents, could disrupt our internal systems causing service failures, disrupt our business
operations, result in the loss of critical and confidential information, and adversely impact our reputation, our
business, financial condition, results of operations and cash flows. Our connected products potentially expose
our business to cybersecurity threats.
We create, deploy and maintain information technology (“IT”) and engineering systems, some of which
involve sensitive information, including personal data, trade secrets and other proprietary information. In addition,
our connected products potentially expose our business to cybersecurity threats. As a result, we are subject to
systems, service or product failures, not only resulting from our own failures or the failures of third-party service
providers, natural disasters, power shortages or terrorist attacks, but also from exposure to cyber or other security
threats. Most of the jurisdictions in which we operate have laws and regulations relating to data security and
protection of information. See “Risks Relating to Our Business—Risks associated with data privacy issues,
including evolving laws and regulations and associated compliance efforts, could adversely affect our business,
financial condition, results of operations and cash flows.” In preparation for our exit from the Transition Services
Agreement (“TSA”) with Honeywell, we are taking proactive measures to implement our own independent
cybersecurity capabilities and operational model based upon risk prioritization. Additionally, we have certain
measures to protect our information systems and products against unauthorized access and disclosure of personal
information and of our confidential information and trade secrets and confidential information and trade secrets
belonging to our customers. However, there is no assurance that the security measures we have put in place will be
effective in every case.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain
unauthorized access to IT, payment and other systems to sophisticated and targeted measures known as advanced
persistent threats directed at us, our products, our customers, vendors and/or our third-party service providers,
including cloud providers and Honeywell arising out of its provision of IT services under the TSA, which extends
through April 2020. There has been an increase in the frequency and sophistication of cyber and other security
threats we face, and our customers are increasingly requiring cyber and other security protections and standards in
our products, and we may incur additional costs to comply with such demands. We have experienced, and expect to
continue to experience, these types of threats and incidents.
We sell security and life safety solutions, which are designed to secure the safety of our subscribers and
their residences or commercial properties. If these solutions fail for any reason, including due to defects in our
software, a carrier outage, a failure of our network operating center, a failure on the part of one of our service
provider partners, user error or cybersecurity incident, we could be subject to liability and reputational damage for
such failures and our business could suffer.
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We seek to deploy comprehensive measures to deter, prevent, detect, respond to and mitigate these threats,
including identity and access controls, data protection, vulnerability assessments, product software designs that we
believe are less susceptible to cyber-attacks, security and operational monitoring of our IT networks and systems and
maintenance of backup and protective systems. Despite these efforts, cyber and other security incidents, depending
on their nature and scope, could potentially result in the misappropriation, destruction, corruption, misuse or
unavailability of personal data, company assets, critical data and confidential or proprietary information (our own or
that of third parties), product failure and the disruption of business operations. Moreover, employee error or
malfeasance, faulty password management or other intentional or inadvertent non-compliance with our security
protocols and policies subject us to breaches of our information systems. Our efforts to protect our company data
and the information we receive may also be unsuccessful due to software “bugs,” system errors or other technical
deficiencies, or vulnerabilities of our vendors and service providers. Cyber and other security incidents aimed at the
software embedded in our products could lead to third-party claims that our product failures have caused a similar
range of damages to our customers, and this risk is enhanced by the increasingly connected nature of our products.
The potential consequences of a material cyber or other security incident include financial loss, reputational
damage, negative media coverage, litigation with third parties, including class-action litigation, regulatory
investigations or actions, theft of intellectual property, fines, diminution in the value of our investment in research,
development and engineering, and increased cyber and other security protection and remediation costs due to the
increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness,
business, financial condition, results of operations and cash flows. In addition to any costs resulting from contract
performance or required corrective action, these incidents could generate increased costs or loss of revenue if our
customers choose to postpone or cancel previously scheduled orders or decide not to renew any of our existing
contracts. Breaches in security could also result in a negative impact for our customers and thus affect our relations
with our customers, injure our reputation and harm our ability to keep existing customers and to attract new
customers. Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches
involving certain types of personal data. Such mandatory disclosures could lead to negative publicity and may cause
our current and prospective customers to lose confidence in the effectiveness of our data security measures.
We have cybersecurity insurance (subject to specified retentions or deductibles) related to a breach event
covering expenses for items such as notification, credit monitoring, investigation, crisis management, public
relations and legal advice. We also maintain product liability insurance (subject to specified retentions or
deductibles) that may cover certain physical damage or third-party injuries caused by potential cybersecurity
incidents associated with our products. However, damages, fines and claims arising from such incidents may not be
covered or may exceed the amount of any insurance available or may not be insurable.
We could incur significant costs in protecting our data centers, servers, applications, and cloud
environments against, or remediating, security vulnerabilities or breaches and cyber-attacks. Additionally, the costs
related to cyber or other security incidents may not be fully insured or indemnified by other means. The successful
assertion of a large claim against us with respect to a cyber or other security incident could seriously harm our
business. Even if not successful, these claims could result in significant legal and other costs and may be a
distraction to our management and harm our customer relationships and reputation.
The failure of our network operations centers and data backup systems could put our users at risk.
Many of our solutions operate with a hosted architecture, and we update our solutions regularly while our
solutions are operating. If our solutions and/or upgrades fail to operate properly, our solutions could stop functioning
for a period of time, which could put our users at risk. Our ability to keep our business operating is highly dependent
on the proper and efficient operation of our network operations centers and data backup systems. Although our
network operations centers have back-up computer and power systems, if there is a catastrophic event, adverse
weather conditions, natural disaster, terrorist attack, security breach or other extraordinary event, we may be unable
to provide our subscribers with uninterrupted monitoring service. Furthermore, because data backup systems are
susceptible to malfunctions and interruptions (including those due to equipment damage, power outages, human
error, computer viruses, computer hacking, data corruption and a range of other hardware, software and network
problems), we cannot guarantee that we will not experience data backup failures in the future. A significant or large-
scale security breach, malfunction or interruption of our network operations centers or data backup systems could
adversely affect our ability to keep our operations running efficiently. If a malfunction or security breach results in a
wider or sustained disruption, it could have an adverse effect on our reputation, business, financial condition, results
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of operations or cash flows. See “Risks Relating to Our Business—Internal system or service failures, including as a
result of cyber or other security incidents, could disrupt business operations, result in the loss of critical and
confidential information, and adversely impact our reputation, our business, financial condition, results of operations
and cash flows. Our connected products potentially expose our business to cybersecurity threats.”
Disruptions, or the need to relocate any of our facilities, could significantly disrupt our business.
We manufacture many products at single-location production facilities and rely on certain suppliers who
also may concentrate production in single locations. A disruption, including work stoppage, supply chain failures,
natural disasters, weather-related disruptions, or other disruptions at one or more of our production facilities could
have adverse effects on our business, financial condition, results of operations and cash flows. Moreover, due to
unforeseen circumstances or factors beyond our control, we may be forced to relocate our operations from one or
more of our existing facilities to new facilities and may incur substantial costs, experience program delays and
sacrifice proximity to customers and geographic markets as a result, potentially for an extended period of time. Any
significant interruption in production at one or more of these facilities could negatively impact our ability to deliver
our products to our customers.
A significant disruption in the supply of a key component due to a work stoppage or other disruption at one
of our suppliers or any other supplier could impact our ability to make timely deliveries to our customers and,
accordingly, have an adverse effect on our business, financial condition, results of operations and cash flows. Where
a manufacturer halts production because of another supplier failing to deliver on time, or as a result of a work
stoppage or other disruption, it is unlikely we will be fully compensated, if at all.
We rely on certain suppliers of materials and components for our products.
Certain of the materials and components for products we manufacture and those manufactured on our
behalf are supplied by single or limited source suppliers. Our business, results of operations, financial condition and
cash flows could be adversely affected by disruptions in supply from our third-party suppliers, whether from supply
chain disruptions or if suppliers lack sufficient quality control or if there are significant changes in their financial or
business condition or otherwise. See “Business—Materials and Suppliers.”
If our third-party suppliers and manufacturers fail to deliver materials, products, parts and components of
sufficient quality on time and at reasonable prices, we could have difficulties fulfilling our orders or stocking our
distribution centers on similar terms or at all, sales and profits could decline, and our commercial reputation could
be damaged. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’
inability to scale production and adjust delivery of long-lead-time products during times of volatile demand. Our
inability to fill our supply needs would jeopardize our ability to fulfill obligations which could, in turn, result in
reduced sales and profits, contract penalties or terminations, and damage to customer relationships.
Certain of our suppliers provide us with cloud-based services which we rely on to support our products and
solutions and serve our customers and consumers. These types of relationships with cloud-based service providers
are expected to increase over time. If their services fail, the operation and maintenance of our products and solutions,
installed based as well as new sales, may be adversely impacted.
If we fail to adequately assess the creditworthiness and operational reliability of existing or future suppliers,
if there is any unanticipated deterioration in their creditworthiness and operational reliability, or if our suppliers do
not perform or adhere to our existing or future contractual arrangements, any resulting inability to otherwise obtain
the supplies or our inability to enforce the terms of the contract or seek other remedies could have an adverse effect
on our financial condition and results of operations and could cause us to incur significant liabilities.
We obtain many of the products for our ADI Global Distribution business from third parties.
Most of the low-voltage products we distribute through our ADI Global Distribution business are
manufactured by third parties. As a result, terminations of supply or services agreements or a change in terms or
conditions of sale from one or more of our key manufacturers could negatively affect our operating margins, net
revenue or the level of capital required to fund our operations. We have standard distribution contracts with our
manufacturers which are subject to renegotiation or non-renewal. Our dependence on third-party manufacturers
leaves us vulnerable to having an inadequate supply of demanded products, price increases, late deliveries and poor
product quality.
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Our ability to obtain particular products or product lines in the required quantities and our ability to fulfill
customer orders on a timely basis is critical to our success. Our manufacturers have experienced product supply
shortages from time to time due to the inability of certain of their suppliers to supply certain products on a timely
basis. As a result, we have experienced, and may in the future continue to experience, short-term shortages of
specific products. We cannot provide any assurances that manufacturers will be able to maintain an adequate supply
of products to fulfill all of our customer orders on a timely basis. Our reputation, sales and profitability may suffer if
manufacturers are not able to provide us with an adequate supply of products to fulfill our customer orders on a
timely basis or if we cannot otherwise obtain particular products or product lines.
Manufacturers who currently distribute their products through us may decide to shift to or substantially
increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-
users. Increasingly, our manufacturers are combining, leaving us with fewer alternative sources. This could result in
more intense competition as distributors strive to secure distribution rights with these manufacturers, which could
have an adverse impact on our business, financial condition, results of operations and cash flows. If we are unable to
maintain an adequate supply of products, or if manufacturers do not regularly invest in, introduce to us, and/or make
new products available to us for distribution, our net revenue and gross profit could suffer considerably.
Raw material price fluctuations, the ability of key suppliers to meet quality and delivery requirements, or
catastrophic events can increase the cost of our products and services, impact our ability to meet commitments to
customers and cause us to incur significant liabilities.
The cost and availability of raw materials (such as copper, steel, aluminum, plastics, printed circuit boards,
semiconductors and passive electronics) is a key factor in the cost of our products. Our inability to offset material
price inflation through increased prices to customers, formula or long-term fixed price contracts with suppliers,
productivity actions or through commodity hedges could adversely affect our business, financial condition, results of
operations and cash flows. Supply interruptions could arise from shortages of raw materials, effects of economic,
political or financial market conditions on a supplier’s operations, labor disputes or weather conditions affecting
products or shipments, transportation disruptions, information system disruptions, health issues or epidemics causing
disruptions, or other reasons beyond our control.
The profitability of our business is also dependent upon the efficiency of our supply chain. An inefficient or
ineffective supply chain strategy or operations could increase operational costs, reduce profit margins and adversely
affect our business, financial condition, results of operations and cash flows. Short or long-term capacity constraints
or financial distress at any point in our supply chain could disrupt our operations and adversely affect our financial
performance, particularly when the affected suppliers and manufacturers are the sole sources of products that we
require or that have unique capabilities, or when our customers have directed us to use those specific suppliers and
manufacturers. We incur significant freight expenses related to the purchase of products for distribution and
fluctuations in fuel costs may cause us to incur additional expense.
We are subject to the economic, political, health, epidemic, regulatory, foreign exchange and other risks of
international operations.
Our international revenues are approximately 31% of our net revenue for the year ended December 31,
2019. Our international geographic footprint subjects us to many risks including: exchange control regulations; wage
and price controls; antitrust/competition and environmental regulations; employment regulations; foreign investment
laws; monetary and fiscal policies and protectionist measures that may prohibit acquisitions or joint ventures,
establish local content requirements, or impact trade volumes; import, export and other trade restrictions (such as
embargoes); violations by our employees of anti-corruption laws (despite our efforts to mitigate these risks);
changes in regulations regarding transactions with state-owned enterprises; nationalization of private enterprises;
natural and man-made disasters, hazards and losses; backlash from foreign labor organizations related to our
restructuring actions; violence, civil and labor unrest; acts of terrorism; health epidemics; and our ability to hire and
maintain qualified staff and maintain the safety of our employees in these regions. For more information on our
international footprint, see “Item 2. Properties.” Additionally, certain of the markets in which we operate have
adopted increasingly strict data privacy and data protection requirements or may require local storage and processing
of data or similar requirements. See “Risks Relating to Our Business —Risks associated with data privacy issues,
including evolving laws and regulations and associated compliance efforts, could adversely affect our business,
financial condition, results of operations and cash flows.”
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Instabilities and uncertainties arising from the global geopolitical environment can negatively impact our
business. The implementation of more restrictive trade policies or the renegotiation of existing trade agreements in
the U.S. or other countries where we sell or manufacture large quantities of products and services or procure
supplies and other materials incorporated into our products could negatively impact our business results of
operations, cash flows and financial condition. For example, a government’s adoption of “buy national” policies or
retaliation by another government against such policies, such as tariffs or quotas, could have a negative impact on
our results of operations.
Tariffs, sanctions and other barriers to trade could adversely affect the business of our customers and
suppliers, which could in turn negatively impact our net revenue and results of operations. For example, Chinese
sanctions have remained in place for the majority of our products in the Products & Solutions segment, with
mitigations in place to reduce the impact. The U.K. officially left the E.U. on January 31, 2020 with an agreement
which includes a transition period currently expiring December 31, 2020. During the transition period no impact is
expected on trade (business as usual as the movement of products between the U.K. and the E.U. remains in free
circulation, with import and export declarations not implemented). These and other instabilities and uncertainties
arising from the global geopolitical environment, along with the cost of compliance with increasingly complex and
often conflicting regulations worldwide, can impair our flexibility in modifying product, marketing, pricing or other
strategies for growing our businesses, as well as our ability to improve productivity and maintain acceptable
operating margins.
Our global operations and supply chain which is supported by partners located around the world could be
impacted by health and public safety issues, e.g. Coronavirus, and could have a material impact on demand for our
products and solutions, our business operations in the impacted regions, and supplies to other regions.
As a result of our global presence, a portion of our net revenue are denominated in currencies other than the
U.S. Dollar, whereas a significant amount of our payment obligations, including pursuant to the Honeywell
Reimbursement Agreement and Tax Matters Agreement are denominated in U.S. Dollars, which exposes us to
foreign exchange risk. We monitor and may seek to reduce such risk through hedging activities; however, foreign
exchange hedging activities bear a financial cost and may not always be available to us or be successful in
eliminating such volatility. Finally, we generate significant amounts of cash outside of the United States that is
invested with financial and non-financial counterparties. While we employ comprehensive controls regarding global
cash management to guard against cash or investment loss and to ensure our ability to fund our operations and
commitments, a material disruption to the counterparties with whom we transact business could expose us to
financial loss.
We operate in many high-growth regions that require modifications to our products based on local building
codes, regulations, standards, certifications and other factors, which may impact our cost to serve and profitability as
we continue our penetration into these regions.
We operate in regulated markets.
Many of our products, technologies and services, in particular products implicating life safety, are subject
to regulatory agency oversight, such as the U.S. Consumer Product Safety Commission, the FTC, the Federal
Communications Commission (“FCC”), the U.S. Environmental Protection Agency, the European Union’s CE mark
(“CE”), the European Community directive “Waste Electrical and Electronic Equipment Directive” (“WEEE
Directive”), the regulation Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”), the
Gulf Mark standard for low-voltage electric products required in Gulf Member States (“G Mark”), the EurAsian
Conformity Mark for member countries of Customs Union (“EAC”), the China Compulsory Certification (“CCC”)
and the Regulatory Compliance Mark for Australia which may contribute to our compliance expenses. Many state
regulators, such as the California Department of Toxic Substances Control, also have an impact on our markets. For
example, 23 states have specific mercury thermostat regulations which require business compliance due to decades
of sales of thermostats containing mercury. Mandatory collection requirements, penalties and federal legislation can
have an impact on the expense. It is also important that our products comply with various third-party standards, such
as those of UL.
In addition, the FCC repealed net neutrality rules in 2018. We do not yet know the impact it may have on
our business. Less favorable treatment of traffic from our services or higher charges to customers by broadband
service providers for using our products and services could cause us to lose existing subscribers, impair our ability to
attract new subscribers and adversely affect our business, financial condition, results of operations and cash flows.
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Further, third-party vendors that may be contracted by the Company may be subject to extensive regulation
in the markets where we operate or may expand in the future. For example, the FTC and the FCC have issued
regulations that place restrictions on, among other things, making unsolicited telephone calls to residential and
wireless telephone subscribers using “automatic telephone dialing systems” or prerecorded or artificial voice
messages, and/or making telemarketing calls to residential telephone numbers on the National Do Not Call Registry.
We require third-party vendors to comply with these laws and regulations. If such third parties were to take actions
in violation of these laws, we could be exposed to claims, including by government regulators, arising out of such
actions. In addition, changes in the applicable laws, regulations and technology affecting telecommunication
services could require us to change the way we operate, which could increase costs or otherwise disrupt our
operations, which in turn could adversely affect our business, financial condition, results of operations and cash
flows.
Some local governments impose assessments, fines, penalties and limitations on either customers or
companies for false alarms. Certain municipalities have adopted ordinances under which both permit and alarm
dispatch fees are charged directly to companies. Service providers generally pass these charges on to customers but
may not be able to collect if customers are unwilling or unable to pay them, and this may require the service
provider to suspend or terminate service and as a result adversely affect our business, financial condition, results of
operations and cash flows. Furthermore, our customers may elect to terminate or not renew services if assessments,
fines, or penalties for false alarms become significant. If more local governments were to impose assessments, fines
or penalties or requirements for response such as video verification, it could adversely affect our customer base,
business, financial condition, results of operations and cash flows.
The net revenue and margins of our business are directly impacted by government regulations, including
safety, performance and product certification regulations, particularly those driven by customer demands and
national approvals, as well as changes in trade agreements and environmental and energy efficiency standards.
Growth within emerging markets may be adversely impacted by the inability to acquire and retain qualified
employees where local employment law mandates may be restrictive.
Part of our growth strategy is dependent on expanding our distribution business.
Part of our growth strategy is to expand our geographic footprint and to increase the types and number of
products sold through ADI Global Distribution. Our ability to open new ADI Global Distribution locations in both
existing and new markets could be affected by local regulations and the availability of suitable real estate. We may
not be able to acquire from manufacturers certain product lines that we are interested in adding to our distribution
business, and if we are able to add products, they may not result in sales as expected and may not be profitable. If
we are unable to execute on any part of our growth strategy, our business, financial condition, results of operations
and cash flows could be adversely affected.
Our profitability and results of operations may be adversely affected by a significant failure or inability to comply
with the specifications and manufacturing requirements of our OEM customers.
We generally have to qualify, and are required to maintain our status, as a supplier for each of our OEM
customers. This is a lengthy process that involves the inspection and approval by a customer of our engineering,
documentation, manufacturing and quality control procedures before that customer will place volume orders. If we
are successful in qualifying, there is no assurance that any OEM will purchase products from us. Given the length of
this qualification process, the risk that our business, results of operations and financial condition would be adversely
affected by the loss of, or any reduction in orders by, any of our significant OEM customers is increased.
Accordingly, the success of our business depends on OEMs continuing to outsource the manufacturing of critical
products to us. It would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation
or delay in purchase orders by, any one of these customers, whether due to their decision to not continue to
outsource all or a portion of their critical parts for their capital equipment, their moving their business to our
competitors or otherwise. A significant failure or inability to comply with customer specifications and
manufacturing requirements or delays or other problems with existing or new products (including program launch
difficulties) could result in financial penalties, cancelled orders, increased costs, loss of sales, loss of customers or
potential breaches of customer contracts, which could have an adverse effect on our profitability and results of
operations. We have in the past lost business from OEM customers who have taken the manufacturing of our
products in-house or moved business to our competitors. If we are unable to replace revenue from lost OEM
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customers it could have an adverse impact on our financial position, results of operation and cash flows. In addition,
if we are unable to obtain additional business from OEMs the potential growth of our business results could be
adversely affected. In some instances, such a move away from our company happens over time due to the lengthy
qualification process our OEM customers employ.
We may not be able to retain or expand relationships with certain large customers.
A number of our customers are large and contribute significantly to our net revenue and operating income.
Consolidation or change of control, particularly among our OEM customers, or a decision by any one or more of our
customers to outsource all or most manufacturing work to a single equipment manufacturer, may continue to
concentrate our business in a limited number of customers and expose us to increased risks relating to dependence
on a smaller number of customers. By virtue of our largest customers’ size and the significant portion of revenue
that we derive from them, they are able to exert significant influence in the negotiation of our commercial
agreements and the conduct of our business with them. Furthermore, there is significant consolidation of companies
focused on security products, and we have had customers combine both with customers with whom we have had a
prior relationship with, as well as those with whom we have little or no prior relationship, putting us at risk of loss of
sales. If we are unable to retain and expand our business with these large customers on favorable terms, our business,
financial condition, results of operations and cash flows will be adversely affected.
We have credit exposure to our customers.
Any adverse trends in our customers’ businesses could cause us to suffer credit losses. As is customary in
our markets, we extend credit to our customers. A portion of our customers are small contractors with inconsistent
cash flow. As such, they rely on us to provide their businesses with credit and to carry specified inventory to support
their operations. We may be unable to collect on receivables if our customers experience decreases in demand for
their products and services, do not manage their businesses adequately, or otherwise become less able to pay due to
adverse economic conditions or refinancing events. While we evaluate our customers’ qualifications for credit and
monitor our extensions of credit, these efforts cannot prevent all credit losses, and credit losses negatively impact
our performance. In addition, for financial reporting purposes, we establish reserves based on our historical
experience of credit losses. To the extent that our credit losses exceed those reserves, our financial performance will
be negatively impacted beyond what is expected. If there is deterioration in the collectability of our receivables, or
we fail to take other actions to adequately mitigate such credit risk, our earnings and cash flows, could deteriorate.
In addition, if we are unable to extend credit to our customers, we may experience loss of certain contracts or
business.
Extending credit to international customers involves additional risks. It is often more difficult to evaluate
credit of a customer or obtain credit protections in our international operations. Also, credit cycles and collection
periods are typically longer in our international operations. We are also subject to credit risk associated with
customer concentration. If one or more of our largest customers were to become bankrupt or insolvent, or otherwise
were unable to pay for our products, we may incur significant write-offs of accounts that may have an adverse effect
on our business, financial condition, results of operations and cash flows. As a result of these factors and other
challenges in extending credit to international customers, we generally face greater credit risk from sales
internationally compared to domestic sales.
Failure to protect our intellectual property could adversely affect our business, financial condition and results of
operations and cash flows.
We rely on a combination of patents, copyrights, trademarks, trade names, trade secrets and other
proprietary rights, as well as contractual arrangements, including licenses, to establish, maintain and protect our
intellectual property rights. Effective intellectual property protection may not be available in every country in which
we do business. We may not be able to acquire or maintain appropriate registered or unregistered intellectual
property in all countries in which we do business. Companies that license intellectual property we own or use,
especially, the Honeywell Home brand, also may take actions that diminish the value of our intellectual property or
harm our reputation.
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Our intellectual property rights may not be sufficient to permit us to take advantage of some business
opportunities. As a result, we may be required to change our plans or acquire the necessary intellectual property
rights, which could be costly. Furthermore, our ability to enforce our intellectual property rights in emerging
markets may be limited by legal or practical considerations that have not historically affected our business in
markets with more established intellectual property protection systems.
The protection of our intellectual property may be expensive and time consuming. There can be no
assurance that the steps we take to maintain and protect our intellectual property will be adequate, or that third
parties will not infringe, circumvent, misappropriate or violate our intellectual property. If our efforts to protect our
intellectual property are not adequate, the value of our goods and services may be harmed, which could have an
adverse effect on our business, financial condition, results of operations and cash flows. Any impairment of our
intellectual property, including due to changes in U.S. or worldwide intellectual property laws or the absence of
effective legal protection or enforcement measures, could adversely impact our business, financial condition, results
of operations and cash flows.
We may incur material losses and costs as a result of intellectual property infringement actions that may be
brought against us.
We are, and may in the future be, subject to legal proceedings in various venues regarding alleged
infringement by us of the intellectual property rights of third parties. In addition, our customer agreements can
require us to indemnify the customer for infringement. Such claims, whether they are meritorious or not, may result
in the expenditure of significant financial and managerial resources, injunctions against us, the payment of damages,
and/or the entry into royalty or licensing agreements on unfavorable terms. These risks have been amplified by the
increase in third parties whose sole or primary business is to assert such claims. Furthermore, the publicity we may
receive as a result of such proceedings may damage our reputation and adversely impact our existing customer
relationships and our ability to develop new business.
We cannot assure you that we will not experience any material intellectual property claim losses in the
future or that we will not incur significant costs to defend such claims.
Failure to increase productivity through sustainable operational improvements, as well as an inability to
successfully execute restructuring projects or to effectively manage our workforce, may reduce our profitability
or adversely impact our businesses.
Our profitability and margin growth are dependent upon our ability to drive sustainable improvements. In
addition, we seek productivity and cost savings benefits through restructuring and other projects, such as
consolidation of manufacturing facilities, transitions to cost-competitive regions, workforce reductions, product line
rationalizations and other cost-saving initiatives. Risks associated with these actions include delays in execution of
the planned initiatives, additional unexpected costs, asset impairments, realization of fewer than estimated
productivity improvements and adverse effects on employee morale. We may not realize the full operational or
financial benefits we expect and the recognition of these benefits may be delayed and these actions may potentially
disrupt our operations. In addition, organizational changes, attrition, labor relations difficulties, or workforce
stoppage could have an adverse effect on our business, reputation, financial condition, results of operations and cash
flows.
We can provide no assurance that the operational and financial review we are conducting will result in the
effects we are expecting.
In the third quarter of 2019, and continuing through the fourth quarter, we experienced lower sales and
lower margins than we expected in our Product & Solutions segment. As a result, we are conducting a
comprehensive operational and financial review of our business. There can be no assurance that this review will
appropriately identify the actions we need to take, or that we will be able to implement action, in a manner that will
resolve the issues we have identified or achieve the results we are forecasting. In addition, uncertainty around the
review could lead to disruption in our business, including our relationships with our customers, suppliers and
employees.
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We may not be able to successfully acquire and integrate other products, technologies or businesses or realize the
anticipated benefits of acquisitions.
We actively evaluate acquisitions and strategic investments in products or technologies and businesses that
could complement or expand our business or otherwise offer growth or cost-saving opportunities. From time to time,
we may enter into letters of intent with companies with which we are negotiating for potential acquisitions or
investments, or as to which we are conducting due diligence. An investment in, or acquisition of, complementary
businesses, products or technologies in the future could materially decrease the amount of our available cash or
require us to seek additional equity or debt financing. We may not be successful in negotiating the terms of any
potential acquisition, conducting thorough due diligence, financing the acquisition or effectively integrating the
acquired business, product or technology into our existing business and operations. Our due diligence may fail to
identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or
technology, including issues related to intellectual property, product quality or product architecture, regulatory
compliance practices, revenue recognition or other accounting practices or employee or customer issues.
In connection with any acquisitions we complete, we may have difficulty integrating the acquired business,
may not achieve the synergies or other benefits we expected to achieve, and we may incur unanticipated expenses,
write-downs, impairment charges or unforeseen liabilities that could negatively affect our business, financial
condition, results of operations and cash flows. Further, contemplating or completing an acquisition and integrating
an acquired product or technology or business could divert management and employee time and resources from
other matters.
Our operations require substantial capital and we may not be able to obtain additional capital that we need in the
future on favorable terms or at all.
We may require additional capital in the future to finance our growth and development, upgrade and
improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing research and
development activities, satisfy regulatory and environmental compliance obligations and national approvals
requirements, satisfy obligations under the Honeywell Reimbursement Agreement, and meet general working capital
needs. Our capital requirements will depend on many factors, including acceptance of and demand for our solutions,
the extent to which we invest in new technology and research and development projects and the status and timing of
these developments. If our access to capital were to become constrained significantly, or if costs of capital increased
significantly, due to lowered credit ratings, prevailing business conditions, the volatility of the capital markets or
other factors, our business, financial condition, results of operations and cash flows could be adversely affected.
We are responsible for obtaining and maintaining sufficient working capital and other funds to satisfy our
cash requirements, and debt or equity financing may not be available to us on terms we find acceptable, if at all.
Even if we are able to obtain financing or access the capital markets, incurring additional debt may significantly
increase our interest expense and financial leverage, and our level of indebtedness could restrict our ability to fund
future development and acquisition activities. Also, regardless of the terms of our debt or equity financing, our
agreements and obligations under the Tax Matters Agreement that address compliance with Section 355 of the
Internal Revenue Code of 1986, as amended (the “Code”), may limit our ability to issue stock. See Note 19.
Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for more
information. We believe that we have adequate capital resources to meet our projected operating needs, capital
expenditures and other cash requirements, including payments to Honeywell under the Honeywell Reimbursement
Agreement. However, we may need additional capital resources in the future and if we are unable to obtain
sufficient resources for our operating needs, capital expenditures and other cash requirements for any reason, our
business, financial condition and results of operations could be adversely affected. See “—Risks Relating to the
Spin-Off—We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an
independent, publicly traded company, and we may experience increased costs.”
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We are subject to risks associated with the Honeywell Reimbursement Agreement, pursuant to which we are
required to make substantial cash payments to Honeywell, measured in substantial part by reference to estimates
by Honeywell of certain of its liabilities.
In connection with the Spin-Off, we entered into the Honeywell Reimbursement Agreement (as defined
below), pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of
payments, which include amounts billed (“payments”), with respect to certain environmental claims, remediation
and hazardous exposure or toxic tort claims, in each case including consequential damages (the “liabilities”) in
respect of the 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 “recoveries”). The amount payable by us in respect of
such liabilities arising in any given year is subject to a cap of $140 million (exclusive of any late payment fees up to
5% per annum). Payments in respect of the liabilities arising in a given year are made quarterly throughout such year
on the basis of an estimate of the liabilities and recoveries provided by Honeywell. Following the end of any such
year, Honeywell provides us with a calculation of the amount of payments and the recoveries received. Subject to
the aforementioned cap, if the amount of payments (net of recoveries) is greater than the previously provided
estimate, we pay Honeywell the amount of such difference (the “true-up payment”) and, if the amount of the
previously provided estimate is greater than the amount of payments (net of recoveries), we will receive a credit in
the amount of such difference that will be applied to future payments. If a true-up payment exceeds $30 million,
such true-up payment will be made in eight equal installments, payable on a monthly basis on and following the date
the true-up payment is due.
For example, if in any given year, Honeywell’s estimated annual payments that are within the scope of the
Honeywell Reimbursement Agreement totaled $140 million, and if Honeywell’s estimated associated recoveries
totaled $20 million, then our quarterly payment obligations in respect of that year would be 90% of the net amount
(or $108 million) divided by four, or $27 million. If, for such year, Honeywell’s annual payments actually totaled
$165 million, and if Honeywell’s associated recoveries actually totaled $10 million, our additional true-up payment
obligation in respect of that year would be 90% of the net amount (or $139.5 million) minus the sum of our quarterly
payments, or $108 million, resulting in an aggregate payment in respect of such year of $31.5 million, which,
because it exceeds $30 million, would be made in eight equal installments, payable on the true-up date and on a
monthly basis following the date the true-up payment is due. However, if in any given year, Honeywell’s estimated
annual payments totaled $175 million, and the estimated associated recoveries totaled $5 million, then our quarterly
payment obligations in respect of that year would be capped at $35 million even though 90% of the net amount (or
$153 million) divided by four is higher at $38.25 million, resulting in an aggregate maximum payment for such year
equal to the cap of $140 million (regardless of whether or not actual liabilities (net of recoveries) exceeded the
previously provided estimates).
Honeywell’s environmental claim and remediation payments in respect of the Honeywell Sites for the years
2019, 2018 and 2017, including any legal fees, were approximately $258 million, $179 million and $200 million,
respectively, and Honeywell’s associated receipts for insurance and amounts received by Honeywell in connection
with affirmative claims, contributions and property sales for 2019, 2018 and 2017 were approximately $94 million,
$0 million, and $2 million, respectively. At December 31, 2019 we have recorded a liability to Honeywell of
approximately $585 million in relation to our environmental obligation to Honeywell under the Honeywell
Reimbursement Agreement.
In the event that Honeywell completes a transfer to a third party in respect of a portion of the remediation
liabilities that are within the scope of the Honeywell Reimbursement Agreement, we will be obligated to pay 90% of
the amount paid or payable by Honeywell in connection with such liability transfer, less any applicable recoveries.
Amounts payable in respect of liability transfers for any given year are paid in the year following the year in which
they occur, at the time that the true-up payment is made. If the amounts payable in respect of a liability transfer,
together with any true-up payment, exceeds $30 million, such amounts will be made in eight equal installments,
payable on the true-up date and on a monthly basis following the date the true-up payment is due. While any amount
in respect of a liability transfer is outstanding, the annual payment by us to Honeywell will be first allocated towards
the liabilities described above relating to environmental claims, remediation, hazardous exposure and toxic tort
claims arising outside of the scope of the liability transfer, and then towards the liability transfer payment. The
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amount payable by us in respect of (i) any such liability transfers and (ii) the liabilities described above relating to
environmental claims, remediation, hazardous exposure and toxic tort claims arising in any given year, is subject to
a cap of $140 million (exclusive of any late payment fees up to 5% per annum). The liability transfer amount for the
2019 year was approximately $8 million.
The scope of our current environmental remediation obligations subject to the Honeywell Reimbursement
Agreement currently relates to approximately 230 sites or groups of sites that are undergoing environmental
remediation under U.S. federal or state law and agency oversight for contamination associated with Honeywell
historical business operations. The ongoing environmental remediation is designed to address contaminants at
upland and sediment sites, which include, among others, metals, organic compounds and polychlorinated biphenyls,
through a variety of methods, which include, among others, excavation, capping, in-situ stabilization, groundwater
treatment and dredging. In addition, our obligations subject to the Honeywell Reimbursement Agreement will
include certain liability with respect to (i) hazardous exposure or toxic tort claims associated with the Honeywell
Sites that arise after the Spin-Off, if any, (ii) currently unidentified releases of hazardous substances at or associated
with the Honeywell Sites, (iii) other environmental claims associated with the Honeywell Sites and (iv)
consequential damages.
Payment amounts under the Honeywell Reimbursement Agreement will be deferred to the extent that the
payment thereof would cause a specified event of default under certain indebtedness, including our principal credit
agreement, or cause us to not be compliant with certain financial covenants in certain indebtedness, including our
principal credit agreement on a pro forma basis, including the maximum total leverage ratio (ratio of debt to
EBITDA, which excludes any amounts owed to Honeywell under the Honeywell Reimbursement Agreement), and
the minimum interest coverage ratio. A 5% late payment fee will accrue on all amounts that are not otherwise
entitled to be deferred under the terms of the Honeywell Reimbursement Agreement, without prejudice to any other
rights that Honeywell may have for late payments. In each calendar quarter, our ability to pay dividends and
repurchase capital stock in such calendar quarter will be restricted until any amounts payable under the Honeywell
Reimbursement Agreement in such quarter (including any deferred payment amounts) are paid to Honeywell and we
will be required to use available restricted payment capacity under our debt agreements to make payments in respect
of any such deferred amounts. Payment of deferred amounts and certain other amounts could cause the amount we
are required to pay under the Honeywell Reimbursement Agreement in respect of liabilities arising in any given
calendar year to exceed $140 million (exclusive of any late payment fees up to 5% per annum). All amounts payable
under the Honeywell Reimbursement Agreement are guaranteed by certain of our subsidiaries that act as guarantors
under our principal credit agreement, subject to certain exceptions. Under the Honeywell Reimbursement
Agreement, we are subject to certain of the affirmative and negative covenants to which we are subject under our
principal credit agreement. Further, pursuant to the Honeywell Reimbursement Agreement, our ability to (i) amend
or enter into waivers under our principal credit agreement or our indenture, (ii) enter into another credit agreement
or our indenture or make amendments or waivers thereto, or (iii) enter into or amend or waive any provisions under
other agreements, in each case, in a manner that would adversely affect the rights of Honeywell under the
Honeywell Reimbursement Agreement, will be subject to Honeywell’s prior written consent. This consent right will
significantly limit our ability to engage in many types of significant transactions on favorable terms (or at all),
including, but not limited to, equity and debt financings, liability management transactions, refinancing transactions,
mergers, acquisitions, joint ventures and other strategic transactions. Please see “Risks Relating to the Spin-Off—
We have certain business conflicts of interest with Honeywell with respect to our past and ongoing relationships. In
addition, the agreements that we entered into with Honeywell in connection with the Spin-Off may impose
significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-
term best interests, and we may from time to time have disputes with Honeywell under such agreements that could
have a material impact on our business and operations.”
The Honeywell Reimbursement Agreement may have material adverse effects on our liquidity and cash
flows and on our results of operations, regardless of whether we experience a decline in net revenue. The Honeywell
Reimbursement Agreement may also require us to accrue significant long-term liabilities on our consolidated
balance sheet, the amounts of which will be dependent on factors outside our control, including Honeywell’s
responsibility to manage and determine the outcomes of claims underlying the liabilities. This may have a
significant negative impact on the calculation of key financial ratios and other metrics that are important to investors,
rating agencies and securities analysts in evaluating our creditworthiness and the value of our securities.
Accordingly, our access to capital to fund our operations may be materially adversely affected and the value of your
investment in our company may decline. The Honeywell Reimbursement Agreement also includes other obligations
that may impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to
engage in actions that may be in our long-term best interests.
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Although we will have access to information regarding these liabilities as we may reasonably request for
certain purposes, as well as the ability to participate in periodic standing meetings with Honeywell’s remediation
management team responsible for management of the underlying claims, including outside litigation or
environmental counsel if necessary, the payment obligations under the Honeywell Reimbursement Agreement relate
to legal proceedings and remediation efforts that we will not control, and we accordingly do not expect to be able to
make definitive decisions regarding settlements or other outcomes that could influence our potential related
exposure.
Our operations and the prior operations of predecessor companies expose us to the risk of material
environmental liabilities.
We are subject to potentially material liabilities related to the investigation and cleanup of environmental
hazards and to claims of personal injuries or property damages that may arise from hazardous substance releases and
exposures. These liabilities arise out of our current and past operations and the operations and properties of
predecessor companies (including off site waste disposal). We entered into the Honeywell Reimbursement
Agreement, pursuant to which we have an obligation to make cash payments to Honeywell related to certain of
Honeywell’s environmental-related liabilities. See “Risks Relating to Our Business—We are subject to risks
associated with the Honeywell Reimbursement Agreement, pursuant to which we will be required to make
substantial cash payments to Honeywell, measured in substantial part by reference to estimates by Honeywell of
certain of its liabilities.”
We are also subject to potentially material liabilities related to the compliance of Resideo Sites with the
requirements of various federal, state, local and foreign governments that regulate the discharge of materials into the
environment and the generation, handling, storage, treatment and disposal of and exposure to hazardous substances.
We believe that, as a general matter, our policies, practices and procedures are properly designed to prevent
unreasonable risk of environmental damage and personal injury and that our handling, manufacture, use and disposal
of hazardous substances are in accordance with environmental and safety laws and regulations. However, if we are
found to be in violation of these laws and regulations, we may be subject to substantial fines, criminal sanctions,
trade restrictions, product recalls, public exposure and be required to install costly equipment or make operational
changes to achieve compliance with such laws and regulations.
In addition, changes in laws, regulations or government enforcement of policies concerning the
environment, the discovery of previously unknown contamination or new technology or information related to
individual contaminated sites, the establishment of stricter state or federal toxicity standards with respect to certain
contaminants, or the imposition of new clean-up requirements or remedial techniques, could require us to incur
additional currently unanticipated costs in the future that would have a negative effect on our business, financial
condition, results of operations and cash flows.
We cannot predict with certainty the outcome of litigation matters, government proceedings and other
contingencies and uncertainties.
In the ordinary course of business, we may make certain commitments, including representations,
warranties and indemnities relating to current and past operations, including those related to divested businesses, and
issue guarantees of third-party obligations. We are also subject to various lawsuits, investigations and disputes
arising out of the conduct of our business, including matters relating to commercial transactions, government
contracts, product liability, prior acquisitions and divestitures, employee benefit plans, intellectual property, and
environmental, health and safety matters. In particular, between November 8, 2019 and January 7, 2020, four
separate purported class action complaints were filed in the United States District Court for the District of Minnesota
against Resideo, its current chief executive officer, its former chief financial officer and/or Honeywell. These
complaints allege, among other things, that the defendants (or some of them) made false and misleading statements
(including prior to the spin-off from Honeywell) regarding, among other things, Resideo’s business, performance,
the efficiency of its supply chain, operational and administrative issues resulting from the spin-off from Honeywell,
and the financial guidance regarding 2019. The court consolidated the pending actions into a single proceeding
styled In re Resideo Technologies, Inc. Securities Litigation, 19-cv-02889 and appointed co-lead plaintiffs and co-
lead plaintiff’s counsel. The lead plaintiffs’ deadline to file an amended, consolidated complaint is March 27, 2020.
In addition, we are and could, in the future, face additional legal proceedings and investigations and inquiries by
governmental agencies relating to these or similar matters.
We are unable to predict how long such proceedings, in particular the purported class action lawsuits, will
continue, but we anticipate that we may incur significant costs in connection with some or all of these matters and
that these proceedings and any related matters may result in a substantial distraction of management’s time. Our
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potential liabilities are subject to change over time due to new developments, changes in settlement strategy or the
impact of evidentiary requirements, and we may become subject to or be required to pay damage awards or
settlements that could have an adverse effect on our business, financial condition, results of operations and cash
flows. If we were required to make payments, such payments could be significant and could exceed the amounts we
have accrued with respect thereto, adversely affecting our business, financial condition, results of operations and
cash flows. While we maintain or may otherwise have access to insurance for certain risks, the amount of our
insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities and we may
have to satisfy insurance retentions. The incurrence of significant liabilities for which there is no or insufficient
insurance coverage (or where there is available insurance but high retention levels) could adversely affect our
liquidity and financial condition, results of operations and cash flows.
Our business could be negatively affected as a result of the actions of activist or hostile stockholders.
Our business could be negatively affected as a result of stockholder activism, which could cause us to incur
significant expense, hinder execution of our business strategy, and impact the trading value of our securities.
Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in
publicly traded companies in recent years and we are subject to the risks associated with such activism. Stockholder
activism, including potential proxy contests, requires significant time and attention by management and the Board,
potentially interfering with our ability to execute our strategic plan. Additionally, such stockholder activism could
give rise to perceived uncertainties as to our future direction, adversely affect our relationships with key executives
and business partners and make it more difficult to attract and retain qualified personnel. Also, we may be required
to incur significant legal fees and other expenses related to activist stockholder matters. Any of these impacts could
materially and adversely affect our business and operating results. Further, the market price of our common stock
could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties
described in this “Risk Factors” section.
Our effective tax rate will be affected by factors including changes in tax rules, and in the interpretation and
application of those rules, in the countries in which we operate.
Our future results of operations could be adversely affected by changes in the effective tax rate as a result
of a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and
judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles,
changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently
reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing assessments
of our tax exposures and various other governmental enforcement initiatives. Our tax expense includes estimates of
tax reserves and reflects other estimates and assumptions, including assessments of our future earnings which could
impact the valuation of our deferred tax assets. Changes in tax laws or regulations, including multi-jurisdictional
changes enacted in response to the guidelines provided by the Organization for Economic Co-operation and
Development to address base erosion and profit shifting will increase tax uncertainty and may adversely impact our
provision for income taxes. As noted under “—Risks Relating to Our Business—We are subject to risks associated
with the Honeywell Reimbursement Agreement, pursuant to which we will be required to make substantial cash
payments to Honeywell, measured by reference to estimates by Honeywell of certain of its liabilities.”
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, the President of the United States signed into law H.R. 1, originally known as the
“Tax Cuts and Jobs Act”, hereafter referred to as “U.S. Tax Reform”. Since the passing of U.S. Tax Reform,
additional guidance in the form of notices and proposed regulations which interpret various aspects of U.S. Tax
Reform have been issued. As of the filing of this document, additional guidance is expected. Changes could be made
to the proposed regulations as they become finalized, future legislation could be enacted, more regulations and
notices could be issued, all of which may impact our financial results. We will continue to monitor all of these
changes and will reflect the impact as appropriate in future financial statements. Many state and local tax
jurisdictions are still determining how they will interpret elements of U.S. Tax Reform. Final state and local
governments’ conformity, legislation and guidance relating to U.S. Tax Reform may impact our financial results.
We may be required to make significant cash contributions to our defined benefit pension plans.
We sponsor defined benefit pension plans under which certain eligible Company employees will earn
pension benefits. We have plans in several countries including the U.S. The Federal Pension Protection Act of 2006,
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which is generally applicable to U.S. qualified defined benefit pension plans, generally requires that qualified
defined benefit pension plans maintain certain capitalization levels. Changes in discount rates and actual asset
returns different than our anticipated asset returns can result in significant non-cash actuarial gains or losses. With
regard to cash pension contributions, funding requirements for our pension plans are largely dependent upon interest
rates, actual investment returns on pension assets and the impact of legislative or regulatory changes related to
pension funding obligations. Our pension plan contributions may be material and could adversely impact our
financial condition, cash flow and results of operations. We plan to make pension plan contributions during 2020
and in future periods sufficient to satisfy funding requirements.
Risks Related to the Spin-Off
Completion of the Spin-Off was conditioned on Honeywell’s receipt of separate written opinions from
Cleary Gottlieb Steen & Hamilton LLP and KPMG LLP to the effect that the Spin-Off should qualify for non-
recognition of gain and loss under Section 355 and related provisions of the Code.
The opinions do not address any U.S. state or local or foreign tax consequences of the Spin-Off. The
opinions assume that the Spin-Off was completed according to the terms of the Separation and Distribution
Agreement and rely on the facts as stated in the Separation and Distribution Agreement, the Tax Matters Agreement,
the other ancillary agreements and documents. In addition, the opinions are based on certain representations as to
factual matters from, and certain covenants by, Honeywell and us. The opinions cannot be relied on if any of the
assumptions, representations or covenants are incorrect, incomplete or inaccurate or are violated in any material
respect.
The opinions are not binding on the Internal Revenue Service (the “IRS”) or the courts, and there can be no
assurance that the IRS or a court will not take a contrary position. If the conclusions expressed in the opinions are
challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences of the Spin-Off could be
materially less favorable. Honeywell did not as part of the Spin-Off request a ruling from the IRS regarding the U.S.
federal income tax consequences of the Spin-Off.
If the distribution made in connection with the Spin-Off were determined not to qualify for non-recognition
of gain or loss under Section 355 and related provisions of the Code, then a U.S. Holder who received our common
stock in the Spin-Off generally would be treated as receiving a distribution in an amount equal to the fair market
value of our common stock received. The distribution would be treated as: (1) a taxable dividend to the extent of the
holder’s pro rata share of Honeywell’s current or accumulated earnings and profits; (2) a reduction in the holder’s
basis (but not below zero) in Honeywell common stock to the extent the amount received exceeds the holder’s share
of Honeywell’s earnings and profits; and (3) taxable gain from the exchange of Honeywell common stock to the
extent the amount received exceeds the sum of the holder’s share of Honeywell’s earnings and profits and its basis
in its Honeywell common stock.
We agreed in the Tax Matters Agreement not to take actions that could affect Honeywell’s tax treatment. The
need to comply with these provisions of the Tax Matters Agreement could reduce our strategic and operating
flexibility. If we fail to comply with them, or breach representations or covenants made in the Tax Matters
Agreement or in connection with the receipt of the tax opinion, we could incur material indemnification
obligations to Honeywell, which could adversely affect our business, financial condition, results of operations
and cash flows.
If one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of
Honeywell or Resideo, directly or indirectly (including through acquisitions of stock after the completion of the
Transactions), as part of a plan or series of related transactions that includes the Spin-Off, then the Spin-Off would
be taxable to Honeywell, but not to Honeywell stockholders. Current law generally creates a presumption that any
direct or indirect acquisition of stock of Honeywell or Resideo within two years before or after the Spin-Off is part
of a plan that includes the Spin-Off, although the parties may be able to rebut that presumption in certain
circumstances. The process for determining whether an acquisition is part of a plan under these rules is complex,
inherently factual in nature, and subject to a comprehensive analysis of the facts and circumstances of the particular
case. We have entered into covenants not to engage in specified transactions for two years after the Spin-Off without
Honeywell’s prior consent (which Honeywell may grant or withhold in its sole discretion),and have agreed to
indemnify Honeywell for any costs that it may incur as a result of our failure to comply with those covenants. These
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obligations may limit our ability to pursue strategic transactions or engage in new business or other transactions,
such as a share repurchase program, that may maximize the value of our business, and may discourage or delay a
strategic transaction that our shareholders may consider favorable, including limiting our ability to use our equity to
raise capital or fund acquisitions, and may otherwise impact our ability to implement structural or business changes
as an outgrowth of the comprehensive financial and operational review announced connection with our third quarter
2019 earnings results. Any payments required under these obligations could be significant and could materially
adversely affect our business, financial condition, results of operations and cash flows.
We are subject to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may
reduce our strategic and operating flexibility.
We are subject to covenants in the Tax Matters Agreement and indemnification obligations that address
compliance with Section 355 of the Code and are intended to preserve the tax-free nature of the Spin-Off. These
covenants include certain restrictions on our activity for a period of two years following the Spin-Off, unless
Honeywell gives its consent for us to take a restricted action, which Honeywell is permitted to grant or withhold at
its sole discretion. These covenants and indemnification obligations may limit our ability to pursue strategic
transactions or engage in new businesses or other transactions that may maximize the value of our business and
might discourage or delay a strategic transaction that our stockholders may consider favorable.
We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an
independent, publicly traded company, and we may experience increased costs after the Spin-Off.
Honeywell currently provides certain transitional corporate services under agreements with us. These
services do not include every service that we received from Honeywell while we were part of Honeywell, and
Honeywell is only obligated to provide the transition services for limited periods described in the agreements. We
rely on Honeywell to satisfy its performance and payment obligations under any transition services agreements and
other agreements related to the Spin-Off, and if Honeywell does not satisfy such obligations, we could incur
operational difficulties or losses.
Our ability to position and market ourselves as a provider of connected home technology could be
adversely affected by our loss of access to Honeywell’s development platforms. If we fail to obtain the quality of
services necessary to operate effectively or incur greater costs in obtaining these services, our business, financial
condition, results of operations and cash flows may be adversely affected.
As we build our information technology infrastructure and transition our data to our own systems, we could
incur substantial additional costs and experience temporary business interruptions, and our accounting and
other management systems and resources may not be adequately prepared to meet the financial reporting and
other requirements to which we will be subject following the Spin-Off.
Following the Spin-Off, we installed and implemented information technology infrastructure to support
certain of our business functions, including payment systems, ERP systems, accounting and reporting,
manufacturing process control, customer service, inventory control and distribution. Such transition must also
comply with applicable personal data privacy laws. See “Risks Relating to Our Business—Risks associated with
data privacy issues, including evolving laws and regulations and associated compliance efforts, could adversely
affect our business, financial condition, results of operations and cash flows.” If we are unable to transition
effectively, we may incur temporary interruptions in business operations. Any delay in implementing, or operational
interruptions suffered while implementing, our new information technology infrastructure could disrupt our business
and have an adverse effect on our business, financial condition, results of operations and cash flows.
In addition, if we are unable to replicate or transition certain systems, our ability to comply with regulatory
requirements could be impaired. We are subject to reporting and other obligations under the U.S. Securities and
Exchange Act of 1934, as amended (the “Exchange Act”). Beginning with this required Annual Report on Form 10-
K, we comply with Section 404 of the Sarbanes Oxley Act of 2002, as amended (the “Sarbanes Oxley Act”), which
requires annual management assessments of the effectiveness of our internal control over financial reporting and a
report by our independent registered public accounting firm addressing whether we maintained effective internal
controls over financial reporting.
33
RESIDEO TECHNOLOGIES, INC.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business
and financial condition. Under the Sarbanes Oxley Act, we are required to maintain effective disclosure controls and
procedures and internal controls over financial reporting. Any failure to achieve and maintain effective internal
controls could have an adverse effect on our business, financial condition, results of operations and cash flow. See
“—Risks Relating to Our Common Stock and the Securities Market.”
We incurred indebtedness in connection with the Spin-Off, and our leverage could adversely affect our business,
financial condition and results of operations.
In connection with the Spin-Off, we incurred indebtedness in an aggregate principal amount of
approximately $1,225 million in the form of senior secured term loans and senior unsecured notes, the net proceeds
of which were used by the Company to (i) repay intercompany indebtedness to Honeywell or a subsidiary of
Honeywell of approximately $1.2 billion, (ii) to pay fees, costs and expenses related to the senior notes offering and
the senior credit facilities and (iii) for general corporate purposes. We also entered into a revolving credit facility to
be used for our working capital and other cash needs in an aggregate principal amount of $350 million.
We are responsible for obtaining and maintaining sufficient working capital and other funds to satisfy our
cash requirements. After the Spin-Off, our access to and cost of debt financing are different than it would have been
as a part of Honeywell. Differences in access to and cost of debt financing may result in differences in the interest
rate charged to us on financings, as well as the amount of indebtedness, types of financing structures and debt
markets that may be available to us.
We amended our principal credit agreement on November 26, 2019 (the “Amendment”) to, among other
things, revise our covenant leverage ratio thresholds and related definitions in light of our 2019 financial
performance and in a manner that was intended to give us greater flexibility, including in relation to anticipated
restructuring activities that may implemented as part of the financial and operational review or otherwise.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in
connection with the Spin-Off, as well as any future debt that we may incur, will depend on our ability to generate
cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general
economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, as well as the
risk factors set forth herein.
The terms of our indebtedness restrict our current and future operations, particularly our ability to incur debt
that we may need to fund initiatives in response to changes in our business, the industries in which we operate,
the economy and governmental regulations.
The terms of the indebtedness include a number of restrictive covenants that impose significant operating
and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our
long-term best interests. These may restrict our and our subsidiaries’ ability to take some or all of the following
actions:
incur or guarantee additional indebtedness or sell disqualified or preferred stock;
pay dividends on, make distributions in respect of, repurchase or redeem capital stock;
(cid:129)
(cid:129)
(cid:129) make investments or acquisitions;
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
sell, transfer or otherwise dispose of certain assets;
create liens;
enter into sale/leaseback transactions;
enter into agreements restricting the ability to pay dividends or make other intercompany transfers;
consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;
enter into transactions with affiliates;
prepay, repurchase or redeem certain kinds of indebtedness;
issue or sell stock of our subsidiaries; and/or
significantly change the nature of our business.
34
RESIDEO TECHNOLOGIES, INC.
On October 25, 2018, we entered into a credit agreement, which provides for (i) a seven-year senior
secured first-lien term B loan facility in an aggregate principal amount of $475 million (the “Term B Facility”); (ii) a
five-year senior secured first-lien term A loan facility in an aggregate principal amount of $350 million (the “Term
A Facility” and, together with the Term B Facility, the “Term Loan Facilities”); and (iii) a five-year senior secured
first-lien revolving credit facility in an aggregate principal amount of $350 million (the “Revolving Credit Facility”
and, together with the Term Loan Facilities, the “Senior Credit Facilities”). The Senior Credit Facilities currently
use LIBOR as a benchmark for establishing the interest rate. LIBOR is the subject of recent proposals for reform.
These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past.
The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an
increase in the cost of our variable rate debt, which could adversely affect our financial condition and results of
operations.
Furthermore, we have pledged our assets as collateral as security for our repayment obligations in respect
of certain indebtedness and we are required to abide by certain financial and operational covenants. Our ability to
comply with such covenants and restrictions may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to
comply with these covenants may be impaired. A breach of any of these covenants, if applicable, could result in an
event of default under the terms of this indebtedness. If an event of default occurred, the lenders would have the
right to accelerate the repayment of such debt, and the event of default or acceleration could result in the
acceleration of the repayment of any other debt to which a cross-default or cross-acceleration provision applies. We
might not have, or be able to obtain, sufficient funds to make these accelerated payments, and lenders could then
proceed against any collateral. Any subsequent replacement of the agreements governing such indebtedness, or any
new indebtedness could have similar or greater restrictions. The occurrence and ramifications of an event of default
could adversely affect our business, financial condition, results of operations and cash flows. Moreover, as a result
of all of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to
raise additional debt financing to operate during general economic or business downturns or unable to compete
effectively or to take advantage of new business opportunities.
The commercial and credit environment may adversely affect our access to capital.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely
affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers
or if there are other significantly unfavorable changes in economic conditions. Volatility in the world financial
markets could increase borrowing costs or affect our ability to access the capital markets. These conditions may
adversely affect our ability to obtain targeted credit ratings.
We have certain business conflicts of interest with Honeywell with respect to our past and ongoing relationships.
In addition, the agreements that we entered into with Honeywell in connection with the Spin-Off may impose
significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our
long-term best interests, and we may from time to time have disputes with Honeywell under such agreements that
could have a material impact on our business and operations.
Conflicts of interest may or have arisen with Honeywell in a number of areas relating to our past and
ongoing relationships, including:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
labor, tax, employee benefit, indemnification and other matters arising from our separation from
Honeywell;
intellectual property matters;
employee recruiting and retention;
interpretations of contractual arrangements; and
business combinations involving our Company.
We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less
favorable to us than if we were dealing with a party other than our former parent company.
35
RESIDEO TECHNOLOGIES, INC.
The agreements that we entered into with Honeywell in connection with the Spin-Off may impose
significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-
term best interests. As described in more detail elsewhere in this Annual Report on Form 10-K, the Honeywell
Reimbursement Agreement and the Tax Matters Agreement may impose material restrictions on our business and
operations, including limitations or impediments on our ability to separate or otherwise divest businesses and
modify or waive the terms of certain agreements in a manner that would adversely affect the rights of Honeywell
under the Honeywell Reimbursement Agreement. In addition, we and Honeywell entered into a 40-year Trademark
License Agreement (the “Trademark Agreement”) that authorizes us to use certain of Honeywell’s trademarks in the
operation of our business for the advertising, sale and distribution of certain licensed products. The Trademark
Agreement is terminable by Honeywell under certain circumstances, including if we fail to comply with all material
obligations, including the payment obligations, set forth in the Honeywell Reimbursement Agreement. The
Trademark Agreement also automatically terminates upon the occurrence of a change of control of Resideo that is
not approved by Honeywell, and automatically terminates as to any subsidiary of Resideo upon it ceasing to be a
wholly-owned subsidiary of Resideo. Any termination of the Trademark Agreement could have a material adverse
effect on our business, financial condition, cash flows, and reputation. In addition, the provisions of the Trademark
Agreement in respect of a change of control of Resideo or the sale of any interests in any subsidiary of Resideo may
impact our ability to enter into transactions that are otherwise in the best interests of our stockholders.
We and Honeywell also may from time to time have disputes under the agreements and related exhibits
entered into in connection with the Spin-Off. For example, the Honeywell Reimbursement Agreement incorporates
certain of the affirmative and negative covenants contained in our principal credit agreement. Resideo believes that
amendments to the principal credit agreement that do not adversely affect the rights of Honeywell under the
Honeywell Reimbursement Agreement automatically apply to and amend the corresponding provisions of the
Honeywell Reimbursement Agreement. Honeywell has informed us that it does not agree with this interpretation
and has asserted that amendments to the provisions of the principal credit agreement are not incorporated into the
Honeywell reimbursement agreement unless Honeywell has provided its consent. In particular, Honeywell has
asserted that the amendment to the consolidated total leverage ratio and related terms under our principal credit
agreement, which became effective on November 26, 2019 (the “Amendment”), do not automatically amend and
apply to the corresponding provisions incorporated into the Honeywell Reimbursement Agreement. We were in
compliance with the pre- and post-Amendment maximum consolidated total leverage ratio covenant under the
Honeywell Reimbursement Agreement for the period ending December 31, 2019, but if Honeywell’s position is
determined to be valid and if we fail to comply with the pre-Amendment maximum consolidated total leverage ratio
in future periods that could result in Honeywell asserting a default under the Honeywell Reimbursement Agreement
Certain of our directors and employees may have actual or potential conflicts of interest because of their
financial interests in Honeywell.
Because of their former positions with Honeywell, certain of our executive officers and directors, including
the chairman of the Board, own equity interests in Honeywell. Continuing ownership of Honeywell shares and
equity awards could create, or appear to create, potential conflicts of interest if our Company and Honeywell face
decisions that could have implications for both our Company and Honeywell.
Risks Relating to Our Common Stock and the Securities Market
No market for our common stock existed prior to the Spin-Off and our stock price has fluctuated and may
continue to fluctuate significantly.
There was no public market for our common stock prior to the Spin-Off. Following the Spin-Off, the
market price of our common stock has fluctuated and may continue to fluctuate widely. This could be the result of
many factors, some of which may be beyond our control, including.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
actual or anticipated fluctuations in our results of operations or earnings guidance due to factors related to
our business;
success or failure of our business strategies;
competition and industry capacity;
changes in interest rates and other factors that affect earnings and cash flow;
36
RESIDEO TECHNOLOGIES, INC.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to
obtain financing as needed;
our indemnification obligations to Honeywell;
our ability to retain and recruit qualified personnel;
our ability to recruit and retain a new CEO and CFO;
our quarterly or annual earnings, or those of other companies in our industry;
announcements by us or our competitors of significant acquisitions or dispositions;
changes in accounting standards, policies, guidance, interpretations or principles;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and stock price performance of other comparable companies;
investor perception of our Company and our industry;
overall market fluctuations unrelated to our operating performance;
results from any material litigation or government investigation, including the shareholder litigation filed in
the fourth quarter of 2019 and related government investigation;
changes in laws and regulations (including tax laws and regulations) affecting our business;
changes in capital gains taxes and taxes on dividends affecting stockholders; and
general economic conditions and other external factors.
Our stock could sustain periods of low trading volume, which would amplify the effect of the above factors
on our stock’s price volatility.
Our ability to pay cash dividends to our stockholders is subject to the discretion of our Board and may be limited
by the terms of our indebtedness and the Honeywell Reimbursement Agreement; there is no guarantee we will
initiate dividends, or that once initiated, that we will continue paying dividends.
We have never declared or paid any cash dividends on our common stock and we currently do not intend to
pay cash dividends. We currently expect to retain any future earnings to fund the operation and expansion of our
business and restructuring activities associated with the financial and operational review announced in connection
with our third quarter earnings results, and payback debt obligations. The Board’s decision regarding any future
payment of dividends will depend on the consideration of many factors, including our financial condition, earnings,
sufficiency of distributable reserves, opportunities to retain future earnings for use in the operation of our business
and to fund future growth, capital requirements, debt service obligations, obligations under the Honeywell
Reimbursement Agreement, legal requirements, regulatory constraints and other factors that the Board deems
relevant. Additionally, the terms of the indebtedness we incurred in connection with the Spin-Off, obligations under
the Honeywell Reimbursement Agreement and other amounts owed to Honeywell under the Transition Services,
Tax Matters, Employee Matters, Trademark License and Patent Cross-License Agreements, will limit our ability to
pay cash dividends.
Stockholder’s percentage ownership in our Company may be diluted in the future.
A stockholder’s percentage ownership in our Company may be diluted in the future because of common
stock-based equity awards that we have granted and expect to grant in the future to our directors, officers and other
employees. Prior to completion of the Spin-Off, we approved the 2018 Stock Incentive Plan of Resideo
Technologies, Inc. and its Affiliates, as may be amended from time to time (the “Stock Incentive Plan”) for the
benefit of certain of our current and future employees and other service providers, as well as an equity plan for our
non-employee directors. In addition, we may issue equity as all or part of the consideration paid for acquisitions and
strategic investments that we may make in the future or as necessary to finance our ongoing operations.
In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue, without the
approval of our stockholders, one or more classes or series of preferred stock having such designation, powers,
preferences and relative, participating, optional and other special rights, including preferences over our common
stock with respect to dividends and distributions, as our Board may generally determine. The terms of one or more
classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For
example, we could grant the holders of preferred stock the right to elect some number of the members of our Board
in all events or upon the happening of specified events, or the right to veto specified transactions. Similarly, the
repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could
affect the residual value of our common stock.
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RESIDEO TECHNOLOGIES, INC.
From time to time, we may opportunistically evaluate and pursue acquisition opportunities, including
acquisitions for which the consideration thereof may consist partially or entirely of newly issued shares of our
common stock and, therefore, such transactions, if consummated, would dilute the voting power and/or reduce the
value of our common stock.
Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
and Delaware law may discourage takeovers.
Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated
Bylaws and Delaware law may discourage, delay or prevent a merger or acquisition. These include, among others,
provisions that:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
provide for staggered terms for directors on our board for a period following the Spin-Off;
do not permit our stockholders to act by written consent and require that stockholder action must take place
at an annual or special meeting of our stockholders, in each case except as such rights may otherwise be
provided to holders of preferred stock;
establish advance notice requirements for stockholder nominations and proposals;
limit the persons who may call special meetings of stockholders; and
limit our ability to enter into business combination transactions.
These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and
Restated Bylaws and Delaware law may discourage, delay or prevent certain types of transactions involving an
actual or a threatened acquisition or change in control of our Company, including unsolicited takeover attempts,
even though the transaction may offer our stockholders the opportunity to sell their shares of our common stock at a
price above the prevailing market price.
Our Amended and Restated Certificate of Incorporation designates the courts of the State of Delaware as the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or other employees.
Our Amended and Restated Certificate of Incorporation provides that, in all cases to the fullest extent
permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery
located within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding
brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or
other employee or stockholder of our Company to the Company or our Company’s stockholders, any action
asserting a claim arising pursuant to the Delaware General Corporate Law (“DGCL”) or as to which the DGCL
confers jurisdiction on the Court of Chancery located in the State of Delaware or any action asserting a claim
governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is
defined in Section 115 of the DGCL. However, if the Court of Chancery within the State of Delaware does not have
jurisdiction, the action may be brought in any other state or federal court located within the State of Delaware. Any
person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be
deemed to have notice of and to have consented to these provisions. This provision may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our
Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of
the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters
in other jurisdictions.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial
statements could be impaired and investors’ views of us could be harmed.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over
financial reporting and disclosure controls and procedures. If we are not able to comply with the requirements of
Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies
in our internal control over financial reporting that are deemed to be material weaknesses, the market price of shares
of common stock could decline and we could be subject to sanctions or investigations by the U.S. Securities and
Exchange Commission (the “SEC”) or other regulatory authorities, which would require additional financial and
management resources.
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RESIDEO TECHNOLOGIES, INC.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able
to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the
transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer, and we may be
unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report
on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. Moreover, we
cannot be certain that these measures would ensure that we implement and maintain adequate controls over our
financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that
our internal control over financial reporting provided reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with GAAP, because of its
inherent limitations, internal control over financial reporting might not prevent or detect fraud or misstatements.
This, in turn, could have an adverse impact on trading prices for our shares of common stock, and could adversely
affect our ability to access the capital markets. See “—Risks Relating to the Spin-Off—As we build our information
technology infrastructure and transition our data to our own systems, we could incur substantial additional costs and
experience temporary business interruptions, and our accounting and other management systems and resources may
not be adequately prepared to meet the financial reporting and other requirements to which we are subject following
the Spin-Off.”
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Properties
Our corporate headquarters is located in Austin, Texas.
The Products & Solutions segment owns or leases 17 manufacturing sites. ADI Global Distribution owns
or leases 200 stocking locations. There are also 62 other sites owned or leased, including offices and 5 warehouses
shared by both segments, and engineering and lab sites used by the Products & Solutions segment. The following
table shows the regional distribution of these sites:
Sites......................................................................................
148
Americas
Asia
Pacific
EMEA
112
6
India
18
We also lease or sub-lease one manufacturing site, nine other sites, including offices, engineering, and lab
sites and two warehouses from Honeywell. Twenty warehouses are operated by third parties. In addition, Honeywell
leases or subleases four manufacturing sites and three other sites, including offices and engineering sites, from us.
Honeywell is expected to use certain limited space in certain of our facilities under one or more services agreements.
For information on the lease by our ADI Global Distribution business of an administrative office building
in Melville, New York, from Honeywell see Item 13. Certain Relationships and Related Transactions, and Director
Independence, in this Form 10-K.
We believe our properties are adequate and suitable for our business as presently conducted and are
adequately maintained.
Item 3.
Legal Proceedings
We are subject to various lawsuits, investigations and disputes arising out of the conduct of our business,
including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and
divestitures, employee matters, intellectual property, and environmental, health and safety matters. We recognize a
liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the
likelihood of adverse judgments of outcomes in these matters, as well as potential ranges of possible losses (taking
into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of
outside legal counsel and, if applicable, other experts. We do not currently believe that such matters are material to
our results of operations.
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RESIDEO TECHNOLOGIES, INC.
In connection with our entry into the Honeywell Reimbursement Agreement, we will be required to make
payments to Honeywell in amounts equal to 90% of payments, which include amounts billed, with respect to certain
environmental claims, remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort
claims, in each case including consequential damages in respect of Honeywell properties contaminated through
historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90%
of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by
Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties
relating to such liabilities and (iii) certain property sales. See Note 19. Commitments and Contingencies of Notes to
Consolidated and Combined Financial Statements.
Between November 8, 2019 and January 7, 2020, four separate purported class action complaints alleging
violations of the federal securities laws were filed against the Company, the Company’s CEO Michael Nefkens, and
the Company’s former CFO Joseph Ragan, in the United States District Court for the District of Minnesota (the
“Minnesota Court”).
On November 8, 2019, the St. Clair County Employees’ Retirement System filed a purported class action
complaint in the Minnesota Court styled St. Clair County Employees’ Retirement System v. Resideo Technologies,
et. al, 19-cv-02863 (D. Minn Nov. 8, 2020) (the “St. Clair Action”). The St. Clair Action purports to assert claims
on behalf of a class of persons who purchased the Company’s stock between October 29, 2018 and October 22,
2019. It claims that the Company, Mr. Nefkens, and Mr. Ragan made false and misleading statements regarding,
among other things, the Company’s performance, the efficiency of its supply chain, and that it was ahead of
schedule in resolving operational and administrative issues resulting from the Spin-Off. It alleges that the
Company’s financial guidance lacked a reasonable basis and the Company was not on track to make its 2019
earnings guidance. The St. Clair Action asserts claims under section 10b-5 and section 20 of the Exchange Act.
On November 12, 2019, the Hollywood Firefighters’ Pension Fund filed a purported class action complaint
in the Minnesota Court styled Hollywood Firefighters’ Pension Fund v. Resideo Technologies, et. al, 19-cv-2889 (D.
Minn Nov. 12, 2019) (the “Hollywood Action”). The Hollywood Action contains similar allegations and claims to
those set forth in the St. Clair Action and purports to be asserted on behalf of a plaintiff class that purchased
Company stock between October 10, 2018 and October 22, 2019.
On December 20, 2019, the Frampton Living Trust filed a purported class action complaint in the
Minnesota Court styled Frampton Living Trust v. Resideo Technologies, et. al, 19-cv-3133 (D. Minn Dec. 20, 2019)
(the “Frampton Action”). The Frampton Action contains similar allegations and claims to those set forth in the
previous complaints and purports to be asserted on behalf of a plaintiff class that purchased Company stock between
October 10, 2018 and October 22, 2019.
On January 7, 2020, a group of institutional investors, including the Gabelli Asset Fund, filed a purported
class action complaint in the Minnesota Court styled The Gabelli Asset Fund, et. al v. Resideo Technologies, et. al,
20-cv-00094 (D. Minn Jan. 7, 2020) (the “Gabelli Action”). The Gabelli Action contains similar allegations and
claims to those set forth in the previous complaints and purports to be asserted on behalf of a plaintiff class that
purchased Company stock between October 15, 2018 and October 22, 2019. The Gabelli Action also asserts
purported claims based on Honeywell’s pre-spin conduct and statements and names Honeywell as a defendant.
On January 27, 2020, the Minnesota Court granted an order on a stipulation addressing the various motions
for consolidation and appointment of lead plaintiff and lead counsel in the pending actions. By this ruling, the court
consolidated the pending actions into a single proceeding styled In re Resideo Technologies, Inc. Securities
Litigation, 19-cv-02889. The court also appointed co-lead plaintiffs and co-lead plaintiffs counsel. The lead
plaintiffs’ deadline to file an amended, consolidated complaint is March 27, 2020.
Item 4. Mine Safety Disclosures
Not applicable.
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RESIDEO TECHNOLOGIES, INC.
PART II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “REZI”. On February 21,
2020, there were 39,291 holders of record of our common stock and the closing price of our common stock on the
New York Stock Exchange was $10.08 per share. As of February 21, 2020, 122,936,579 shares of our Common
Stock and 0 shares of our preferred stock were outstanding.
As described in Item 1, on October 29, 2018, Honeywell completed the separation of Resideo Technologies,
Inc. Following the Spin-Off, our authorized capital stock consisted of 700,000,000 shares of common stock, par
value $0.001 per share, and 100,000,000 shares of preferred stock, par value $0.001 per share. The Spin-Off is
further described in Note 1 to the Consolidated and Combined Financial Statements included in Item 8. of this Form
10-K.
Dividends
We have never declared or paid any cash dividends on our common stock and we currently do not intend to
pay cash dividends. We currently expect to retain any future earnings to fund the operation and expansion of our
business and pay back debt obligations. The Board’s decision regarding any future payment of dividends will
depend on the consideration of many factors, including our financial condition, earnings, sufficiency of distributable
reserves, opportunities to retain future earnings for use in the operation of our business and to fund future growth,
capital requirements, debt service obligations, obligations under the Honeywell Reimbursement Agreement, legal
requirements, regulatory constraints and other factors that the Board deems relevant. Additionally, the terms of the
indebtedness we incurred in connection with the Spin-Off, obligations under the Honeywell Reimbursement
Agreement and other amounts owed to Honeywell under the Transition Services, Tax Matters, Employee Matters,
Trademark License and Patent Cross-License Agreements, will limit our ability to pay cash dividends.
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RESIDEO TECHNOLOGIES, INC.
Stock Performance Graph
The following graph shows a comparison through December 31, 2019 of the cumulative total returns for (i)
our common stock, (ii) the S&P MidCap 400 Total Return Index and (iii) the S&P 400 Industrials assuming an
initial investment of $100 on the Spin-Off date and reinvestment of all dividends. The returns in the graph are not
intended to forecast or be indicative of possible future performance of our common stock.
COMPARISON OF CUMULATIVE TOTAL RETURNS SUBSEQUENT
TO SPIN-OFF
$200
$150
$100
$50
$0
Spin-Off
12/31/2018
3/31/2019
6/30/2019
9/30/2019
12/31/2019
Resideo
S&P Mid Cap 400 Total Return Index
S&P 400 Industrials
Item 6.
Selected Financial Data
Selected Historical Consolidated and Combined Financial Data
The following tables present certain selected historical consolidated and combined financial information as
of and for each of the years in the five-year period ended December 31, 2019. The selected historical consolidated
and combined financial data as of December 31, 2019 and 2018, and for each of the years in the three-year period
ended December 31, 2019 are derived from our historical audited Consolidated and Combined Financial Statements
included elsewhere in this Annual Report. The selected historical combined financial data as of December 31, 2017
and 2016 and for the year ended December 31, 2016 are derived from our historical audited Combined Financial
Statements not included in this Annual Report. The selected historical combined financial data as of and for the year
ended December 31, 2015, is derived from our historical unaudited combined financial statements not included in
this Annual Report.
42
RESIDEO TECHNOLOGIES, INC.
The selected historical consolidated and combined financial data presented below should be read in
conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our historical Consolidated and Combined Financial Statements and the accompanying Notes thereto included
elsewhere in this Annual Report. For each of the periods presented, our business was wholly owned by Honeywell
through October 29, 2018. The financial information included herein may not necessarily reflect our financial
position, results of operations and cash flows in the future or what our financial position, results of operations and
cash flows would have been had we been an independent, publicly traded company during the periods presented. In
addition, for periods prior to our Spin-Off, our historical consolidated and combined financial information does not
reflect changes that we have experienced as a result of our separation from Honeywell, including changes in the
financing, operations, cost structure and personnel needs of our business. Further, the historical consolidated and
combined financial information includes allocations of certain Honeywell corporate expenses, as described in Note 5.
Related Party Transactions with Honeywell of the Notes to Consolidated and Combined Financial Statements. We
believe the assumptions and methodologies underlying the allocation of these expenses are reasonable. However,
such expenses may not be indicative of the actual level of expenses that we would have incurred if we had operated
as an independent, publicly traded company or of the costs expected to be incurred in the future.
Selected Statement of Operations Information:
Net Revenue .............................................................. $
Net income (loss) (1) .............................................
Selected Balance Sheet Information at Year-
End:
Total assets ................................................................ $
Long-term obligations ...............................................
Total liabilities...........................................................
Total equity................................................................
Earnings (Loss) Per Common Share (1) ...............
Basic: ......................................................................... $
Diluted: ......................................................................
Weighted Average Common Shares (in thousands)
(2)
Years Ended December 31,
2019
2015
2016
2017
2018
(Dollars in millions except share and per share data)
4,988 $
36
4,827 $
405
4,519
$
(394)
$
4,455
177
4,154
147
5,128 $
2,032
3,526
1,602
4,972 $
1,950
3,439
1,533
$
4,473
723
1,870
2,603
$
4,294
338
1,420
2,874
4,096
335
1,377
2,719
0.29 $
0.29
3.31 $
3.30
(3.22) $
(3.22)
$
1.44
1.44
1.20
1.20
Basic: ......................................................................... 122,722 122,499 122,499
Diluted: ...................................................................... 123,238 122,624 122,499
122,499
122,499
122,499
122,499
1) Net income (loss) attributable to Resideo and Earnings (Loss) Per Common Share for 2018 and 2017 were
impacted by U.S. Tax Reform; see Note 9. Income Taxes of Notes to Consolidated and Combined Financial
Statements for further details.
2) On October 29, 2018, the date of consummation of the Spin-Off, 122,498,794 shares of our Common Stock
were distributed to Honeywell stockholders of record as of October 16, 2018. Basic and Diluted Earnings (Loss)
Per Common Share for all periods prior to the Spin-Off reflect the number of distributed shares, or 122,498,794
shares. For the 2018 year to date calculations, these shares are treated as issued and outstanding from January 1,
2015 for purposes of calculating historical basic earnings per share. No dividends have been paid from October
29, 2018 through December 31, 2019.
43
RESIDEO TECHNOLOGIES, INC.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars 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, 2019 and should be read in conjunction with the Consolidated and Combined Financial Statements and the notes
thereto contained elsewhere in this Form 10-K.
Overview and Business Trends
We are a leading global provider of products, software solutions and technologies that help homeowners
stay connected and in control of their comfort, security and energy use. We manage our business operations through
two segments, Products & Solutions and ADI Global Distribution. Our Products & Solutions segment consists of
solutions in Comfort, Residential Thermal Solutions (“RTS”) and Security categories and includes temperature and
humidity control, thermal, 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
electronic and security products which include intrusion and smart home, fire, video surveillance, access control,
power, audio and video, Pro AV, networking, communications, wire and cable, enterprise connectivity and
structured wiring.
Our Chief Operating Decision Maker evaluates segment performance based on Segment Adjusted EBITDA.
Segment Adjusted EBITDA is defined as segment net income before income taxes, net interest expense (income),
depreciation and amortization plus or minus environmental expense, Honeywell Reimbursement Agreement expense,
stock compensation expense, restructuring charges, other expense, net and other costs not directly relating to future
ongoing business of the segments, such as Spin-Off related costs and consulting fees related to restructuring
programs.
We evaluate our results of operations on both an as reported and constant currency basis. The constant
currency presentation, which is a non-GAAP financial measure, excludes the impact of fluctuations in foreign
currency exchange rates. We believe providing constant currency information provides valuable supplemental
information regarding our results of operations, thereby facilitating period-over-period comparisons of the
Company’s business performance and is consistent with how management evaluates the Company’s performance.
We calculate constant currency percentages by converting both our prior period local currency financial results and
current period local currency financial results at a fixed exchange rate and comparing these adjusted amounts. These
metrics should be considered in addition to, and not as replacements for, the most comparable measure in
accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). They
should be read in connection with our financial statements presented in accordance with U.S. GAAP.
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.
During 2019, the Products & Solutions segment experienced flat revenue compared to 2018, with mixed
results in the lines of businesses. Security maintained strong growth throughout the year, while Comfort and RTS
results decelerated in the second half of the year. Segment adjusted EBITDA was impacted by negative product and
channel mix, inventory write-downs, and high product rebates from a contract entered into prior to Spin-Off. The
RTS business experienced a slowdown across large original equipment manufacturers (“OEMs”) customers, which
included impacts due to recent regulatory changes. The Comfort business revenue declines were primarily due to
lower thermostat sales.
Our ADI Global Distribution business has been further aided by increasing contractor needs for training
and technical expertise and increasing demand for same-day ordering. Throughout 2019, the ADI Global
Distribution business continued its strong performance, achieving constant currency growth across all regions and
expansion in top product lines. ADI Global Distribution accelerated the adoption of digital tools, which is reflected
in strong e-commerce growth. ADI Global Distribution continued to expand its footprint, including recent opening
and remodeling of branches in Eastern Europe.
44
RESIDEO TECHNOLOGIES, INC.
Current Period Highlights
Net revenues increased $161 million in 2019 compared to 2018, primarily due to increased volume and
price partially offset by foreign exchange translation. Gross profit as a percent of net revenues decreased to 24%, or
$176 million, compared to 28% in 2018. The primary drivers to the decrease in gross profit percentage were a 200
bps impact from sales mix changes, 100 bps impact from material and labor inflation and fixed production costs
which include inventory write-downs, and 100 bps impact from headquarter allocations previously classified in
selling, general and administrative expense in the period prior to the Spin-Off. Net income for 2019 was $36 million
compared to $405 million for 2018, which included an income tax benefit of $301 million.
Selling, general and administrative expenses increased by $59 million in 2019 compared to 2018. The
increase was driven by Spin-Off related costs, license fees associated with the Trademark License Agreement,
restructuring costs, labor cost inflation, legal expenses and impact of acquisitions totaling $146 million. These
increases were partially offset by the impact of headquarter cost allocations previously classified in selling, general
and administrative expense in the period prior to the Spin-Off, foreign currency translation, and miscellaneous cost
reductions totaling $87 million.
We ended 2019 with $122 million in cash and cash equivalents. Net cash provided by operating activities
was $23 million for the year. At December 31, 2019, accounts receivable were $817 million and inventories were
$671 million.
Recent Developments
Operational and Financial Review
On October 22, 2019, we announced the commencement of a comprehensive operational and financial
review focused on product cost and gross margin improvement, and general and administrative expenses
simplification. The review is being overseen by the Strategic and Operational Committee of the board, comprised of
independent directors. We have retained industry-recognized experts in supply chain optimization and
organizational excellence to assist in the review.
Basis of Presentation
Prior to becoming an independent publicly traded company (the “Spin-Off”) on October 29, 2018, our
historical financial statements were prepared on a stand-alone combined basis and were derived from the
consolidated financial statements and accounting records of Honeywell. Accordingly, for periods prior to October
29, 2018, our financial statements are presented on a combined basis and for the periods subsequent to October 29,
2018 are presented on a consolidated basis (collectively, the historical financial statements for all periods presented
are referred to as “Consolidated and Combined Financial Statements”). The Consolidated and Combined Financial
Statements have been prepared in accordance with U.S. GAAP. The historical combined financial information prior
to the Spin-Off may not be indicative of our future performance and does not necessarily reflect what our
consolidated and combined results of operations, financial condition and cash flows would have been had we
operated as a separate, publicly traded company during the periods presented, particularly because of changes that
we have experienced and may continue to experience as a result of our separation from Honeywell, including
changes in the financing, cash management, operations, cost structure and personnel needs of our Company.
The Combined Financial Statements prior to the Spin-Off include certain assets and liabilities that were
held at the Honeywell corporate level but were specifically identifiable or otherwise attributable to us. Additionally,
Honeywell historically provided certain services, such as legal, accounting, information technology, human
resources and other infrastructure support, on our behalf. The costs of these services were allocated to us on the
basis of the proportion of net revenue. Actual costs that would have been incurred if we had been a stand-alone
company for the entire period being presented would depend on multiple factors, including organizational structure
and strategic decisions made in various areas, including information technology and infrastructure. Both we and
Honeywell consider the basis on which the expenses were allocated during the period before the Spin-Off to be a
reasonable reflection of the utilization of services provided to or the benefits received by us during the periods
presented.
45
RESIDEO TECHNOLOGIES, INC.
Since the completion of the Spin-Off, we have incurred and expect to continue to incur expenditures
consisting of employee-related costs, costs to start up certain stand-alone functions and information technology
systems and other one-time transaction related costs. Recurring stand-alone costs include establishing the internal
audit, treasury, investor relations, tax and corporate secretary functions as well as the annual expenses associated
with running an independent publicly traded company including listing fees, compensation of non-employee
directors, related board of director fees and other fees and expenses related to insurance, legal and external audit.
Prior to Spin-Off, our environmental expenses for specified Honeywell properties contaminated through
historical business operations (“Honeywell Sites”) now subject to the Honeywell Reimbursement Agreement were
reported within other expense, net in our Consolidated and Combined Statement of Operations, which reflect an
estimated liability for resolution of pending and future environmental-related liabilities. Prior to the Spin-Off, this
estimated liability was calculated as if we were responsible for 100% of the environmental-liability payments
associated with certain sites. See Environmental Matters and Honeywell Reimbursement Agreement in Note 19.
Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements for additional
information.
Components of Operating Results
Our fiscal year ends on December 31. The key elements of our operating results include:
Net Revenue
We manage our global business operations through two reportable segments, Products & Solutions and
ADI Global Distribution:
Products & Solutions. We generate the majority of our Products & Solutions net revenue primarily from
residential end-markets. Our Products & Solutions segment includes traditional products, as well as connected
products, which we define as any device with the capability to be monitored or controlled from a remote location by
an end-user or service provider. Our products are sold through a network of distributors (e.g. HVAC, Plumbing,
Security, Electrical), OEMs, and service providers such as HVAC contractors, security dealers and plumbers
including our ADI Global Distribution business. We also sell some products via retail and online channels.
ADI Global Distribution. We generate revenue through the distribution of low-voltage electronic and
security products that are delivered through a comprehensive network of professional contractors, distributors and
OEMs, as well as major retailers and online merchants. In addition to our own Security products, ADI Global
Distribution distributes products from industry-leading manufacturers, and ADI Global Distribution also carries a
line of private label products. We sell these products to contractors that service non-residential and residential end-
users. 13% of ADI Global Distribution’s net revenue is supplied by our Products & Solutions Segment.
Management estimates that in 2019 approximately two-thirds of ADI Global Distribution’s net revenue was
attributed to non-residential end markets and one-third to residential end markets.
Cost of Goods Sold
Products & Solutions: Cost of goods sold includes costs associated with raw materials, assembly, shipping
and handling of those products; costs of personnel-related expenses, including pension benefits, and equipment
associated with manufacturing support, logistics and quality assurance; costs of certain intangible assets; and costs
of research and development. Research and development expense consists primarily of support to existing customers
with installed base and enhancements and improvements to existing products, as well as development of new
products and product applications.
ADI Global Distribution: Cost of goods sold consists primarily of inventory-related costs and includes
labor and personnel-related expenses.
46
RESIDEO TECHNOLOGIES, INC.
Selling, General and Administrative Expense
Selling, general and administrative expense includes trademark royalty expenses, sales incentives and
commissions, professional fees, legal fees, promotional and advertising expenses, and personnel-related expenses,
including stock compensation expense and pension benefits. In addition, prior to the Spin-Off, our selling, general
and administrative expense included an allocated portion of general corporate expenses.
Other Expense, Net
Other expense, net consists primarily of Honeywell Reimbursement Agreement expenses (partially offset
by certain reductions) for certain environmental claims related to approximately 230 sites or groups of sites that are
undergoing environmental remediation under U.S. federal or state law and agency oversight for contamination
associated with Honeywell historical business operations. Prior to the Spin-Off, other expense, net also included the
environmental expenses related to these same sites. For further information see the “Honeywell Reimbursement
Agreement” and “Environmental Matters” sections of this Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Interest Expense
Interest expense consists of interest on our short and long-term obligations, including our senior notes, term
credit facility, and revolving credit facility. Interest expense on our obligations includes contractual interest,
amortization of the debt discount and amortization of deferred financing costs.
Tax Expense
Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates
adjusted for U.S. taxation of foreign earnings and other non-deductible expenses, research and development tax
credits and other permanent differences.
47
RESIDEO TECHNOLOGIES, INC.
Results of Operations for the Years Ended December 31, 2019, 2018 and 2017
The following table sets forth our selected consolidated and combined statement of operations for the
periods presented:
Consolidated and Combined Statement of Operations
(Dollars in millions except share and per share data)
Years Ended December 31,
2018
2019
2017
Net revenue....................................................................................... $
Cost of goods sold ............................................................................
Gross profit .......................................................................................
Selling, general and administrative expenses ...................................
Operating profit ................................................................................
Other expense, net ............................................................................
Interest expense ................................................................................
Income before taxes..........................................................................
Tax expense (benefit) .......................................................................
Net income (loss).............................................................................. $
Weighted Average Number of Common Shares Outstanding
(in thousands)
Basic .................................................................................................
Diluted ..............................................................................................
Earnings (Loss) Per Share
Basic ................................................................................................. $
Diluted .............................................................................................. $
Net Revenue
4,988 $
3,798
1,190
932
258
118
69
71
35
36
$
4,827 $
3,461
1,366
873
493
369
20
104
(301)
405
$
4,519
3,203
1,316
871
445
279
-
166
560
(394)
122,722
123,238
122,499
122,624
122,499
122,499
0.29
$
0.29 $
3.31
$
3.30 $
(3.22)
(3.22)
Years Ended December 31,
2018
2017
2019
Net revenue ....................................................................................... $
% change compared with prior period ..............................................
4,988
$
3%
4,827
$
7%
4,519
The change in net revenue compared to prior period is attributable to the following:
Volume ...............................................................................................................
Price ....................................................................................................................
Foreign currency translation ...............................................................................
% change compared with prior period................................................................
3%
2%
(2%)
3%
4%
2%
1%
7%
2019
2018
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
Years Ended December 31,
2018
2017
2019
Cost of goods sold ............................................................................ $
% change compared with prior period..............................................
Gross profit percentage.....................................................................
3,798
$
10%
24%
3,461
$
8%
28%
3,203
29%
48
RESIDEO TECHNOLOGIES, INC.
2019 compared with 2018
Cost of goods sold for 2019 was $3,798 million, an increase of $337 million, or 10%, from $3,461 million
in 2018. This $337 million increase in cost of goods sold was primarily driven by higher revenue in the ADI Global
Distribution segment, material and labor inflation and increased production costs including inventory write-downs,
changes in sales mix, headquarter allocations previously classified in selling, general and administrative expense in
the period prior to the Spin-Off, restructuring costs and Spin-Off related costs totaling $416 million. The increased
costs were partially offset by foreign currency translation and savings in other miscellaneous costs of goods sold
totaling $79 million.
The primary drivers to the decrease in gross profit percentage were a 200 basis points (“bps”) impact from
changes in sales mix, 100 bps impact from material and labor inflation and fixed production costs, and 100 bps
impact from headquarter allocations previously classified in selling, general and administrative expense in the period
prior to the Spin-Off.
2018 compared with 2017
Cost of goods sold for 2018 was $3,461 million, an increase of $258 million, or 8%, from $3,203 million in
2017. This increase in cost of goods sold was primarily driven by higher revenue in both the ADI Global
Distribution and Products & Solutions segments, foreign currency translation, material and labor inflation, and
changes in sales mix totaling $258 million.
The decrease in gross profit percentage was primarily driven by a 200 bps impact of net direct material and
labor inflation partially offset by 100 bps impact from higher sales prices.
Selling, General and Administrative Expense
Years Ended December 31,
2018
2017
2019
Selling, general and administrative expense..................................... $
% of revenue .....................................................................................
932
$
19%
873
$
18%
871
19%
2019 compared with 2018
Selling, general and administrative expense for 2019 was $932 million, an increase of $59 million, from
$873 million in 2018. The increase was driven by Spin-Off related costs, license fees associated with the Trademark
License Agreement, restructuring costs, labor cost inflation, legal expenses, and impact of acquisitions totaling $146
million. These increases were partially offset by headquarter cost allocation now partially classified in cost of goods
sold, foreign currency translation, and miscellaneous cost reductions totaling $87 million.
2018 compared with 2017
Selling, general and administrative expense for 2018 was $873 million, essentially flat from $871 million in
2017. The increase was driven by the impact of foreign currency translation totaling $10 million and offset by
savings attributed to restructuring actions taken and lower selling costs of $8 million.
Other Expense, Net
Years Ended December 31,
2018
2017
2019
Other expense, net ............................................................................. $
118 $
369 $
279
49
RESIDEO TECHNOLOGIES, INC.
2019 compared with 2018
Other expense, net for 2019 was $118 million, a decrease of $251 million from $369 million in 2018. The
decrease is mainly due to lower environmental remediation expense, now subject and presented as Honeywell
Reimbursement Agreement expense subsequent to the Spin-Off.
2018 compared with 2017
Other expense, net for 2018 was $369 million, an increase of $90 million from $279 million in 2017. This
increase mainly relates to the cost of certain environmental remediation expense.
Tax Expense (Benefit)
Years Ended December 31,
2018
2017
2019
Tax expense (benefit) ....................................................................... $
Effective tax rate...............................................................................
35
$
48.6%
(301)
$
(289%)
560
337%
2019 compared with 2018
The effective tax rate increased in 2019 compared to 2018. The increase in effective tax rate was primarily
attributable to tax benefits generated in 2018 related to the internal restructuring of Resideo’s business in advance of
its anticipated Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings, and adjustments
to the provisional tax amount related to U.S. Tax Reform, partially offset by decreases in tax expense related to
Global Intangible Low Taxed Income (“GILTI”) and non-deductible expenses.
Non-deductible expenses had a material impact which increased the current effective tax rate by 31.5% and
management estimates non-deductible expenses will have a material impact on the future effective tax rate.
2018 compared with 2017
The effective tax rate decreased in 2018 compared to 2017. The decrease was primarily due to tax benefits
attributable to the internal restructuring of our business in advance of its anticipated Spin-Off, adjustments to the
provisional tax amount related to U.S. Tax Reform, adjustments to income tax reserves, partially offset by tax
expense related to GILTI.
On December 22, 2017, the U.S. enacted H.R.1, formerly known as the Tax Cuts and Jobs Act (“TCJA”),
that instituted fundamental changes to the taxation of multinational corporations. The TCJA includes changes to the
taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral
rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The TCJA also
imposed a one-time mandatory transition tax on the historical earnings of foreign affiliates and implemented a
territorial-style tax system. Changes to the TCJA provisional charges recorded upon enactment were the primary
driver of the decrease in the effective tax rate in 2018. Non-deductible expenses had a material impact on the current
effective tax rate and management estimates non-deductible expenses will have a material impact on the future
effective tax rate.
Review of Business Segments
Products & Solutions
Total revenue ............................................................. $
Less: Intersegment revenue........................................
External revenue ........................................................
Segment Adjusted EBITDA ...................................... $
2,487 $
312
2,175
314 $
2,474
305
2,169
460
$
0%
(32)% $
2,379
337
2,042
409
6%
12%
2019
2018
% Change
2017
% Change
50
RESIDEO TECHNOLOGIES, INC.
Factors Contributing to Period-Over-Period Change
Constant currency growth (decline).....................................
Acquisitions .........................................................................
Foreign currency translation ................................................
Total % change ....................................................................
2019 compared with 2018
2019 vs. 2018
2018 vs. 2017
Segment
Adjusted
EBITDA
(%)
Segment
Adjusted
EBITDA
(%)
Revenue
(%)
Revenue
(%)
2%
0%
(2)%
0%
(29)%
(1)%
(2)%
(32)%
5%
0%
1%
6%
10%
0%
2%
12%
Products & Solutions revenue remained flat driven primarily by the Security business and the first quarter
launch of a new residential intrusion security platform, offset by softness in Comfort and RTS product
lines. Segment Adjusted EBITDA declined from $460 million to $314 million, or 32%. Segment Adjusted EBITDA
was negatively impacted by $181 million from unfavorable product and channel mix, inventory variances,
production cost increases including inventory write-downs, high product rebates from a contract entered into prior to
the Spin-Off, license fee paid to Honeywell associated with the Trademark License Agreement, and impact of
acquisitions. These negative impacts were partially offset by $35 million of profit from increased selling prices,
material productivity, and miscellaneous cost reductions.
2018 compared with 2017
Products & Solutions revenue increased by 6% primarily due to an increase in external sales volume and
higher prices in the Comfort and RTS product lines, and the impact of favorable currency translation. Segment
Adjusted EBITDA increased from $409 million to $460 million, or 12%. Segment Adjusted EBITDA was positively
impacted $72 million by volume growth, higher prices, and favorable currency translation. These positive impacts
were partially offset by $21 million of inflation net of productivity and adverse product mix.
ADI Global Distribution
External revenue ........................................................ $
Segment Adjusted EBITDA ...................................... $
2,813 $
188 $
2,658
164
6% $
15% $
2,477
143
7%
15%
2019
2018
% Change
2017
% Change
Factors Contributing to Period-Over-Period Change
Constant currency growth ....................................................
Foreign currency translation ................................................
Total % change ....................................................................
2019 vs. 2018
2018 vs. 2017
Segment
Adjusted
EBITDA
(%)
Segment
Adjusted
EBITDA
(%)
Revenue
(%)
Revenue
(%)
7%
(1)%
6%
16%
(1)%
15%
6%
1%
7%
15%
0%
15%
51
RESIDEO TECHNOLOGIES, INC.
2019 compared with 2018
ADI Global Distribution revenue increased 6% on a reported basis, and 7% on a constant currency basis.
ADI Global Distribution segment constant currency performance was driven by increased sales volume growth
across all regions. Segment Adjusted EBITDA increased from $164 million to $188 million, or 15%. This increase
was due to increased volume and productivity, net of inflation which was partially offset by unfavorable foreign
exchange rates.
2018 compared with 2017
ADI Global Distribution revenue increased by 7% primarily due to volume growth across all of our key
geographic markets. Segment Adjusted EBITDA increased from $143 million to $164 million, or by 15%. This
increase was due to increased volume, and productivity, net of inflation.
Restructuring Charges
During the second quarter of 2019, management began a restructuring plan to reduce operating costs and
better align our workforce with the needs of the business going forward. These restructuring actions generated
incremental pre-tax savings of $15 million in 2019 compared with 2018 principally from planned workforce
reductions. Cash spending related to our restructuring actions was $31 million for the year ended December 31,
2019 and was funded through operating cash flows.
Net restructuring and related expenses were $37 million, $5 million and $23 million for December 31, 2019,
2018 and 2017, respectively, primarily related to severance.
For further discussion of restructuring activities, refer to Note 7. Restructuring Charges of Notes to
Consolidated and Combined Financial Statements.
Capital Resources and Liquidity
Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from
operations. Additional liquidity may also be provided through access to the financial capital markets and a
committed global credit facility. The following is a summary of our liquidity position:
(cid:129) As of December 31, 2019, total cash and cash equivalents were $122 million, of which 74% were held by
foreign subsidiaries. At December 31, 2019, there were no borrowings and no letters of credit issued under
our $350 million Credit Facility.
(cid:129) Historically, we have delivered positive cash flows from operations. Operating cash flows from continuing
operations were $23 million, $462 million and $37 million for the three years ended December 31, 2019,
2018 and 2017, respectively.
Liquidity
Our future capital requirements will depend on many factors, including the rate of sales growth, market
acceptance of our products, the timing and extent of research and development projects, potential acquisitions of
companies or technologies and the expansion of our sales and marketing activities. We believe our existing cash,
cash equivalents and credit under our credit facilities are sufficient to meet our capital requirements through at least
the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time. We
may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional
equity or debt financing.
Credit Agreement
On October 25, 2018, we entered into a credit agreement (the “Credit Agreement”), which provides for (i) a
seven-year senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the “Term
B Facility”); (ii) a five-year senior secured first-lien term A loan facility in an aggregate principal amount of $350
million (the “Term A Facility” and, together with the Term B Facility, the “Term Loans or “Term Loan Facilities”);
and (iii) a five-year senior secured first-lien revolving credit facility in an aggregate principal amount of $350
million (the “Revolving Credit Facility” and, together with the Term Loan Facilities, the “Senior Credit Facilities”).
52
RESIDEO TECHNOLOGIES, INC.
We incurred indebtedness under the Term Loan Facilities in an aggregate principal amount of approximately $825
million on October 25, 2018, and relied on the Revolving Credit Facility to support working capital needs during the
remainder of 2018. As of December 31, 2019, there were no borrowings and no Letters of Credit outstanding under
the Revolving Credit Facility.
We are obligated to make quarterly principal payments throughout the term of the Term Loan Facilities
according to the amortization provisions in the Credit Agreement. During 2019 we made payments of $22 million.
In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay
a quarterly commitment fee based on the unused portion of the Revolving Credit Facility. Borrowings under the
Credit Agreement can be prepaid at our option without premium or penalty other than a 1.00% prepayment premium
that may be payable in connection with certain repricing transactions within a certain period of time after the closing
date. Up to $75 million may be utilized under the Revolving Credit Facility for the issuance of letters of credit to the
Company or any of our subsidiaries. Letters of credit are available for issuance under the Credit Agreement on terms
and conditions customary for financings of this kind, which issuances will reduce the available funds under the
Revolving Credit Facility.
The Senior Credit Facilities are subject to an interest rate and interest period which we will elect. If we
choose to make a base rate borrowing on an overnight basis, the interest rate will be based on the highest of (1) the
rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United States, (2) the greater of the
federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR
rate, plus 1.00% per annum. If we choose to make a LIBOR borrowing on a one, two, three or six-month basis, the
interest rate will be based on an adjusted LIBOR rate (which shall not be less than zero) based on the interest period
for the borrowing. The applicable margin for the Term B Facility is currently 2.25% per annum (for LIBOR loans)
and 1.25% per annum (for base rate loans). The applicable margin for each of the Term A Facility and the
Revolving Credit Facility varies from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75%
per annum (for base rate loans) based on our leverage ratio. Accordingly, the interest rates for the Senior Credit
Facilities will fluctuate during the term of the Credit Agreement based on changes in the base rate, LIBOR or future
changes in our leverage ratio. Interest payments with respect to the borrowings are required either on a quarterly
basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if the duration of the applicable
interest period exceeds three months, then every three months.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this
type that, among other things, limit our and our subsidiaries’ ability to incur additional indebtedness or liens, to
dispose of assets, to make certain fundamental changes, enter into restrictive agreements, to make certain
investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends, to
make other distributions or redemptions/repurchases, in respect of our and our subsidiaries’ equity interests, to
engage in transactions with affiliates or amend certain material documents. In addition, the Credit Agreement also
contains financial maintenance and coverage covenants. The Credit Agreement contains customary events of default,
including with respect to a failure to make payments under the Senior Credit Facilities, cross-default, certain
bankruptcy and insolvency events and customary change of control events.
All obligations under the Senior Credit Facilities are or will be unconditionally guaranteed jointly and
severally, by: (a) our Company and (b) substantially all of the direct and indirect wholly owned subsidiaries of our
Company that are organized under the laws of the United States, any state thereof or the District of Columbia
(collectively, the “Guarantors”). The Guarantors entered into a guarantee under the Credit Agreement concurrently
with the effectiveness of the Credit Agreement. Subject to certain limitations, the Senior Credit Facilities are or will
be secured on a first priority basis by: (x) a perfected security interest in the equity interests of each direct subsidiary
of the Company and each Guarantor under the Senior Credit Facilities (subject to certain customary exceptions) and
(y) perfected, security interests in, and mortgages on, substantially all tangible and intangible personal property and
material real property of the Company and each of the Guarantors under the Senior Credit Facilities, subject, in each
case, to certain exceptions. The Company and the Guarantors entered into security documents concurrently with
effectiveness of the Credit Agreement.
53
RESIDEO TECHNOLOGIES, INC.
In 2018, we incurred approximately $16 million in debt issuance costs related to the Term Loans and $5
million in costs related to the Revolving Credit Facility. The debt issuance costs associated with the Term Loans
were recorded as a reduction of the principal balance of the debt, and the Revolving Credit Facility costs were
capitalized in Other assets. The issuance costs are being amortized through Interest expense for the duration of each
respective debt facility.
On November 26, 2019, the Company entered into a First Amendment to the Credit Agreement (the
“Credit Agreement Amendment”). The Credit Agreement Amendment amended the Credit Agreement to, among
other things: (i) increase the levels of the maximum consolidated total leverage ratio under the Credit Agreement, to
not greater than 5.25 to 1.00 for the quarter ended December 31, 2019, with step-downs to 4.75 to 1.00 starting in
the quarter ending December 31, 2020, 4.25 to 1.00 starting in the quarter ending December 31, 2021, and 3.75 to
1.00 starting in the quarter ending December 31, 2022; (ii) increase each applicable interest rate margin on loans
outstanding after the first amendment effective date by 25 basis points per annum, to 2.25% per annum (for LIBOR
loans) and 1.25% per annum (for alternate base rate “ABR” loans) in respect of the Term B Loan Facility, and based
on our leverage ratio, from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per
annum (for ABR loans) for the Term A Loan Facility and the Revolving Credit Facility; and (iii) modify the defined
terms “Consolidated EBITDA” and “Pro Forma Basis” set forth in the Credit Agreement. In connection with the
Credit Agreement Amendment, the Company incurred costs of approximately $4 million. The Term Loan costs were
recorded as a reduction of the principal balance of the debt and the Revolving Credit Facility costs were capitalized
in Other assets.
Senior Notes
In October of 2018, we issued $400 million in principal amount of 6.125% senior unsecured notes due in
2026 (the "Senior Notes"). The Senior Notes guarantees are unsecured senior debt obligations of the Senior Notes
guarantors. The net proceeds from the borrowings under the Senior Credit Facilities and the offering of the Senior
Notes were used as part of financing the Spin-Off.
In 2018, we incurred approximately $8 million in debt issuance costs related to the Senior Notes. The debt
issuance costs associated with the Senior Notes are recorded as a reduction of the principal balance of the debt.
The interest expense for the Senior Notes and Credit Agreement during the year ended December 31, 2019
and 2018 was $69 million and $13 million, respectively, which includes the amortization of debt issuance cost and
debt discounts.
Honeywell Reimbursement Agreement
In connection with the Spin-Off, we entered into the Honeywell Reimbursement Agreement, pursuant to
which we have an obligation to make cash payments to Honeywell International Inc. (“Honeywell”) in amounts
equal to 90% of payments, which include amounts billed (“payments”), with respect to certain environmental claims,
remediation and, following the Spin-Off, hazardous exposure or toxic tort claims, in each case including
consequential damages (the “liabilities”) in respect of the 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
“recoveries”). The amount payable by us in respect of such liabilities arising in any given year is subject to a cap of
$140 million (exclusive of any late payment fees up to 5% per annum). Payments in respect of the liabilities arising
in a given year will be made quarterly throughout such year on the basis of an estimate of the liabilities and
recoveries provided by Honeywell. Following the end of any such year, Honeywell will provide us with a
calculation of the amount of payments and the recoveries actually received. Subject to the aforementioned cap, if the
amount of payments (net of recoveries) is greater than the previously provided estimate, we will pay Honeywell the
amount of such difference (the “true-up payment”) and, if the amount of the previously provided estimate is greater
than the amount of payments (net of recoveries), we will receive a credit in the amount of such difference that will
be applied to future payments. If a true-up payment exceeds $30 million, such true-up payment will be made in
equal installments, payable on a monthly basis following the date the true-up payment is due.
54
RESIDEO TECHNOLOGIES, INC.
In addition to the sites under the Honeywell Reimbursement Agreement, we have environmental expense
related to sites owned and operated by Resideo (“Resideo Sites”). Prior to the Spin-Off, both of these expenses were
combined and were presented as environmental expense. Expenses for environmental matters deemed probable and
reasonably estimable were $323 million for the period from January 1, 2018 through October 29, 2018 and $282
million in 2017.
Subsequent to the Spin-Off, environmental expense was $2 million for 2019 and $17 million for the period
October 30, 2018 through December 31, 2018 and Honeywell Reimbursement Agreement expense was $108 million
for 2019 and $49 million for the period October 30, 2018 through December 31, 2018.
See Note 19. Commitments and Contingencies of Notes to Consolidated and Combined Financial
Statements for further discussion.
Cash Flow Summary for the Years Ended December 31, 2019, 2018 and 2017
Our cash flows from operating, investing and financing activities for the years ended December 31, 2019,
2018 and 2017, as reflected in the audited Consolidated and Combined Financial Statements are summarized as
follows:
Years Ended December 31,
2018
2017
2019
Cash provided by (used for):
Operating activities ...................................................................... $
Investing activities .......................................................................
Financing activities ......................................................................
Effect of exchange rate changes on cash .....................................
Net (decrease) increase in cash and cash equivalents ....................... $
23 $
(112)
(53)
(1)
(143) $
462 $
(74)
(167)
(12)
209 $
37
(51)
21
2
9
2019 compared with 2018
Cash provided by operating activities for 2019 decreased by $439 million, due to lower net income of $369
million and a decrease in accounts payable and accruals, which includes the Honeywell Reimbursement Agreement
liability of $553 million, offset by a favorable change in $298 million in deferred taxes and a $197 million reduction
in inventory and accounts receivable.
Cash used for investing activities for 2019 increased by $38 million, primarily due to an increase of $17
million cash paid for acquisitions, an increase of $14 million cash paid for capital expenditures, and a decrease of $7
million in proceeds received related to amounts due from related parties.
Cash used for financing activities for 2019 decreased by $114 million. The decrease in usage was primarily
due to the Spin-Off. Cash used for 2019 primarily consisted of $22 million of repayment of long-term debt and $24
million of non-operating obligations from Honeywell, net. Cash used for financing activities in 2018 primarily
consisted of a $1.4 billion distribution to Honeywell in connection with the Spin-Off partially offset by $1.2 billion
in proceeds received on long-term debt.
2018 compared with 2017
Cash provided by operating activities for 2018 increased by $425 million, primarily due to higher payments
for income taxes of approximately $233 million in 2017 due to expenses related to U.S. Tax Reform. Cash from
operating activities also increased due to a decrease in net working capital driven primarily by an increase in
accounts payable due to timing of payments under our Transition Services Agreement (“TSA”) with Honeywell,
partially offset by an increase in inventory related to new product lines and increased sales.
Cash used for investing activities increased by $23 million, primarily due to an increase in expenditures on
property, plant and equipment and software related to becoming an independent company.
55
RESIDEO TECHNOLOGIES, INC.
Cash used for financing activities increased by $188 million. The increase in usage was primarily due to a
$1.4 billion distribution to Honeywell in connection with Spin-Off partially offset by $1.2 billion in proceeds
received on long-term debt.
Contractual Obligations and Probable Liability Payments
Following is a summary of our significant contractual obligations and probable liability payments at
December 31, 2019:
Total (1)
Long-term debt (2) ................................................. $
Interest payments on long-term debt (3)....................
Honeywell Reimbursement Agreement payments (4).
Estimated environmental liability payments (5).........
Minimum operating lease payments ..........................
Purchase obligations (6)..........................................
$
1,203 $
335
585
22
166
554
2,865 $
2020
Payments by Period
2021-
2022
(Dollars in millions)
22 $
60
140
3
38
286
549 $
97 $
114
280
3
64
260
818 $
2023-
2024
Thereafter
237 $
96
165
3
34
8
543 $
847
65
-
13
30
-
955
1) The table excludes tax liability payments, including those for unrecognized tax benefits. See Note 9. Income
Taxes of Notes to Consolidated and Combined Financial Statements.
2) Assumes all long-term debt is outstanding until scheduled maturity.
3)
4)
Interest payments are estimated based on the interest rate applicable as of December 31, 2019.
In connection with the Spin-Off, we entered into the Honeywell Reimbursement Agreement with Honeywell.
As of December 31, 2019, $585 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 Honeywell Reimbursement Agreement refer to Note 19. Commitments and
Contingencies of Notes to Consolidated and Combined Financial Statements.
5) Represents estimated environmental liability payments for sites which we own and are directly responsible for.
6) Purchase obligations are entered into with various vendors in the normal course of business and are consistent
with our expected requirements.
Capital Expenditures
We believe our capital spending in recent years has been sufficient to maintain efficient production
capacity, to implement important product and process redesigns and to expand capacity to meet increased demand.
Productivity projects have freed up capacity in our manufacturing facilities and are expected to continue to do so.
We expect to continue investing to expand and modernize our existing facilities and to create capacity for new
product development. Capital expenditures for 2020 are expected to be $70 million to $80 million excluding any
potential capital expenditures related to the operational and financial review.
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.
56
RESIDEO TECHNOLOGIES, INC.
Critical Accounting Policies
The preparation of our Consolidated and Combined Financial Statements in accordance with generally
accepted accounting principles is based on the selection and application of accounting policies that require us to
make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider
the accounting policies discussed below to be critical to the understanding of our Consolidated and Combined
Financial Statements. Actual results could differ from our estimates and assumptions, and any such differences
could be material to our Consolidated and Combined Financial Statements.
Revenue — Product and service revenues are recognized when or as the Company transfers control of the
promised products or services to the customer, in an amount the Company expects to receive in exchange for
transferring goods or providing services. Each distinct performance obligation within a contract is identified, and 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.
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, bonuses, and the right of return. The Company estimates variable
consideration at the most likely amount that will be received from customers and reduces revenues recognized
accordingly. The Company includes estimated amounts in the transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the
variable consideration is resolved. The estimates of variable 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 the Company.
Environmental — We accrue costs related to environmental matters for our Resideo Sites for which we are
directly responsible when it is probable that we have incurred a liability related to a contaminated site and the
amount can be reasonably estimated. Environmental-related expenses are for our owned sites presented within Cost
of goods sold for operating sites in the Consolidated and Combined Statement of Operations. Prior to the Spin-Off,
Honeywell Sites now under the Honeywell Reimbursement Agreement were presented within Other expense. For
additional information, see Note 19. Commitments and Contingencies of Notes to Consolidated and Combined
Financial Statements included herein for additional detail.
Honeywell Reimbursement Agreement — In connection with the Spin-Off, we entered into the Honeywell
Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in
amounts equal to 90% of payments, which include amounts billed, with respect to certain environmental claims,
remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case,
including consequential damages (the “liabilities”) in respect of the 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 by us in respect of such liabilities arising in any given year is subject to a cap of $140 million
(exclusive of any late payment fees up to 5% per annum).
Through the Honeywell Reimbursement Agreement, we are subject to a number of environmental claims,
remediation and, to the extent arising after the Spin-Off, hazardous exposure or toxic tort claims. We continually
assess the likelihood of any adverse judgments or outcomes related to the Honeywell 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 Honeywell 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 Honeywell 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 and Combined Statement of Operations. See Note 19. Commitments
and Contingencies of Notes to Consolidated and Combined Financial Statements for a discussion of management’s
judgment applied in the recognition and measurement of our environmental liabilities.
57
RESIDEO TECHNOLOGIES, INC.
Goodwill — We perform goodwill impairment testing annually on October 1st of each year or more
frequently if indicators of potential impairment exist. The goodwill impairment test is performed at the reporting
unit level. We have two reporting units, Products & Solutions and ADI Global Distribution. In determining if
goodwill is impaired, we compare the fair value of a reporting unit with its carrying amount and recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value provided the
loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.
For the 2019 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. 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. However, if there was an
adverse change in the facts and circumstances, then an impairment charge may be necessary in the future.
Specifically, the fair value of our Products & Solutions reporting unit, with goodwill of approximately $2,004
million, exceeded its carrying value by 10% and therefore is highly sensitive to adverse changes in the facts and
circumstances that could result in a possible future impairment. Should the fair value of the Company’s reporting
units fall below its carrying amount because of reduced operating performance, market declines, changes in the
discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its reporting
units to determine if there is an indicator of potential impairment.
Income Taxes — Our provision for income tax expense is based on our income, the statutory tax rates and
other provisions of the tax laws applicable to us in each of the various jurisdictions in which we conduct business.
These laws are complex, and their application to our facts is at times open to interpretation. The process of
determining our consolidated and combined income tax expense includes significant judgments and estimates,
including judgments regarding the interpretation of those laws. Our provision for income taxes and our deferred tax
assets and liabilities incorporate those judgments and estimates and reflect management’s best estimate of current
and future income taxes to be paid.
Deferred tax assets and liabilities relate to temporary differences between the financial reporting and
income tax bases of our assets and liabilities, as well as the impact of tax loss carryforwards or carrybacks. Deferred
income tax expense or benefit represents the expected increase or decrease to future tax payments as these
temporary differences reverse over time. Deferred tax assets are specific to the jurisdiction in which they arise and
are recognized subject to management’s judgment that realization of those assets is “more likely than not.” In
making decisions regarding our ability to realize tax assets, we evaluate all positive and negative evidence, including
projected future taxable income, taxable income in carryback periods, expected reversal of deferred tax liabilities,
and the implementation of available tax planning strategies.
Significant judgment is required in evaluating tax positions. We establish additional reserves for income
taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet
the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the
authoritative guidance which determines when a tax position is more likely than not to be sustained upon
examination by the applicable taxing authority. In the normal course of business, we 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.
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RESIDEO TECHNOLOGIES, INC.
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 $6.4 million to
the net periodic benefit cost for 2019, while a 25 basis point decrease in the discount rate would result in an increase
of approximately $7.9 million. The resulting impact on the pension benefit obligation would be a decrease of $18.7
million and an increase of $20.6 million, respectively.
Other Matters
Litigation, Environmental Matters and the Honeywell Reimbursement Agreement
See Note 19. Commitments and Contingencies of Notes to Consolidated and Combined 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 and Combined Financial
Statements for a discussion of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect
operating results, financial position and cash flows. We manage our exposure to these market risks through our
regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
Interest Rate Risk
As of December 31, 2019, $803 million of our total debt of $1,203 million carried variable interest rates,
including the effect of pay variable interest rate swaps, if any. The fair market values of our fixed-rate financial
instruments are sensitive to changes in interest rates. At December 31, 2019, an increase or decrease of 100 basis
points on our Term Loans would have approximately an $8 million impact on our annual interest expense on
long-term debt.
Foreign Currency Exchange Rate Risk
We are exposed to market risks from changes in currency exchange rates. While we primarily transact with
customers in the U.S. Dollar, we also transact in foreign currencies, primarily including the Euro, British Pound,
Canadian Dollar, and Czech Koruna. These exposures may impact total assets, liabilities, future earnings and/or
operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates arises from
transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and
international financing activities between subsidiaries. We rely primarily on natural offsets to address our exposures
and may supplement this approach from time to time by entering into forward and option hedging contracts. As of
December 31, 2019, we have no outstanding hedging arrangements.
Commodity Price Risk
While we are exposed to commodity price risk, we attempt to pass through significant changes in
component and raw material costs to our customers based on the contractual terms of our arrangements. In limited
situations, we may not be fully compensated for such changes in costs.
Item 8.
Financial Statements and Supplementary Data
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Resideo Technologies, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Resideo Technologies, Inc. (the “Company”) as of
December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the
Company and our report dated February 27, 2020, expressed an unqualified opinion on those consolidated financial
statements and included explanatory paragraphs relating to expense allocations for certain corporate functions
historically provided by Honeywell International, Inc. and the Company's adoption of Accounting Standards Update
No. 2016-02, Leases (Topic 842).
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
60
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis Minnesota
February 27, 2020
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Resideo Technologies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Resideo Technologies, Inc. (the "Company") as
of December 31, 2019 and 2018, the related consolidated and combined statements of operations, comprehensive
income (loss), cash flows, and equity, for each of the three years in the period ended December 31, 2019, and the
related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Emphasis of a Matter
As described in Note 1 to the financial statements, prior to the Spin-Off, the accompanying financial statements
were derived from the separate records maintained by Honeywell International, Inc. ("Honeywell"). The financial
statements also include expense allocations for certain corporate functions historically provided by Honeywell.
These allocations may not be reflective of the actual expense that would have been incurred had the Company
operated as a separate entity apart from Honeywell. A summary of transactions with related parties is included in
Note 5 to the financial statements.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company adopted ASU No. 2016-02, Leases (Topic 842),
effective January 1, 2019, and applied the changes prospectively as of the adoption date.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
62
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Honeywell Reimbursement Agreement — Refer to Note 19 to the financial statements
Critical Audit Matter Description
In connection with the Spin-Off, the Company entered into the Honeywell Reimbursement Agreement (the
“Reimbursement Agreement”), pursuant to which the Company has an obligation to make cash payments to
Honeywell with respect to certain environmental claims associated with specified properties contaminated through
historical business operations. The Company’s obligation is equal to 90% of payments for certain Honeywell
environmental liability payments, less 90% of Honeywell's net insurance receipts plus certain other recoveries
relating to such liabilities, as defined by the Reimbursement Agreement. The amount payable by the Company under
this agreement is subject to an annual limit of $140 million.
The Company records its obligation under the Reimbursement Agreement based on the underlying environmental
remediation liabilities of Honeywell which are recorded when a remediation liability is determined to be probable
and the related costs can be reasonably estimated. The determination of the amount of future costs associated with
environmental remediation requires judgments and estimates by management. Furthermore, information the
Company uses to evaluate the estimates is obtained from Honeywell under the terms of the Reimbursement
Agreement.
Given the subjectivity in estimating the remediation costs for environmental matters and judgments made by
management related to those estimates, performing audit procedures to evaluate the reasonableness of
management’s estimates and assumptions, requires a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s obligation under the Reimbursement Agreement and evaluation of
the Company’s evidence supporting its estimates included the following, among others:
(cid:129) We tested the effectiveness of controls related to remediation costs for environmental matters, including
management’s controls over the recording of and changes to the liability for the Company’s obligations under
the Reimbursement Agreement.
(cid:129) We read the Reimbursement Agreement and evaluated the Company’s compliance with it to the extent it has the
potential to affect the Company’s related liability.
(cid:129) We performed searches of third-party sources to identify potential liabilities related to the specified sites that
may not have been included in the estimates.
(cid:129) We tested the completeness and accuracy of the recognition of its liability for obligations under the
Reimbursement Agreement through the following procedures:
-
For a selection of incremental charges to the Honeywell Environmental liability (increases), we obtained
supporting documentation related to the sufficiency of the liability from management, including but not
limited to regulatory records of decision, feasibility studies, and third-party engineering estimates.
63
-
For a selection of payments related to the Honeywell Environmental liability (decreases), we obtained
supporting documentation related to the original invoice and proof of payment.
- We made inquiries of internal and external legal counsel regarding environmental matters.
- We monitored external news sources and conducted a public domain search to assess the completeness of
the liabilities.
Goodwill - Refer to Note 13 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting
unit to its carrying value. The Company determines the fair value of its reporting units using income and market
approaches. The determination of the fair value using an income approach involves the use of a discounted cash
flow model that requires management to make estimates and assumptions related to future revenues and expenses,
projected capital expenditures, changes in working capital cash flows, long-term growth rates, and discount rates.
The determination of the fair value using the market approach requires management to make assumptions related to
earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples. The goodwill balance was
$2,642 million as of December 31, 2019, of which $2,006 million related to the Products and Solutions reporting
unit. The fair value of the Products and Solutions reporting unit exceeded its carrying value by 10% as of the
measurement date and, therefore, no impairment was recognized.
Given the judgments made by management to estimate the fair value of the Products and Solutions reporting units
and the difference between their fair value and carrying value, performing audit procedures to evaluate the
reasonableness of management’s estimates and assumptions related to forecasts of future revenues and expenses,
projected capital expenditures, changes in working capital cash flow, EBITDA multiples, as well as the selection of
the long-term growth rate and discount rate, required a high degree of auditor judgment and an increased extent of
effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related estimates and assumptions for certain reporting units included the following, among
others:
(cid:129) We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those
over the forecasts of future revenues and expenses, projected capital expenditures, changes in working capital
cash flow, EBITDA multiples, and the selection of the long-term growth rate and discount rate.
(cid:129) We evaluated management’s ability to accurately forecast future revenues and operating expenses, capital
expenditures, and working capital needs by comparing actual results to management’s historical forecasts.
(cid:129) We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results,
(2) internal communications to management and the Board of Directors, and (3) forecasted information
included in Company press releases, analyst and industry reports for the Company and companies in its peer
group.
(cid:129) With the assistance of our fair value specialists, we evaluated the EBITDA multiples used in estimating fair
value, including testing the underlying source information and mathematical accuracy of the calculations, and
comparing the multiples selected by management to its guideline peer companies.
(cid:129) With the assistance of our fair value specialists, we evaluated the discount rate, including testing the underlying
source information and the mathematical accuracy of the calculations, and developing a range of independent
estimates and comparing those to the discount rate selected by management.
64
(cid:129) With the assistance of our fair value specialists, we evaluated the long-term growth rate by comparing
management’s selected long-term growth rate to external data and a range of independent estimates.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
February 27, 2020
We have served as the Company's auditor since 2018.
65
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
(Dollars in millions except share and per share data)
Years Ended December 31,
2018
2017
2019
Net revenue ....................................................................................... $
Cost of goods sold.............................................................................
Gross profit .......................................................................................
Selling, general and administrative expenses ...................................
Operating profit.................................................................................
Other expense, net.............................................................................
Interest expense.................................................................................
Income before taxes ..........................................................................
Tax expense (benefit)........................................................................
Net income (loss) .............................................................................. $
Weighted Average Number of Common Shares Outstanding
(in thousands)
Basic..................................................................................................
Diluted...............................................................................................
Earnings (Loss) Per Share
Basic.................................................................................................. $
Diluted............................................................................................... $
4,988 $
3,798
1,190
932
258
118
69
71
35
36 $
4,827 $
3,461
1,366
873
493
369
20
104
(301)
405 $
4,519
3,203
1,316
871
445
279
-
166
560
(394)
122,722
123,238
122,499
122,624
122,499
122,499
0.29 $
0.29 $
3.31 $
3.30 $
(3.22)
(3.22)
The Notes to Consolidated and Combined Financial Statements are an integral part of this statement.
66
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED AND COMBINED
STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions except share and per share data)
Years Ended December 31,
2018
2017
2019
Net income (loss) .............................................................................. $
Other comprehensive income (loss), net of tax
Foreign exchange translation adjustment ....................................
Pension actuarial loss...................................................................
Total other comprehensive income (loss), net of tax...................
Comprehensive income (loss) ........................................................... $
36 $
405
$
(394)
(2)
(3)
(5)
31 $
(77)
(7)
(84)
$
321
69
-
69
(325)
The Notes to Consolidated and Combined Financial Statements are an integral part of this statement.
67
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in millions, shares in thousands)
ASSETS
Current assets:
Cash and cash equivalents ................................................................................... $
Accounts receivables – net ..................................................................................
Inventories – net ..................................................................................................
Other current assets .............................................................................................
Total current assets.........................................................................................
Property, plant and equipment – net .........................................................................
Goodwill....................................................................................................................
Other intangible assets – net .....................................................................................
Other assets ...............................................................................................................
Total assets ..................................................................................................... $
LIABILITIES
Current liabilities:
Accounts payable................................................................................................. $
Current maturities of long-term debt ...................................................................
Accrued liabilities................................................................................................
Total current liabilities ...................................................................................
Long-term debt..........................................................................................................
Obligations payable to Honeywell ............................................................................
Other liabilities..........................................................................................................
COMMITMENTS AND CONTINGENCIES (Note 19)
EQUITY
Common stock, $0.001 par value, 700,000 shares authorized, 123,488 and
122,873 shares issued and outstanding as of December 31, 2019, 122,967 and
122,499 shares issued and outstanding as of December 31, 2018, respectively.......
Additional paid-in capital..........................................................................................
Treasury stock, at cost...............................................................................................
Retained earnings ......................................................................................................
Accumulated other comprehensive (loss) .................................................................
Total equity ....................................................................................................
Total liabilities and equity.............................................................................. $
December 31,
2019
2018
122 $
817
671
175
1,785
316
2,642
127
258
5,128 $
920 $
22
552
1,494
1,158
594
280
-
1,761
(3)
38
(194)
1,602
5,128 $
265
821
628
95
1,809
300
2,634
133
96
4,972
964
22
503
1,489
1,179
629
142
-
1,720
-
2
(189)
1,533
4,972
The Notes to Consolidated and Combined Financial Statements are an integral part of this statement.
68
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOW
(Dollars in millions except share and per share data)
Years Ended December 31,
2018
2017
2019
Cash flows provided by operating activities:
Net income (loss)......................................................................... $
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ...............................................
Restructuring charges, net of payments .................................
Stock compensation expense..................................................
Deferred income taxes............................................................
Other.......................................................................................
Changes in assets and liabilities:
Accounts receivables..............................................................
Inventories – net.....................................................................
Other current assets ................................................................
Other assets ............................................................................
Accounts payable ...................................................................
Accrued liabilities ..................................................................
Obligations payable to Honeywell .........................................
Other liabilities.......................................................................
Net cash provided by operating activities .........................................
Cash flows used for investing activities:
Expenditures for property, plant, equipment and software .........
Cash paid for acquisitions, net of cash acquired .........................
Other ............................................................................................
Net cash used for investing activities................................................
Cash flows (used for) provided by financing activities:
Proceeds from long-term debt .....................................................
Payment of debt facility issuance and modification costs ...........
Repayment of long-term debt ......................................................
Distribution to Honeywell in connection with Spin-Off .............
Net increase in invested equity ....................................................
Non-operating obligations from Honeywell, net .........................
Other ............................................................................................
Net cash (used for) provided by financing activities ........................
Effect of foreign exchange rate changes on cash and cash
equivalents ........................................................................................
Net (decrease) increase in cash and cash equivalents .......................
Cash and cash equivalents at beginning of period ............................
Cash and cash equivalents at end of period ...................................... $
Supplemental cash flow information:
Interest paid....................................................................................... $
Income taxes paid (net of refunds).................................................... $
Capital expenditures in accounts payable ......................................... $
36 $
405
$
(394)
80
6
25
(25)
18
7
(44)
(53)
(15)
(38)
22
(35)
39
23
(95)
(17)
-
(112)
-
(4)
(22)
-
-
(24)
(3)
(53)
(1)
(143)
265
122 $
72 $
86 $
16 $
66
(4)
20
(323)
22
(62)
(172)
(27)
(4)
231
65
24
221
462
(81)
-
7
(74)
1,225
(29)
-
(1,415)
39
26
(13)
(167)
(12)
209
56
265
$
-
28
23
$
$
$
67
6
16
297
19
(31)
(17)
(17)
-
11
(5)
-
85
37
(51)
-
-
(51)
-
-
-
-
19
-
2
21
2
9
47
56
-
261
14
The Notes to Consolidated and Combined Financial Statements are an integral part of this statement.
69
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T
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Note 1. Organization, Operations and Basis of Presentation
Business Description
Resideo Technologies, Inc. (“Resideo” or “the Company”), is a global provider of products, software,
solutions and technologies that help homeowners stay connected and in control of their comfort, security and energy
use. The Company is a leader in the home heating, ventilation and air conditioning controls and security markets,
and a leading global distributor of low-voltage electronic and security products.
Separation from Honeywell
The Company was incorporated in Delaware on April 24, 2018. The Company separated from Honeywell
International Inc. (“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result
of a pro rata distribution of the Company’s common stock to shareholders of Honeywell (the “Spin-Off”). On
October 29, 2018, Honeywell’s shareholders of record as of October 16, 2018 (“Record Date”) received one share of
the Company’s common stock, par value $0.001 per share, for every six shares of Honeywell’s common stock, par
value $1.00 per share, held as of the Record Date, and cash for any fractional shares of the Company’s common
stock. The Company began trading “regular way” under the ticker symbol “REZI” on the New York Stock
Exchange on October 29, 2018.
In connection with the separation, Resideo and Honeywell entered into a Honeywell Reimbursement
Agreement (as defined in Note 19. Commitments and Contingencies), a Separation and Distribution Agreement, an
Employee Matters Agreement, a Tax Matters Agreement, a Transition Services Agreement, a Trademark License
Agreement and a Patent Cross-License Agreement. The agreements govern the relationship between Resideo and
Honeywell following the separation and provide for the allocation of various assets, liabilities, rights and obligations.
These agreements also include arrangements for transition services to be provided by Honeywell to Resideo and by
Resideo to Honeywell.
Basis of Presentation
Prior to the Spin-Off, the Company’s historical financial statements were prepared on a stand-alone
combined basis and were derived from the consolidated financial statements and accounting records of Honeywell.
Accordingly, for periods prior to October 29, 2018, these financial statements are presented on a combined basis and
for the periods subsequent to October 29, 2018 are presented on a consolidated basis (collectively, the historical
financial statements for all periods presented are referred to as “Consolidated and Combined Financial Statements”).
The Consolidated and Combined Financial Statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”).
All intracompany transactions have been eliminated for all periods presented. As described in Note 5.
Related Party Transactions with Honeywell, all significant transactions between the Company and Honeywell
occurring prior to the Spin-Off have been included in these Consolidated and Combined Financial Statements.
While the Company was owned by Honeywell, a centralized approach to cash management and financing
was used. Prior to the consummation of the Spin-Off, the majority of the Company’s cash was transferred to
Honeywell daily and Honeywell funded the Company’s operating and investing activities as needed.
The Combined Financial Statements prior to the Spin-Off include certain assets and liabilities that have
historically been held at Honeywell corporate level but were specifically identifiable or otherwise attributable to the
Company. The cash and cash equivalents held by Honeywell at the corporate level were not specifically identifiable
to the Company and therefore were not attributed for any of the periods presented. Honeywell third-party debt and
the related interest expense were not allocated for any of the periods presented as Honeywell’s borrowings were not
directly attributable to the company. In periods subsequent to the Spin-Off, we have made and may continue to
make adjustments to balances transferred at the Spin-Off, including adjustments to the classification of assets or
liabilities transferred. Any such adjustments are recorded directly to equity in Adjustments due to the Spin-Off and
are considered immaterial.
71
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Prior to the Spin-Off, Honeywell provided certain services, such as legal, accounting, information
technology, human resources and other infrastructure support, on behalf of the Company. The cost of these services
has been allocated to the Company on the basis of the proportion of net revenue. The Company and Honeywell
consider these allocations to be a reasonable reflection of the benefits received by the Company. However, the
financial information presented in these Consolidated and Combined Financial Statements may not reflect the
consolidated and combined financial position, operating results and cash flows of the Company had the Company
been a separate stand-alone entity during the periods presented. Actual costs that would have been incurred if the
Company had been a stand-alone company would depend on multiple factors, including organizational structure and
strategic decisions made in various areas, including information technology and infrastructure. Both Resideo and
Honeywell consider the basis on which the expenses have been allocated to be a reasonable reflection of the
utilization of services provided to or the benefits received by the Company during the periods presented. After the
Spin-Off, a number of the above services have continued under a Transition Service Agreement with Honeywell,
which the Company expenses as incurred based on the contractual pricing terms.
Note 2. Summary of Significant Accounting Policies
Accounting Principles—The financial statements and accompanying notes are prepared in accordance with
U.S. GAAP. The following is a description of Resideo’s significant accounting policies.
Principles of Consolidation—The Consolidated and Combined Financial Statements include the accounts
of Resideo Technologies, Inc. and all of its subsidiaries in which a controlling interest is maintained. All
intercompany transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents—Cash and cash equivalents include cash on hand and highly liquid
investments having an original maturity of three months or less.
Accounts Receivables and Allowance for Doubtful Accounts—Trade accounts receivable are recorded at
the invoiced amount as a result of transactions with customers. The Company maintains allowances for doubtful
accounts for estimated losses as a result of customers’ inability to make required payments. The Company estimates
anticipated losses from doubtful accounts based on days past due as measured from the contractual due date and
historical collection history. The Company also takes into consideration changes in economic conditions that may
not be reflected in historical trends, for example customers in bankruptcy, liquidation or reorganization. Receivables
are written-off against the allowance for doubtful accounts when they are determined to be uncollectible. Such
determination includes analysis and consideration of the particular conditions of the account, including time
intervals since last collection, customer performance against agreed upon payment plans, solvency of customer and
any bankruptcy proceedings.
Inventories—Inventories in the Products & Solutions business are stated at the lower of cost or net
realizable value, determined on a first-in, first-out basis, including direct material costs and direct and indirect
manufacturing costs, or net realizable value. Inventories in the ADI Global Distribution business are stated at
average cost. Reserves are maintained for obsolete, inactive and surplus items.
Property, Plant and Equipment—Property, plant and equipment are recorded at cost, less accumulated
depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives
of 10 to 50 years for buildings and improvements, 3 to 16 years for machinery and equipment and 3 to 10 years for
tooling equipment.
Goodwill—The Company performs goodwill impairment testing annually, on October 1st of each year or
more frequently if indicators of potential impairment exist. The goodwill impairment test is performed at the
reporting unit level. The Company has two reporting units, Products & Solutions and ADI Global Distribution. The
Company performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount and 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.
72
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. For
the 2019 annual impairment test, the Company used a weighting of fair values derived from the income approach
and market approach. Under the income approach, the Company calculates the fair value of a reporting unit based
on the present value of estimated future cash flows. The income approach requires the exercise of significant
judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value
and appropriate discount rates. Under the market approach, the Company utilizes the public company guideline
method. As a corroborative source of information, the Company reconciles the estimated fair value of its reporting
units to within a reasonable range of its market capitalization, which includes an assumed control premium to verify
the reasonableness of the fair value of its reporting units.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if
there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in the
future. Specifically, the fair value of our Products reporting unit, with goodwill of approximately $2,004 million,
exceeded its carrying value by 10% and therefore is highly sensitive to adverse changes in the facts and
circumstances that could result in a possible future impairment. Should the fair value of the Company’s reporting
units fall below its carrying amount because of reduced operating performance, market declines, changes in the
discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its reporting
units to determine if there is an indicator of potential impairment.
Other Intangible Assets and Long-lived Assets—Other intangible assets with determinable lives consist of
customer lists, technology, patents and trademarks and software intangibles and are amortized over their estimated
useful lives, ranging from 3 to 15 years. They are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of the assets may not be recoverable. Recoverability of long-lived assets are
measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is
expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the
difference between the carrying value and the fair value of the impaired asset.
Warranties and Guarantees—Expected warranty costs for products sold are recognized based on an
estimate of the amount that eventually will be required to settle such obligations. These accruals are based on factors
such as past experience, length of the warranty and various other considerations. Costs of product recalls, which
may include the cost of the product being replaced as well as the customer’s cost of the recall, including labor to
remove and replace the recalled part, are accrued as part of the warranty accrual at the time an obligation becomes
probable and can be reasonably estimated. These estimates are adjusted from time to time based on facts and
circumstances that impact the status of existing claims.
Leases—Effective January 1, 2019, arrangements containing leases are evaluated as an operating or finance
lease at lease inception. For operating leases, the Company recognizes an operating right-of-use asset and operating
lease liability at lease commencement based on the present value of lease payments over the lease term.
Since an implicit rate of return is not readily determinable for the Company's leases, an incremental
borrowing rate is used in determining the present value of lease payments and is calculated based on information
available at the lease commencement date. The incremental borrowing rate is determined using a portfolio approach
based on the rate of interest the Company would have to pay to borrow funds on a collateralized basis over a similar
term. The Company references a market yield curve consistent with the Company's credit rating which is risk-
adjusted to approximate a collateralized rate in the currency of the lease. These rates are updated on a quarterly basis
for measurement of new lease obligations. Most leases include renewal options; however, generally it is not
reasonably certain that these options will be exercised at lease commencement. Lease expense is recognized on a
straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recognized on the
Company’s balance sheet. The Company does not separate lease and non-lease components for its real estate and
automobile leases.
Revenue Recognition—Product and service revenues are recognized when or as the Company transfers
control of the promised products or services to the customer. Revenue is measured as the amount of consideration
the Company expects to receive in exchange for transferring goods or providing services.
73
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
In the sale of products, the terms of a contract or the historical business practice can give rise to variable
consideration due to, but not limited to, discounts and bonuses. The Company estimates variable consideration at the
most likely amount that will be received from customers and reduce revenues recognized accordingly. The
Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is
resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the
transaction price are based largely on an assessment of our anticipated performance and all information (historical,
current and forecasted) that is reasonably available to the Company.
The Company adopted the revenue recognition standard ASC 606 as of January 1, 2018 (see Note 6.
Revenue Recognition). Prior to adoption, product and service revenues were recognized when there was evidence of
a sales agreement, delivery of goods had occurred or services had been rendered, the sales price was fixed or
determinable, and the collectability of revenue was reasonably assured. Service sales, principally representing
network subscription services, were recognized over the contractual period or as services were rendered. Revenues
from contracts with multiple element arrangements were recognized as each element was earned based on the
relative fair value of each element provided the delivered elements had value to customers on a stand-alone basis.
Amounts allocated to each element were based on its objectively determined fair value, such as the sales price for
the product or service when it was sold separately or competitor prices for similar products or services.
Sales incentives and allowances were recognized as a reduction to revenue at the time of the related sale.
Sales, use and value added taxes collected by the Company and remitted to various government authorities
were not recognized as revenues and are reported on a net basis.
Shipping and handling fees billed to customers were included in Cost of goods sold.
Royalty—In connection with the Spin-Off, the Company and Honeywell entered into a 40-year Trademark
License Agreement (“the Trademark Agreement”) that authorizes the Company’s use of certain licensed trademarks
in the operation of Resideo’s business for the advertising, sale and distribution of certain licensed products. In
exchange, the Company pays a royalty fee of 1.5% of net revenue of the licensed products to Honeywell which is
recorded in Selling, general and administrative expense on the Consolidated and Combined Statement of Operations.
Environmental—The Company accrues costs related to environmental matters when it is probable that it
has incurred a liability related to a contaminated site and the amount can be reasonably estimated. Environmental
costs for our owned sites are presented within Cost of goods sold for operating sites. Prior to the Spin-off, sites now
under the Honeywell Reimbursement Agreement were presented within Other expense, net in the Consolidated and
Combined Statement of Operations. For additional information, see Note 19. Commitments and Contingencies.
Honeywell Reimbursement Agreement—In connection with the Spin-Off, the Company entered into an
Indemnification and Reimbursement Agreement with Honeywell (the “Honeywell Reimbursement Agreement”) on
October 14, 2018, pursuant to which it has an obligation to make cash payments to Honeywell in amounts equal to
90% of payments, which include amounts billed, with respect to certain environmental claims, remediation and, to
the extent arising after the Spin-Off, hazardous exposure or toxic tort claims, in each case, including consequential
damages (the “liabilities”) in respect of specified Honeywell properties contaminated through historical business
operations prior to the Spin-Off (“Honeywell Sites”), including the legal and other costs of defending and resolving
such liabilities, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net
proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii)
contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable in
respect of such liabilities arising in any given year is subject to a cap of $140 million (exclusive of any late payment
fees up to 5% per annum). Honeywell reimbursement agreement expenses are presented within Other expense, net
in the Consolidated and Combined Statement of Operations and within Accrued liabilities and Obligations payable
to Honeywell in the Consolidated and Combined Balance Sheet. For additional information, see Note 19.
Commitments and Contingencies.
74
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Tax Indemnification Agreement—The Tax Matters Agreement provides that Resideo is required to
indemnify Honeywell for any taxes (and reasonable expenses) resulting from the failure of the Spin-Off and related
internal transactions to qualify for their intended tax treatment under U.S. federal, state and local income tax law, as
well as foreign tax law, where such taxes result from (a) breaches of covenants and representations we make and
agree to in connection with the Spin-Off, (b) the application of certain provisions of U.S. federal income tax law to
these transactions or (c) any other action or omission (other than actions expressly required or permitted by the
Separation and Distribution Agreement, the Tax Matters Agreement or other ancillary agreements) we take after the
consummation of the Spin-Off that gives rise to these taxes. As of December 31, 2019 and 2018, the Company has
indemnified Honeywell for $149 million and $153 million, respectively. See Note 19. Commitments and
Contingencies.
Research and Development—The Company conducts research and development activities, which consist
primarily of the development of new products as well as product applications support to existing customers with
installed base and enhancements and improvements to existing products. Research and development costs primarily
relate to employee compensation and consulting fees which are charged to expense as incurred. Such costs are
included in Cost of goods sold and amount to $139 million, $105 million and $120 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Advertising Costs—The Company expenses advertising costs as incurred. Advertising costs totaled $46
million for the year ended December 31, 2019. Prior to the Spin-Off, advertising costs were allocated from
Honeywell as described in Note 5. Related Party Transactions with Honeywell. Advertising costs are included
within Selling, general and administrative expense.
Defined Contribution Plans—The Company sponsors various defined contribution plans with varying
terms depending on the country of employment. The Company recognized compensation expense of $18 million for
the year ended December 31, 2019 related to employer contributions to these plans. Prior to the Spin-Off, costs
were allocated from Honeywell as described in Note 5. Related Party Transactions with Honeywell.
Stock-Based Compensation Plans—The principal awards
issued under Resideo’s stock-based
compensation plans, which are described in Note 18. Stock-Based Compensation Plans, are restricted stock units.
The cost for such awards is measured at the grant date based on the fair value of the award.
Stock options are also issued under Resideo’s stock-based compensation plans. The fair value of each
grant is estimated on the date of grant using the Black-Scholes option pricing model which requires estimates of
future stock price volatility, expected term, risk-free interest rate and forfeitures.
For all stock-based compensation, the fair value of the portion of the award that is ultimately expected to
vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award)
and is included in Selling, general and administrative expenses in the Consolidated and Combined Statement of
Operations. Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to
vest and are based on historical forfeiture rates.
Pension— The guidance requires that the Company disaggregates the service cost component of net
benefit costs and report those costs in the same line item or items in the Consolidated and Combined Statement of
Operations as other compensation costs arising from services rendered by the pertinent employees during the period.
The other non-service components of net benefit costs are required to be presented separately from the service cost
component and outside of income from operations.
The Company has recorded the service cost component of pension expense in Costs of goods sold and
Selling, general and administrative expenses based on the classification of the employees it relates to. The remaining
components of net benefit costs within pension expense, primarily interest costs and expected return on plan assets,
are recorded in Other expense, net. The Company recognizes net actuarial gains or losses in excess of 10% of the
greater of the fair value of plan assets or the plans’ projected benefit obligation (the corridor) annually in the fourth
quarter each year. This adjustment known as the mark to market adjustment will also be reported in Other expense,
net.
75
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Foreign Currency Translation—Assets and liabilities of operations outside the United States with a
functional currency other than U.S. Dollars are translated into U.S. Dollars using year-end exchange rates. Revenue,
costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency
translation gains and losses are included as a component of Accumulated other comprehensive (loss).
Income Taxes—Significant judgment is required in evaluating tax positions. The Company establishes
additional reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain
certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and
uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely
than not to be sustained upon examination by the applicable taxing authority. In the normal course of business, the
Company and its subsidiaries are examined by various federal, state and foreign tax authorities. The Company
regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior
years in determining the adequacy of its provision for income taxes. The Company continually assesses the
likelihood and amount of potential adjustments and adjusts the income tax provision, the current tax liability and
deferred taxes in the period in which the facts that give rise to a change in estimate become known.
Earnings (Loss) Per Share—Basic earnings (loss) per share is based on the weighted average number of
common shares outstanding. Diluted earnings (loss) per share is based on the weighted average number of common
shares outstanding and all dilutive potential common shares outstanding. For additional information, see Note 3.
Earnings Per Share.
Use of Estimates—The preparation of the Company’s Consolidated and Combined Financial Statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts in the Consolidated and Combined Financial Statements and related disclosures in the accompanying Notes.
Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the
effects of changes are reflected in the Consolidated and Combined Financial Statements in the period they are
determined to be necessary. Estimates are used when accounting for stock-based compensation, pension benefits,
contingent consideration, indemnification liabilities, goodwill and intangible assets and valuation allowances for
receivables and inventory reserves, deferred tax assets, and the amounts of revenue and expenses reported during the
period.
Recent Accounting Pronouncements—The Company considers the applicability and impact of all recent
accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not
listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact
on the Company’s consolidated and combined financial position or results of operations.
The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, and applied the
changes prospectively as of the adoption date. As permitted by the new guidance, the Company elected the package
of practical expedients, which, among other things, allowed historical lease classification to be carried forward.
Upon adoption of ASU No. 2016-02, the Company recognized an aggregate lease liability of $115 million,
calculated based on the present value of the remaining minimum lease payments for qualifying leases as of January
1, 2019, with a corresponding right-of-use asset of $112 million. The cumulative-effect adjustment recognized to
opening retained earnings was not material. The adoption of the new guidance did not impact the Company’s
Consolidated and Combined Statement of Operations or Cash Flows.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income, which allows for an entity to elect to reclassify, to retained earnings,
the one-time income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the
U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”). An entity that elects to make this reclassification must consider
all items in AOCI that have tax effects stranded as a result of the tax rate change and must disclose the
reclassification of these tax effects as well as the entity’s policy for releasing income tax effects from AOCI. The
ASU may be applied either retrospectively or as of the beginning of the period of adoption. The Company adopted
the standard on January 1, 2019 using the aggregate portfolio accounting policy for recognizing the disproportionate
income tax effects in AOCI and has elected not to reclassify the stranded income tax effects of U.S. Tax Reform
from AOCI to retained earnings.
76
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326),
which provides guidance designed to provide financial statement users with more information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date. From November 2018 to November 2019, amendments to Topic 326 were issued to clarify numerous
accounting topics. When determining such expected credit losses, the guidance requires companies to apply a
methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. The amendment is effective on a modified retrospective
basis for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early
adoption is permitted for fiscal years and interim periods beginning after December 15, 2018. The Company does
not expect adoption of this pronouncement to have a material financial statement impact.
On August 18, 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined
Benefit Plans - General (Subtopic 715-20) that amends the current disclosure requirements regarding defined benefit
pensions and other post retirement plans and allows for the removal of certain disclosures, while adding certain new
disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2020 and allows for
early adoption. The Company does not expect this new standard to have a significant impact on its disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes
(Topic 740). This ASU simplifies the accounting for income taxes by, among other things, eliminating certain
existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in
the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting
for transactions outside of business combination that result in a step-up in the tax basis of goodwill. The transition
requirements are primarily prospective and the effective date for Resideo is January 1, 2021, with early adoption
permitted. The Company is currently evaluating the impact of adopting this guidance.
Note 3. Earnings Per Share
On October 29, 2018, the date of consummation of the Spin-Off, 122,498,794 shares of the Company’s
Common Stock, par value $0.001 per share, were distributed to Honeywell shareholders of record as of October 16,
2018. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods
presented prior to the Spin-Off as no common stock was outstanding prior to the date of the Spin-Off. For the 2018
year to date calculation, these shares are treated as issued and outstanding from January 1, 2018 for purposes of
calculating historical basic earnings per share. For December 31, 2019 and 2018, this calculation excludes 615,351
and 467,764 treasury shares, respectively.
The details of the earnings per share calculations for the years ended December 31, 2019, 2018 and 2017
are as follows:
Basic:
Net income (loss) .............................................................................. $
Weighted average common shares outstanding (in thousands) ........
Earnings (Loss) Per Share - Basic..................................................... $
Diluted:
Net income (loss) .............................................................................. $
Weighted average common shares outstanding - Basic (in
thousands) .........................................................................................
Dilutive effect of common stock equivalents ...................................
Weighted average common shares outstanding - Diluted (in
thousands) .........................................................................................
Earnings (Loss) Per Share - Diluted ................................................. $
77
Years Ended December 31,
2018
2017
2019
36
122,722
0.29
$
$
405
122,499
3.31
$
$
(394)
122,499
(3.22)
Years Ended December 31,
2018
2017
2019
36
$
405
$
(394)
122,722
516
122,499
125
122,499
-
123,238
0.29
$
122,624
3.30
$
122,499
(3.22)
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Diluted Earnings (Loss) Per Share is computed based upon the weighted average number of common
shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method
and the average market price of our common stock for the period. For the year ended December 31, 2018, the
average market price of our common stock was calculated from the Spin-Off date to December 31, 2018. In periods
where the Company has a net loss, no dilutive common shares are included in the calculation for diluted shares as
they are considered anti-dilutive. For the year ended December 31, 2019, average options and other rights to
purchase approximately 2.8 million shares of common stock were outstanding, all of which were anti-dilutive during
the year ended December 31, 2019, and therefore excluded from the computation of diluted earnings per common
share. Additionally, an average of approximately 0.2 million shares of performance-based unit awards are excluded
from the computation of diluted earnings per common share for the year ended December 31, 2019 as the
contingency has not been satisfied at December 31, 2019.
Note 4. Acquisitions
During the year ended December 31, 2019, the Company completed three acquisitions which have been
integrated into the Products & Solutions segment. On March 28, 2019, the Company acquired all of the capital stock
of Buoy Labs, which provides innovative Wi-Fi enabled solutions that track the amount of water used in a home,
integrating smart software and hardware that can help consumers identify potential leaks and allow consumers to act
to prevent them through its subscription-based app services. On May 21, 2019, the Company acquired certain assets
relating to innovative energy efficiency from Whisker Labs. The acquired technology creates a thermodynamic
model of a home to accurately predict home heating and air conditioning run time and energy use to enable a
homeowner to use less energy while maintaining comfort. On June 27, 2019, the Company acquired all of the
membership interests of LifeWhere. LifeWhere uses machine learning and analytics to predict potential failure on
critical home appliances, such as water heaters, furnaces and air conditioners. This service provides the detailed
analytics required for professional contractors to dispatch technicians with the right skills to quickly repair the
appliance before it causes catastrophic failure. The aggregate purchase price paid for these acquisitions was $17
million. In connection with these acquisitions, the Company recognized goodwill and intangible assets of $10
million and $7 million, respectively. The Buoy Labs acquisition agreements include deferred payments for certain
individuals that are contingent upon employment as well as financial performance. The Company determined that
these deferred payments are accounted for as compensation expense over the requisite service period.
These acquisitions have an immaterial financial statement impact on both an individual basis and when
considered in the aggregate.
Note 5. Related Party Transactions with Honeywell
Prior to the Spin-Off, the Consolidated and Combined Financial Statements were derived from the
unaudited Consolidated Financial Statements and accounting records of Honeywell.
Prior to the Spin-Off, Honeywell was a related party that provided certain services, such as legal,
accounting, information technology, human resources and other infrastructure support, on behalf of the Company.
The costs of these services were allocated to the Company on the basis of the proportion of net revenue. The
Company and Honeywell consider the allocations to be a reasonable reflection of the benefits received by the
Company.
During the period from January 1, 2018 until October 29, 2018 and the year ended December 31, 2017, the
Company was allocated $228 million and $289 million, respectively, of general corporate expenses incurred by
Honeywell and such amounts are included within Selling, general and administrative expenses in the Consolidated
and Combined Statement of Operations. As certain expenses reflected in the Consolidated and Combined Financial
Statements include allocations of corporate expenses from Honeywell, these statements could differ from those that
would have been prepared had the Company operated on a stand-alone basis.
78
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
All significant intercompany transactions between the Company and Honeywell have been included in
these Consolidated and Combined Financial Statements. Sales to Honeywell during the period from January 1, 2018
until October 29, 2018 and the year ended December 31, 2017 were $24 million and $36 million, respectively.
Costs of goods sold to Honeywell during the period from January 1, 2018 until October 29, 2018 and the year ended
December 31, 2017 were $19 million and $29 million, respectively. Purchases from Honeywell during the period
from January 1, 2018 until October 29, 2018 and the year ended December 31, 2017 were $212 million and $213
million, respectively. The total net effect of the settlement of these intercompany transactions is reflected in the
Consolidated and Combined Statements of Cash Flows as a financing activity and in the Consolidated and
Combined Balance Sheets as invested equity.
Prior to the consummation of the Spin-Off, Honeywell managed the Company’s hedging activity which
included centrally hedging its exposure to changes in foreign exchange rates principally with forward contracts.
Certain contracts were specifically designated to and entered on behalf of the Company with Honeywell as a
counterparty and were used to hedge known or probable anticipated foreign currency sales and purchases. The
Company designated these hedges as cash flow hedges and the impact to the financial statement for 2017 and 2018
was not material.
While the Company was owned by Honeywell, a centralized approach to cash management and financing
of operations was used. Prior to consummation of the Spin-Off, the Company’s cash was transferred to Honeywell
daily and Honeywell funded the Company’s operating and investing activities as needed. Net transfers to and from
Honeywell are included within Invested equity on the Consolidated and Combined Statements of Equity. The
components of the net transfers to and from Honeywell as of December 31, 2018, and 2017 are as follows:
December 31,
2018
2017
General financing activities ................................................................................ $
Distribution to Honeywell in connection with Spin-Off.....................................
Net contribution of assets and liabilities upon Spin-Off.....................................
Unbilled corporate allocations ............................................................................
Purchases from Honeywell .................................................................................
Mandatory transition tax .....................................................................................
Other....................................................................................................................
Net increase (decrease) in invested equity .......................................................... $
(383) $
(1,415)
81
228
161
(85)
15
(1,398) $
(547)
-
-
260
168
156
17
54
Subsequent to the Spin-Off on October 29, 2018, transactions with Honeywell were not considered related
party transactions. Accordingly, no related party transactions with Honeywell were recorded for the year ended
December 31, 2019.
Note 6. Revenue Recognition
On January 1, 2018, the Company adopted new guidance on revenue from contracts with customers using
the modified retrospective method. As a result of adopting the new guidance, the Company determined there are no
material impacts on the Consolidated and Combined Financial Statements.
79
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Disaggregated Revenue
Revenues by channel are as follows for the years ended December 31:
2019
2018
U.S. and Canada.................................................................................................. $
EMEA (1) ..................................................................................................
APAC (2)...................................................................................................
ADI Global Distribution................................................................................
Comfort ...............................................................................................................
Security ...............................................................................................................
Residential Thermal Solutions ............................................................................
Products & Solutions .....................................................................................
Net revenue ......................................................................................................... $
2,294
459
60
2,813
1,103
520
552
2,175
4,988
$
$
2,147
456
55
2,658
1,114
479
576
2,169
4,827
(1) EMEA represents Europe, the Middle East and Africa.
(2) APAC represents Asia and Pacific countries.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer
and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance
obligation and recognized as revenue when, or as, the performance obligation is satisfied. For product sales,
typically each product sold to a customer represents a distinct performance obligation.
The Company recognizes the majority of its revenue from performance obligations outlined in contracts
with its customers that are satisfied at a point in time. Less than 3% of the Company’s revenue is satisfied over time.
Performance obligations are supported by contracts with customers, providing a framework for the nature of the
distinct goods, services or bundle of goods and services. The timing of satisfying the performance obligation is
typically indicated by the terms of the contract. All performance obligations are expected to be satisfied within one
year.
The timing of satisfaction of the Company’s performance obligations does not significantly vary from the
typical timing of payment. For some contracts, the Company may be entitled to receive an advance payment.
The Company has applied the practical expedient to not disclose the value of remaining performance
obligations for (i) contracts with an original expected term of one year or less or (ii) contracts for which it
recognizes revenue in proportion to the amount it has the right to invoice for services performed.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and
unbilled receivables (contract assets), reported in Accounts receivables – net, and customer advances and deposits
(contract liabilities), reported in Accrued liabilities, on the Consolidated Balance Sheet. As of December 31, 2019
and 2018, contract assets and liabilities were not material.
Note 7. Restructuring Charges
During the second quarter of 2019, management began a restructuring plan to reduce operating costs and
better align the Company’s workforce with the needs of the business going forward. For the year ended December
31, 2019, restructuring and related expenses for the Products & Solutions segment and the ADI Global Distribution
segment were $30 million and $7 million, respectively, and primarily related to severance.
80
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
For the years ended December 31, 2018 and 2017, the Company recognized restructuring charges totaling
$5 million and $23 million, respectively, related to the Products & Solutions segment mainly for severance costs
related to workforce reductions. The workforce reductions were primarily related to cost savings actions taken in
connection with the Company’s productivity and ongoing functional transformation initiatives; factory transitions to
more cost-effective locations and site consolidations and organizational realignments.
The following table summarizes the pretax distribution of total net restructuring charges by statement of
operations classification:
Cost of goods sold............................................................................. $
Selling, general and administrative expenses ...................................
$
20 $
17
37 $
4 $
1
5 $
The following table summarizes the status of total restructuring reserves related to severance cost:
Years Ended December 31,
2018
2017
2019
Years Ended December 31,
2018
2017
2019
Beginning of year.............................................................................. $
Charges ........................................................................................
Usage ...........................................................................................
Other ............................................................................................
End of year ........................................................................................ $
13 $
38
(31)
(1)
19 $
22 $
5
(9)
(5)
13 $
Note 8. Other Expense, Net
Environmental expense ..................................................................... $
Honeywell Reimbursement Agreement expense ..............................
Other, net...........................................................................................
$
- $
108
10
118 $
323 $
49
(3)
369 $
Years Ended December 31,
2018
2017
2019
17
6
23
15
24
(18)
1
22
281
-
(2)
279
Refer to Note 19. Commitments and Contingencies for further details on environmental and Honeywell
Reimbursement Agreement expense.
Note 9. Income Taxes
Prior to the consummation of the Spin-Off, Resideo’s operating results were included in Honeywell’s
various consolidated U.S. federal and state income tax returns, as well as non-U.S. filings. For the purposes of the
Company's Consolidated and Combined Financial Statements for periods prior to the Spin-Off, income tax expense
and deferred tax balances have been recorded as if the Company filed tax returns on a standalone basis separate from
Honeywell. The Separate Return Method applies the accounting guidance for income taxes to the standalone
financial statements as if the Company was a separate taxpayer and a standalone enterprise prior to the separation
from Honeywell.
81
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Income before taxes
U.S. ................................................................................................ $
Non-U.S.........................................................................................
$
(83)
154
71
$
$
(169)
273
104
$
$
(107)
273
166
Years Ended December 31,
2018
2017
2019
Income tax expense (benefit)
Tax expense (benefit) consists of:
Current:
U.S............................................................................................ $
Non-U.S. ..................................................................................
$
Deferred:
U.S............................................................................................ $
Non-U.S. ..................................................................................
$
The U.S. federal statutory income tax rate is reconciled to our
effective income tax rate as follows:
U.S. federal statutory income tax rate....................................
Impact of foreign operations ..................................................
U.S. state income taxes ..........................................................
U.S. Tax Reform and related items........................................
Non-deductible indemnification costs ...................................
Other non-deductible expenses ..............................................
U.S taxation of foreign earnings ............................................
Tax credits..............................................................................
Change in tax rates.................................................................
All other items – net (1).....................................................
(1) Prior years adjusted to separately state “Tax Credits”.
Years Ended December 31,
2018
2017
2019
23
37
60
(11)
(14)
(25)
35
$
$
$
$
(26)
48
22
(15)
(308)
(323)
(301)
$
$
$
$
215
48
263
(6)
303
297
560
Years Ended December 31,
2018
2017
2019
21.0 %
(10.2)
6.6
-
28.0
3.5
5.3
(2.6)
1.7
(4.7)
48.6 %
21.0 %
(11.6)
6.4
(385.1)
75.4
-
6.0
(2.1)
-
0.6
(289.4) %
35.0 %
(30.2)
3.4
273.1
58.8
-
-
(1.4)
-
(1.4)
337.3 %
The effective tax rate increased in 2019 compared to 2018. The increase in effective tax rate was primarily
attributable to tax benefits generated in 2018 related to the internal restructuring of Resideo’s business in advance of
its anticipated Spin-Off, currency impacts on withholding taxes on undistributed foreign earnings, and adjustments
to the provisional tax amount related to U.S. Tax Reform, partially offset by decreases in tax expense related to
Global Intangible Low Taxed Income (“GILTI”) and non-deductible expenses.
82
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The effective tax rate decreased in 2018 compared to 2017. The decrease was primarily attributable to tax
benefits attributable to the internal restructuring of Resideo’s business in advance of its anticipated Spin-Off,
adjustments to the provisional tax amount related to U.S. Tax Reform, adjustments to income tax reserves, partially
offset by tax expense related to Global Intangible Low Taxed Income (“GILTI”). The Company’s non-U.S. effective
tax rate was (95.2)%, a decrease compared to 2017. The year-over-year decrease in the non-U.S. effective tax rate
was primarily driven by increased tax benefits attributable to internal restructuring of Resideo’s business and a
change in assertion to permanently reinvest unremitted earnings.
Deferred tax assets (liabilities)
The tax effects of temporary differences and tax carryforwards which give rise to future income tax
benefits and payables are as follows:
Deferred tax assets:
Pension.......................................................................................................... $
Other asset basis differences.........................................................................
Operating lease liabilities..............................................................................
Accruals and reserves ...................................................................................
Net operating and capital losses....................................................................
Other .............................................................................................................
Gross deferred tax assets ....................................................................................
Valuation allowance ...........................................................................................
Total deferred tax assets ..................................................................................... $
Deferred tax liabilities:
Other intangible assets .................................................................................. $
Property, plant and equipment ......................................................................
Operating lease assets ...................................................................................
Other .............................................................................................................
Total deferred tax liabilities ...............................................................................
Net deferred tax asset ........................................................................................ $
Deferred tax assets:
Years Ended December 31,
2019
2018
27 $
70
33
61
32
6
229
(32)
197 $
(42) $
(22)
(32)
(12)
(108)
89 $
25
73
-
34
31
-
163
(29)
134
(53)
(16)
-
(6)
(75)
59
The Company maintains a valuation allowance of $32 million against a portion of the non-U.S. gross
deferred tax assets. The change in valuation allowance resulted in increases (decreases) of $3 million, ($1) million to
tax expense in 2019 and 2018, respectively. In the event the Company determines that it will not be able to realize
its net deferred tax assets in the future, it will reduce such amounts through an increase to tax expense in the period
such determination is made. Conversely, if the Company determines that it will be able to realize net deferred tax
assets in excess of the carrying amounts, it will decrease the recorded valuation allowance through a reduction to tax
expense in the period that such determination is made.
The Company has not provided deferred taxes on unremitted earnings of its foreign affiliates that exist at
December 31, 2019 as the earnings are considered permanently reinvested. Accordingly, no deferred taxes have
been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $1.7
billion of undistributed earnings from foreign subsidiaries to the United States. It is impracticable to calculate the tax
cost of repatriating our unremitted earnings which are considered indefinitely reinvested.
83
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
As of December 31, 2019, the Company has federal tax credit carryforwards of $1 million, federal net
operating loss carryforwards of $2 million, and foreign net operating loss carryforwards of $119 million. The federal
tax credit carryforwards expire in 2029. The federal net operating loss carryforwards expire in 2027. $113 million of
foreign net operating losses can be carried forward indefinitely with the remainder expiring between 2020 and 2029.
Many jurisdictions impose limitations on the timing and utilization of net operating loss carryforwards. In
those instances where the net operating loss or tax credit carryforward will not be utilized in the carryforward period
due to the limitation, the deferred tax asset and amount of the carryforward have been reduced.
As of December 31, 2019, 2018, and 2017 there were $6 million, $2 million, and $20 million of
unrecognized tax benefits, respectively, that if recognized would be recorded as a component of income tax expense.
The change in unrecognized tax benefits resulted in increases (decreases) of $4 million, ($18) million, and $0
million to tax expense in 2019, 2018, and 2017, respectively. The decrease in 2018 was primarily driven by the
reclassification of unrecognized tax benefits attributable to periods prior to the consummation of the Spin-Off to the
indemnity payable to Honeywell under the terms of the Tax Matters Agreement.
Unrecognized tax benefits for examinations in progress were $0 million, $0 million and $7 million, as of
December 31, 2019, 2018 and 2017, respectively. An immaterial amount of estimated interest and penalties related
to the underpayment of income taxes is included in the liability for unrecognized tax benefits, both of which are
included as a component of income tax expense in the Consolidated and Combined Statement of Operations. We do
not anticipate significant changes in total unrecognized tax benefits during the next twelve months.
The Company files income tax returns in the United States federal jurisdiction, all states, and various local
and foreign jurisdictions. The Company’s US federal returns are no longer subject to income tax examinations for
taxable years before 2015. With limited exception, state, local and foreign income tax returns for taxable years
before 2014 are no longer subject to examination.
On December 22, 2017, the U.S. government enacted U.S. Tax Reform, which included changes to the
taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral
rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The U.S. Tax Reform
also included a permanent reduction in the corporate tax rate, repeal of the corporate alternative minimum tax,
expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the
transition to the new tax system, a one-time transition tax was imposed on a U.S. shareholder’s historical
undistributed earnings of foreign affiliates.
As described in the Combined Financial Statements for the year ended December 31, 2017, the Company
reasonably estimated certain effects of U.S. Tax Reform and, therefore, recorded provisional amounts, including the
deemed repatriation transition tax and withholding taxes on undistributed earnings. For the year ended December 31,
2018, the Company recorded an adjustment to the provisional tax amount related to the deemed repatriation
transition tax and taxes on undistributed earnings of $(85.4) million and $(234.7) million, respectively. This
adjustment resulted in a decrease to the effective tax rate for the year ended December 31, 2018 of 307.8%. The
adjustment reflects the revised determination of the fair value of assets and liabilities of legal entities included in the
Company’s business. The accounting for the income tax effects of the U.S. Tax Reform was complete as of
December 31, 2018.
Note 10. Accounts Receivables—Net
Accounts receivables........................................................................................... $
Allowance for doubtful accounts ........................................................................
$
834 $
(17)
817 $
833
(12)
821
December 31,
2019
2018
84
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Note 11. Inventories - Net
Raw materials...................................................................................................... $
Work in process ..................................................................................................
Finished products ................................................................................................
Inventory reserves ...............................................................................................
$
154 $
18
568
(69)
671 $
167
34
452
(25)
628
The expense related to inventory reserves was $56 million, $10 million and $5 in 2019, 2018 and 2017,
December 31,
2019
2018
respectively.
Note 12. Property, Plant and Equipment—Net
Machinery and equipment...................................................................................
Buildings and improvements ..............................................................................
Construction in progress .....................................................................................
Others ..................................................................................................................
Accumulated depreciation...................................................................................
$
December 31,
2019
2018
562
260
57
16
895
(579)
316 $
510
246
64
33
853
(553)
300
Depreciation expense was $50 million, $45 million and $57 million in 2019, 2018 and 2017, respectively.
Note 13. Goodwill and Other Intangible Assets—Net
Goodwill as of December 31, 2019 and 2018 for Products & Solutions was $2,004 million and $1,995
million, respectively. The carrying value of goodwill increased by $10 million due to acquisitions during the year,
slightly offset by foreign currency translation adjustments. Goodwill for December 31, 2019 and 2018 for and ADI
Global Distribution was $639 million and $638 million, respectively. The decrease relates to foreign currency
translation adjustments.
Other intangible assets with finite lives are comprised of:
December 31, 2019
December 31, 2018
Patents and technology................ $
Customer relationships................
Trademarks..................................
Software ......................................
$
Gross
Carrying
Amount
35 $
170
9
139
353 $
Accumulated
Amortization
(19) $
(106)
(7)
(94)
(226) $
Net
Carrying
Amount
16 $
64
2
45
127 $
Gross
Carrying
Amount
27 $
170
9
122
328 $
Accumulated
Amortization
(16) $
(95)
(6)
(78)
(195) $
Net
Carrying
Amount
11
75
3
44
133
Other intangible assets amortization expense was $30 million, $21 million and $10 million in 2019, 2018
and 2017, respectively. Estimated intangible asset amortization expense for each of the next five years approximates
$27 million in 2020, $24 million in 2021, $18 million in 2022, $13 million in 2023 and $12 million in 2024.
85
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Note 14. Accrued Liabilities
December 31,
2019
2018
Obligations payable to Honeywell ...................................................................... $
Taxes payable......................................................................................................
Compensation, benefit and other employee-related............................................
Customer rebate reserve......................................................................................
Other (primarily operating expenses) .................................................................
$
140 $
66
66
78
202
552 $
140
76
73
59
155
503
Refer to Note 19. Commitments and Contingencies for further details the Honeywell Reimbursement
Agreement expense.
Note 15. Long-term Debt and Credit Agreement
The Company’s debt at December 31, 2019 and December 31, 2018 consisted of the following:
December 31,
2019
December 31,
2018
6.125% notes due 2026 ....................................................................................... $
Five-year variable rate term loan A due 2023.....................................................
Seven-year variable rate term loan B due 2025 ..................................................
Unamortized deferred financing costs ................................................................
Total outstanding indebtedness ...........................................................................
Less: amounts due within one year .....................................................................
Total long-term debt due after one year.............................................................. $
400
333
470
(23)
1,180
22
1,158
$
$
400
350
475
(24)
1,201
22
1,179
Scheduled principal repayments under the Senior Credit Facilities (defined below) and Senior Notes
(defined below) subsequent to December 31, 2019 are as follows:
2020.............................................................................................................................................. $
2021..............................................................................................................................................
2022..............................................................................................................................................
2023..............................................................................................................................................
2024..............................................................................................................................................
Thereafter.....................................................................................................................................
Amounts due within one year ......................................................................................................
$
December 31,
2019
22
40
57
232
5
847
1,203
(22)
1,181
At December 31, 2019 and 2018, the interest rate for the Term Loans (defined below) was 4.36% and
4.49%, respectively. At December 31, 2019, there were no borrowings and no letters of credit issued under the $350
million Revolving Credit Facility (defined below). The interest expense for the Senior Notes and Senior Credit
Facilities during the year ended December 31, 2019 and 2018 was $69 million and $13 million, respectively, which
includes the amortization of debt issuance cost and debt discounts.
86
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Senior Notes
In October of 2018, the Company issued $400 million in principal amount of 6.125% senior unsecured
notes due in 2026 (the "Senior Notes"). The Senior Notes are senior unsecured and unsubordinated obligations of
Resideo and rank equally with all of Resideo’s existing and future senior unsecured debt and senior to all of
Resideo’s subordinated debt.
Resideo may, at its option, redeem the Senior Notes in whole or part prior to November 1, 2021, at a
redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid
interest, if any, plus a “make-whole” premium. On or after November 1, 2021 Resideo may at its option, redeem the
Senior Notes in whole or in part plus accrued and unpaid interest, plus a fixed redemption percentage on the
principal amount of the Senior Notes redeemed of (i) 104.594% if redeemed during the twelve-month period
beginning on November 1, 2021 (ii) 103.063% if redeemed during the twelve-month period beginning on November
1, 2022, (iii) 101.531% if redeemed during the twelve-month period beginning on November 1, 2023, or (iv) 100%
if redeemed on or after November 1, 2024.
Credit Agreement
On October 25, 2018, in connection with the consummation of the Spin-Off, the Company as the borrower,
entered into a credit agreement with JP Morgan Chase Bank N.A. as administrative agent (the “Credit Agreement”).
In October of 2018, the Company incurred substantial indebtedness in the form of a seven-year LIBOR
plus 2.25% senior secured first-lien term B loan facility in an aggregate principal amount of $475 million (the "Term
B Facility") and a five-year LIBOR plus 2.25% senior secured first-lien term A loan facility in an aggregate
principal amount of $350 (the "Term A Facility" and, together with the Term B Facility, the “Term Loans” or "Term
Loan Facilities”). The Company is obligated to make quarterly principal payments throughout the term of the Term
Loan Facilities according to the amortization provisions in the Credit Agreement. Borrowings under the Credit
Agreement are able to be prepaid at the Company’s option without premium or penalty other than a 1.00%
prepayment premium that may be payable in connection with certain repricing transactions within a certain period of
time after the closing date. Amounts repaid or prepaid in respect of Term Loan Facilities may not be re-borrowed.
In October of 2018, the Company established a five-year senior secured first-lien revolving credit facility to
be used for the Company’s working capital and other cash needs from time to time in an aggregate principal amount
of $350 million (the "Revolving Credit Facility" and, together with the Term Loan Facilities, the "Senior Credit
Facilities"). The interest rate on the Revolving Credit Facility borrowings are based on, at the option of the
Company, either, (i) the rate of interest last quoted by The Wall Street Journal as the “prime rate” in the United
States, (ii) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.75% and (iii) the
one month adjusted LIBOR rate, plus 1.25% per annum. If the Company chooses to make a LIBOR borrowing on a
one, two, three or six-month basis, the interest rate will be based on an adjusted LIBOR rate (which shall not be less
than zero) based on the interest period for the borrowing. The applicable margin for the Term B Facility is 2.25%
per annum (for LIBOR loans) and 1.25% per annum (for base rate loans). The applicable margin for each of the
Term A Facility and the Revolving Credit Facility varies from 2.25% per annum to 1.75% per annum (for LIBOR
loans) and 1.25% to 0.75% per annum (for base rate loans) based on the Company’s leverage ratio. Accordingly, the
interest rates for the Senior Credit Facilities will fluctuate during the term of the Credit Agreement based on changes
in the base rate, LIBOR or future changes in our leverage ratio. Interest payments with respect to the borrowings are
required either on a quarterly basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if
the duration of the applicable interest period exceeds three months, then every three months. The Revolving Credit
Facility has a quarterly commitment fee based on the unused portion, which is determined by the Company’s
leverage ratio and ranges from 0.25% to 0.35% per annum.
The net proceeds from the borrowings under the Credit Agreement and the offering of the Senior Notes
were used as part of the financing for the Spin-Off. For the year ended December 31, 2018, the Company incurred
approximately $16 million in debt issuance costs related to the Term Loans, $5 million in costs related to the
Revolving Credit Facility and $8 million in costs related to the Senior Notes. The debt issuance costs associated with
the Term Loans and Senior Notes were recorded as a reduction of the principal balance of the debt, and the
Revolving Credit Facility costs were capitalized in Other assets. The issuance costs are being amortized through
Interest expense for the duration of each respective debt facility.
87
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The Credit Agreement and Senior Notes contain customary covenants limiting the ability of the Company
and its subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the
Company, enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate
with others or dispose of assets.
On November 26, 2019, the Company entered into a First Amendment to the Credit Agreement (the
“Credit Agreement Amendment”). The Credit Agreement Amendment amended the Credit Agreement to, among
other things: (i) increase the levels of the maximum consolidated total leverage ratio under the Credit Agreement, to
not greater than 5.25 to 1.00 for the quarter ended December 31, 2019, with step-downs to 4.75 to 1.00 starting in
the quarter ending December 31, 2020, 4.25 to 1.00 starting in the quarter ending December 31, 2021, and 3.75 to
1.00 starting in the quarter ending December 31, 2022; (ii) increase each applicable interest rate margin on loans
outstanding after the first amendment effective date by 25 basis points per annum, 2.25% per annum (for LIBOR
loans) and 1.25% per annum (for ABR loans) in respect of the Term B Loan Facility, and based on our leverage
ratio, from 2.25% per annum to 1.75% per annum (for LIBOR loans) and 1.25% to 0.75% per annum (for ABR
loans) for the Term A Loan Facility and the Revolving Credit Facility; and (iii) modify the defined terms
“Consolidated EBITDA” and “Pro Forma Basis” set forth in the Credit Agreement. In connection with the Credit
Agreement Amendment, the Company incurred costs of approximately $4 million. The Term Loan costs were
recorded as a reduction of the principal balance of the debt and the Revolving Credit Facility costs were capitalized
in Other assets.
As of December 31, 2019, the Company was in compliance with all covenants related to the Credit
Agreement and Senior Notes.
Note 16. Leases
As discussed in Note 2, the Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1,
2019. The Company is party to operating leases for the majority of its manufacturing sites, offices, engineering and
lab sites, stocking locations, warehouses, automobiles, and certain equipment. Certain of the Company’s real estate
leases include variable rental payments which adjust periodically based on inflation, and certain automobile lease
agreements include rental payments which fluctuate based on mileage. Generally, the Company’s lease agreements
do not contain any material residual value guarantees or material restrictive covenants.
The Company’s operating lease costs for the year ended December 31, 2019 consisted of the following:
Year Ended
December 31,
2019
Selling, general & administrative expenses ................................................................................. $
Cost of goods sold........................................................................................................................
Total operating lease costs ........................................................................................................... $
37
16
53
Total operating lease costs include variable lease costs of $11 million for the year ended December 31,
2019. Total operating lease costs also include offsetting sub-lease income which is immaterial for the year ended
December 31, 2019.
The Company recognized the following related to its operating leases:
Operating right-of-use assets ............................................................................. Other assets
$
Operating lease liabilities - current .................................................................... Accrued liabilities $
$
Operating lease liabilities - non-current............................................................. Other liabilities
137
31
111
Financial
Statement
Line Item
At December 31,
2019
88
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Maturities of the Company’s operating lease liabilities were as follows:
At December 31,
2019
2020 ............................................................................................................................................. $
2021 .............................................................................................................................................
2022 .............................................................................................................................................
2023 .............................................................................................................................................
2024 .............................................................................................................................................
Thereafter ....................................................................................................................................
Total lease payments ...................................................................................................................
Less: imputed interest..................................................................................................................
Present value of operating lease liabilities .................................................................................. $
Weighted-average remaining lease term (years) .........................................................................
Weighted-average incremental borrowing rate ...........................................................................
38
34
30
23
11
30
166
24
142
6.18
5.77%
Supplemental cash flow information related to the Company’s operating leases was as follows:
Year Ended
December 31,
2019
Operating cash outflows .............................................................................................................. $
Operating right-of-use assets obtained in exchange for operating lease liabilities...................... $
35
60
As of December 31, 2019, the Company has additional operating leases that have not yet commenced.
Obligations under these leases are not material. Additionally, as a lessor, the Company leases all or a portion of
certain owned properties. Rental income for the year ended December 31, 2019 was not material.
Note 17. Financial Instruments and Fair Value Measures
Credit and Market Risk—The Company continually monitors the creditworthiness of its customers to
which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed
to mitigate or eliminate concentrations of credit risk with any single customer.
Foreign Currency Risk Management—The Company conducts its business on a multinational basis in a
wide variety of foreign currencies. It is exposed to market risks from changes in currency exchange rates. These
exposures may impact future earnings and/or operating cash flows. The exposure to market risk for changes in
foreign currency exchange rates arises from transactions arising from international trade, foreign currency
denominated monetary assets and liabilities, and international financing activities between subsidiaries. The
Company relies primarily on natural offsets to address the exposures and may supplement this approach from time
to time by entering into forward and option hedging contracts. As of December 31, 2019, the Company had no
forward or hedging contracts.
Senior Notes and Credit Agreement—As of December 31, 2019, the Company assessed the amount
recorded under the Term Loans, the Senior Notes, and the Revolving Credit Facility and determined such amounts
approximated fair value. The fair values of the debt are based on the quoted inactive prices and are therefore
classified as Level 2 within the valuation hierarchy.
The carrying value of cash and cash equivalents, accounts receivables - net, and accounts payables
contained in the Consolidated Balance Sheet approximates fair value.
89
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Fair Value of Financial Instruments—The FASB’s accounting guidance defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The FASB’s guidance classifies the inputs used to measure fair
value into the following hierarchy:
Level 1
Level 2
and
Level 3
Quoted prices in active markets for identical assets or liabilities;
Observable inputs other than the quoted prices in active markets for identical assets and liabilities;
Unobservable inputs for which there is little or no market data, which require the Company to
develop assumptions of what market participants would use in pricing the asset or liability.
Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement.
Note 18. Stock-Based Compensation Plans
On October 29, 2018, the Board adopted, and Honeywell, as the Company’s sole shareholder, approved,
the 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates and the 2018 Stock Incentive Plan for
Non-Employee Directors of Resideo Technologies, Inc. as may be amended from time to time (together, the “Stock
Incentive Plan”). On or about December 21, 2018, the Board adopted the Amended and Restated 2018 Stock
Incentive Plan of Resideo Technologies, Inc. and its Affiliates. The Stock Incentive Plan provides for the grant of
stock options, stock appreciation rights, restricted stock units, restricted stock, other stock-based awards and cash-
based awards. The maximum aggregate number of shares of the Company’s common stock that may be issued under
awards granted under the Stock Incentive Plan is 16 million. As of December 31, 2019, 10,705,849 shares of the
Company’s common stock were available to be granted under the Stock Incentive Plan.
Summary of Restricted Stock Unit Activity
Restricted stock unit (“RSU”) awards entitle the holder to receive one share of common stock for each unit
when the units vest. RSUs are issued to certain key employees and to non-employee directors. RSUs typically
become fully vested over periods ranging from one to seven years and are payable in Resideo common stock upon
vesting.
Since the Spin-Off on October 29, 2018 through December 31, 2018, the Company granted the following
awards:
(cid:129)
1,809,644 RSUs were granted to employees of Resideo with four-year vesting periods in accordance with
the Stock Incentive Plan
(cid:129) Honeywell stock options, RSUs, and performance-based awards held by certain of the key employees who
would otherwise forfeit prior Honeywell awards as a result of the Spin-Off were issued replacement grants
in the amount of 1,411,395 RSUs with substantially the same vesting schedule as the forfeited awards.
Compensation expense for these awards will continue to be recognized ratably over the remaining term of
the unvested awards, which ranged from one to four years as of the date of the Spin-Off.
117,145 RSUs were granted to members of the Board of Directors for annual director compensation with
one to four-year vesting periods in accordance with the Stock Incentive Plan
(cid:129)
90
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The following table summarizes RSU activity related to the Stock Incentive Plan during the year ended
December 31, 2019:
RSUs
Weighted
Average Grant
Date Fair Value
Per Share
Number of
Restricted
Stock Units
Non-vested as of January 1, 2019..........................................................
Granted ..................................................................................................
Vested ....................................................................................................
Forfeited ................................................................................................
Non-vested as of December 31, 2019....................................................
3,338,184 $
1,607,204
(509,366)
(641,491)
3,794,531 $
24.05
21.83
23.78
24.07
23.14
As of December 31, 2019, there was approximately $53 million of total unrecognized compensation cost
related to non-vested RSUs granted under the Stock Incentive Plan, which is expected to be recognized over a
weighted-average period of 2.58 years. The fair value of RSUs that vested during the year ended December 31,
2019 is $11 million. Included in the outstanding RSUs are .3 million performance-based as of December 31, 2019
and the related expense is not material.
Summary of Stock Option Activity
Stock option awards entitle the holder to purchase shares of common stock at a specific price when the
options vest. Stock options vest over three years from the date of grant and expire seven years from the grant date.
The fair value of stock options was calculated using the following assumptions in the Black-Scholes model:
Expected stock price volatility...........................................................................................
Expected term of options ...................................................................................................
Expected dividend yield.....................................................................................................
Risk-free interest rate.........................................................................................................
December 31, 2019
30%-32%
4.5 years
—
2.22% - 2.47%
The aggregate intrinsic value disclosed below represents the total intrinsic value (the difference between
the fair market value of the Company's common stock as of December 31, 2019, and the exercise price, multiplied
by the number of in-the-money service-based stock options) that would have been received by the option holders
had all option holders exercised their options on December 31, 2019. This amount is subject to change based on
changes to the fair market value of the Company's common stock.
91
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The following table summarizes stock option activity related to the Stock Incentive Plan during the year
ended December 31, 2019:
Stock Options
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Life (years)
Aggregate
Intrinsic
Value
Number of
Stock
Options
Stock Options outstanding as of January 1, 2019 ......
Granted .................................................................
Forfeited ...............................................................
Stock Options outstanding as of December 31, 2019
Vested and expected to vest at December 31, 2019...
Exercisable at December 31, 2019.............................
- $
1,155,566
(165,312)
990,254
796,376
17,667 $
-
24.37
24.39
24.36
24.36
24.39
- $
6
4
1 $
-
-
-
-
Stock options granted during the year ended December 31, 2019 had a weighted average grant date fair
value per share of $6.71. As of December 31, 2019, there was approximately $3 million of total unrecognized
compensation cost related to non-vested stock options granted under the Stock Incentive Plan, which is expected to
be recognized over a weighted-average period of 2.12 years. No stock options were exercised during the year ended
December 31, 2019.
Summary of Stock-Based Compensation
The following table summarizes stock-based compensation expense and the related tax benefits under the
Company’s plans:
Stock-based compensation expense before income taxes ...................... $
Less income tax benefit ..........................................................................
Stock-based compensation expense, net of income taxes ...................... $
25 $
(1)
24 $
20
(5)
15
2019
2018
Certain share-based compensation expense relates to stock-based awards awarded to key employees of the
Company as part of Honeywell’s incentive compensation plans prior to the Spin-Off. Such share-based
compensation expense was $16 million for both the period from January 1, 2018 until October 29, 2018 and the year
ended December 31, 2017, of which approximately $6 million and $5 million, respectively, are specifically
identifiable to the Company’s employees, and $10 million, and $11 million, respectively, are attributable to shared
employees not specifically identifiable to the Company.
Note 19. Commitments and Contingencies
Environmental Matters
The Company is subject to various federal, state, local and foreign government requirements relating to the
protection of the environment. It believes that, as a general matter, its policies, practices and procedures are properly
designed to prevent unreasonable risk of environmental damage and personal injury and that its handling,
manufacture, use and disposal of hazardous substances are in accordance with environmental and safety laws and
regulations. The Company has incurred remedial response and voluntary cleanup costs for site contamination and is
a party to lawsuits and claims associated with environmental and safety matters, including products containing
hazardous substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue
to arise in the future.
92
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
With respect to environmental matters involving site contamination, the Company continually conducts
studies, individually or jointly with other potentially responsible parties, to determine the feasibility of various
remedial techniques. It is its policy to record appropriate liabilities for environmental matters when remedial efforts
or damage claim payments are probable and the costs can be reasonably estimated. Such liabilities are based on the
best estimate of the undiscounted future costs required to complete the remedial work. The recorded liabilities are
adjusted periodically as remediation efforts progress or as additional technical, regulatory or legal information
becomes available. Given the uncertainties regarding the status of laws, regulations, enforcement policies, the
impact of other potentially responsible parties, technology and information related to individual sites, the Company
does not believe it is possible to develop an estimate of the range of reasonably possible environmental loss in
excess of our recorded liabilities. The Company expects to fund expenditures for these matters from operating cash
flow. The timing of cash expenditures depends on a number of factors, including the timing of remedial
investigations and feasibility studies, the timing of litigation and settlements of remediation liability, personal injury
and property damage claims, regulatory approval of cleanup projects, remedial techniques to be utilized and
agreements with other parties.
The Company accrues costs related to environmental matters when it is probable that it has incurred a
liability related to a contaminated site and the amount can be reasonably estimated. Environmental-related expenses
for sites owned and operated by Resideo are presented within Cost of goods sold for operating sites in the
Consolidated and Combined Statement of Operations. Prior to the Spin-Off, expenses related to Honeywell Sites
now under the Honeywell Reimbursement Agreement were presented within Other expense, net in the Consolidated
and Combined Statement of Operations.
The following table summarizes information concerning the recorded liabilities for environmental costs. On
October 29, 2018, upon the consummation of the Spin-Off, certain environmental liabilities became subject to the
Honeywell Reimbursement Agreement and were reclassified to Obligations payable to Honeywell. For additional
information, see Honeywell Reimbursement Agreement below.
Years Ended December 31,
2018
2017
2019
Beginning of year..............................................................................
Accruals for environmental matters deemed probable and
reasonably estimable .........................................................................
Environmental liability payments .....................................................
Less: Change due to the Honeywell Reimbursement Agreement
Payments ...........................................................................................
Less: Liabilities subject to the Honeywell Reimbursement
Agreement Payments ........................................................................
End of year ........................................................................................
$
20
$
537
$
2
-
-
$
-
22
$
340
(179)
(86)
(592)
$
20
453
282
(198)
-
-
537
The $86 million change due to the Honeywell Reimbursement Agreement represents a reduction in the
estimated liability driven by the terms of Honeywell Reimbursement Agreement at October 29, 2018. Pursuant to
the Honeywell Reimbursement Agreement, the Company is responsible to indemnify Honeywell in amounts equal
to 90% of the environmental-liability payments of certain sites, less 90% of Honeywell’s net insurance receipts
relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i)
affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii)
certain property sales. Prior to the Spin-Off our estimated liability for resolution of the same pending and future
environmental-related liabilities was calculated as if it was responsible for 100% of the environmental-liability
payments. In addition, prior to the Spin-Off, these costs were calculated on the gross basis, excluding any insurance
receipts or proceeds received by Honeywell.
The Company does not currently possess sufficient information to reasonably estimate the amounts of
environmental liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the
timing nor the amount of the ultimate costs associated with environmental matters can be determined although they
could be material to our consolidated and combined results of operations and operating cash flows in the periods
recognized or paid.
93
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Honeywell Reimbursement Agreement
On October 29, 2018, in connection with the Spin-Off, the Company entered into an indemnification and
reimbursement agreement with Honeywell (the “Honeywell Reimbursement Agreement”) pursuant to which the
Company has an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for certain
Honeywell environmental-liability payments, which include amounts billed (“payments”), less 90% of Honeywell’s
net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in
connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such
liabilities and (iii) certain property sales (the “recoveries”). The amount payable by the Company in respect of such
liabilities arising in respect of any given year is subject to a cap of $140 million (exclusive of any late payment fees
up to 5% per annum). The scope of the Company’s current environmental remediation obligations subject to the
Honeywell Reimbursement Agreement relates to approximately 230 sites or groups of sites that are undergoing
environmental remediation under U.S. federal or state law and agency oversight for contamination associated with
Honeywell historical business operations. The ongoing environmental remediation is designed to address
contaminants at upland and sediment sites, which include, among others, metals, organic compounds and
polychlorinated biphenyls, through a variety of methods, which include, among others, excavation, capping, in-situ
stabilization, groundwater treatment and dredging. In addition, the Company obligations subject to the Honeywell
Reimbursement Agreement will include certain liabilities with respect to (i) hazardous exposure or toxic tort claims
associated with the specified sites that arise after the Spin-Off, if any, (ii) currently unidentified releases of
hazardous substances at or associated with the specified sites, (iii) other environmental claims associated with the
specified sites and (iv) consequential damages.
Payments in respect of the liabilities arising in a given year will be made quarterly throughout such year on
the basis of an estimate of the liabilities and recoveries provided by Honeywell. Following the end of any such year,
Honeywell will provide the Company with a calculation of the amount of payments and the recoveries actually
received.
Payment amounts under the Honeywell Reimbursement Agreement will be deferred to the extent that a
specified event of default has occurred and is continuing under certain indebtedness, including under the Company’s
principal credit agreement, or the payment thereof causes the Company to not be compliant with certain financial
covenants in certain indebtedness, including the Company’s principal credit agreement on a pro forma basis,
including the maximum total leverage ratio (ratio of consolidated debt to consolidated EBITDA, which excludes any
amounts owed to Honeywell under the Honeywell Reimbursement Agreement), and the minimum interest coverage
ratio. A 5% late payment fee will accrue on all amounts that are not otherwise entitled to be deferred under the terms
of the Honeywell Reimbursement Agreement, without prejudice to any other rights that Honeywell may have for
late payments.
The obligations under the Honeywell Reimbursement Agreement will continue until the earlier of: (1)
December 31, 2043; or (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.
94
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The following table summarizes information concerning our Honeywell Reimbursement Agreement
liabilities:
Year Ended
December 31,
2019
Year Ended
December 31,
2018
Beginning of year................................................................................................
Liabilities subject to the Honeywell Reimbursement Agreement payments ......
Accruals for indemnification liabilities deemed probable and reasonably
estimable .............................................................................................................
Reduction (1)..............................................................................................
Indemnification payment ....................................................................................
End of year ..........................................................................................................
$
$
616 $
-
179
(71)
(139)
585 $
-
592
49
-
(25)
616
(1) Reduction in indemnification liabilities relates to a provision in the Honeywell Reimbursement Agreement that
reduces the obligation due to Honeywell for any proceeds received by Honeywell from a property sale of a site
under the agreement.
Honeywell Reimbursement Agreement liabilities are included in the following balance sheet accounts:
Accrued liabilities ...............................................................................................
Obligations payable to Honeywell ......................................................................
Year Ended
December 31,
2019
Year Ended
December 31,
2018
$
$
140 $
445
585 $
140
476
616
The Company does not currently possess sufficient information to reasonably estimate the amounts of
indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the
timing nor the amount of the ultimate costs associated with environmental matters can be determined although they
could be material to our consolidated and combined results of operations and operating cash flows in the periods
recognized or paid.
Independent of the Company’s payments under the Honeywell Reimbursement Agreement, the Company
will have ongoing liability for certain environmental claims which are part of the Company’s going forward
business.
Tax Matters Agreement
In connection with the Spin-Off, the Company entered into a tax matters agreement (the “Tax Matters
Agreement”) with Honeywell pursuant to which it is responsible and will indemnify Honeywell for all taxes,
including income taxes, sales taxes, VAT and payroll taxes, relating to the business for all periods, including periods
prior to the consummation of the Spin-Off. In addition, the Tax Matters Agreement addresses the allocation of
liability for taxes that are incurred as a result of restructuring activities undertaken to effectuate the Spin-Off.
In addition, the Tax Matters Agreement provides that the Company is required to indemnify Honeywell for
any taxes (and reasonable expenses) resulting from the failure of the Spin-Off and related internal transactions to
qualify for their intended tax treatment under U.S. federal, state and local income tax law, as well as foreign tax law,
where such taxes result from (a) breaches of covenants and representations it makes and agrees to in connection with
the Spin-Off, (b) the application of certain provisions of U.S. federal income tax law to these transactions or (c) any
other action or omission (other than actions expressly required or permitted by the Separation and Distribution
Agreement, the Tax Matters Agreement or other ancillary agreements) the Company takes after the consummation
of the Spin-Off that gives rise to these taxes.
95
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The Tax Matters Agreement imposes certain restrictions on us and our subsidiaries (including restrictions
on share issuances, redemptions or repurchases, business combinations, sales of assets and similar transactions) that
are designed to address compliance with Section 355 of the Internal Revenue Code of 1986, as amended, and are
intended to preserve the tax-free nature of the Spin-Off. Under the Tax Matters Agreement, these restrictions will
apply for two years following the consummation of the Spin-Off, unless Honeywell gives its consent for us to take a
restricted action, which it is permitted to grant or withhold at its sole discretion. Even if Honeywell does consent to
our taking an otherwise restricted action, the Company will remain liable to indemnify Honeywell in the event such
restricted action gives rise to an otherwise indemnifiable liability. These restrictions may limit the Company’s
ability to pursue strategic transactions or engage in new businesses or other transactions that may maximize the
value of its business and might discourage or delay a strategic transaction that stockholders may consider favorable.
As of December 31, 2019, and 2018, the Company has indemnified Honeywell for future tax payments of
$149 million and $153 million, which is included in Obligations payable to Honeywell.
Trademark Agreement
The Company and Honeywell entered into a 40-year Trademark License Agreement (the “Trademark
Agreement”) that authorizes the Company’s use of certain licensed trademarks in the operation of Resideo’s
business for the advertising, sale and distribution of certain licensed products. In exchange, the Company will pay a
royalty fee of 1.5% on net revenue to Honeywell related to such licensed products which is recorded in Selling,
general and administrative expense on the Consolidated and Combined Statement of Operations. For the period
ended December 31, 2019 and 2018, royalty fees were $27 million and $4 million, net of a one-time credit of
$2 million received in December 31, 2018 for inventory on hand as of the Spin-Off, respectively.
Other Matters
The Company is subject to other lawsuits, investigations and disputes arising out of the conduct of its
business, including matters relating to commercial transactions, government contracts, product liability, prior
acquisitions and divestitures, employee matters, intellectual property, and environmental, health and safety matters.
The Company recognizes a liability for any contingency that is probable of occurrence and reasonably estimable.
The Company continually assesses the likelihood of adverse judgments of outcomes in these matters, as well as
potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis
of each matter with the assistance of outside legal counsel and, if applicable, other experts. The Company recorded
legal expense of $21 million for year the ended December 31, 2019. Prior to the Spin-off, legal expenses were paid
by Honeywell and then allocated to the Company as part of a corporate expense allocation that did not separately
identify the specific expenses. As of December 31, 2019 and 2018, the Company had a legal reserve of $8 million
and $7 million, respectively.
The Company is involved in the class action suites as described below:
Between November 8, 2019 and January 7, 2020, four separate purported class action complaints alleging
violations of the federal securities laws were filed against the Company, the Company’s CEO Michael Nefkens, and
the Company’s former CFO Joseph Ragan, in the United States District Court for the District of Minnesota (the
“Minnesota Court”).
96
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
On November 8, 2019, the St. Clair County Employees’ Retirement System filed a purported class action
complaint in the Minnesota Court styled St. Clair County Employees’ Retirement System v. Resideo Technologies,
et. al, 19-cv-02863 (D. Minn Nov. 8, 2020) (the “St. Clair Action”). The St. Clair Action purports to assert claims
on behalf of a class of persons who purchased the Company’s stock between October 29, 2018 and October 22,
2019. It claims that the Company, Mr. Nefkens, and Mr. Ragan made false and misleading statements regarding
among other things, the Company’s performance, the efficiency of its supply chain, and that it was ahead of
schedule in resolving operational and administrative issues resulting from the Spin-Off. It alleges that the
Company’s financial guidance lacked a reasonable basis and the Company was not on track to make its 2019
earnings guidance. The St. Clair Action asserts claims under section 10b-5 and section 20 of the Exchange Act.
On November 12, 2019, the Hollywood Firefighters’ Pension Fund filed a purported class action complaint
in the Minnesota Court styled Hollywood Firefighters’ Pension Fund v. Resideo Technologies, et. al, 19-cv-2889 (D.
Minn Nov. 12, 2019) (the “Hollywood Action”). The Hollywood Action contains similar allegations and claims to
those set forth in the St. Clair Action and purports to be asserted on behalf of a plaintiff class that purchased
Company stock between October 10, 2018 and October 22, 2019.
On December 20, 2019, the Frampton Living Trust filed a purported class action complaint in the
Minnesota Court styled Frampton Living Trust v. Resideo Technologies, et. al, 19-cv-3133 (D. Minn Dec. 20, 2019)
(the “Frampton Action”). The Frampton Action contains similar allegations and claims to those set forth in the
previous complaints and purports to be asserted on behalf of a plaintiff class that purchased Company stock between
October 10, 2018 and October 22, 2019.
On January 7, 2020, a group of institutional investors, including the Gabelli Asset Fund, filed a purported
class action complaint in the Minnesota Court styled The Gabelli Asset Fund, et. al v. Resideo Technologies, et. al,
20-cv-00094 (D. Minn Jan. 7, 2020) (the “Gabelli Action”). The Gabelli Action contains similar allegations and
claims to those set forth in the previous complaints and purports to be asserted on behalf of a plaintiff class that
purchased Company stock between October 15, 2018 and October 22, 2019. The Gabelli Action also asserts
purported claims based on Honeywell’s pre-spin conduct and statements and names Honeywell as a defendant.
On January 27, 2020, the Minnesota Court granted an order on a stipulation addressing the various motions
for consolidation and appointment of lead plaintiff and lead counsel in the pending actions. By this ruling, the court
consolidated the pending actions into a single proceeding styled In re Resideo Technologies, Inc. Securities
Litigation, 19-cv-02889. The court also appointed co-lead plaintiffs and co-lead plaintiffs’ counsel. The lead
plaintiffs’ deadline to file an amended, consolidated complaint is March 27, 2020.
Warranties and Guarantees
In the normal course of business, the Company issues product warranties and product performance
guarantees. It accrues for the estimated cost of product warranties and performance guarantees based on contract
terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees
are made as changes to the obligations become reasonably estimable. Product warranties and product performance
guarantees are included in Accrued liabilities. The following table summarizes information concerning recorded
obligations for product warranties and product performance guarantees.
Years Ended December 31,
2018
2017
2019
Beginning of year..............................................................................
Accruals for warranties/guarantees issued during the year .........
Adjustment of pre-existing warranties/guarantees ......................
Settlement of warranty/guarantee claims ..........................................
End of year ........................................................................................
$
$
$
26
15
-
(16)
$
25
$
17
17
(1)
(7)
$
26
24
10
(4)
(13)
17
97
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Purchase Commitments
The Company’s unconditional purchase obligations include purchase commitments with suppliers and
other obligations entered in to during the normal course of business regarding the purchase of goods and services.
For the year ended December 31, 2019, purchases related to these obligations were $343 million. Purchases under
these obligations were not material for the years ended December 31, 2018 and 2017. As of December 31, 2019, our
estimated minimum obligations associated with unconditional purchase obligations, which are not recognized in our
Consolidated Balance Sheet, were $286 million in 2020, $252 million in 2021, $8 million in 2022, $6 million in
2023 and $2 million in 2024.
Note 20. Pension
Prior to the Spin-Off, certain of Resideo’s employees participated in multiple U.S. and non-U.S. defined
benefit pension plans (the “Shared Plans”) sponsored by Honeywell, which includes participants from other
Honeywell subsidiaries and operations. The Company accounted for participation in the Shared Plans as if the
Shared Plans were a multiemployer benefit plan. Accordingly, it did not record an asset or liability to recognize the
funded status of the Shared Plans.
The related pension expense was allocated based on annual service cost of active participants and reported
within Costs of goods sold and Selling, general and administrative expenses in the Consolidated and Combined
Statement of Operations. The pension expense related to participation in the Shared Plans for the period from
January 1, 2018 until October 29, 2018 and the year ended December 31, 2017 was $11 million and $16 million,
respectively.
As of the date of separation from Honeywell, these employees’ and certain former Honeywell employees’
entitlement to benefits in Honeywell’s plans were transferred to Resideo sponsored plans.
The Resideo defined benefit pension plans have substantially similar benefit formulas as the Honeywell
defined benefit pension plans. Moreover, vesting service, benefit accrual service and compensation credited under
the Honeywell defined benefit pension plans apply to the determination of pension benefits under the Resideo
defined benefit pension plan.
The Company sponsors multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans.
Pension benefits for many of its U.S. employees are provided through non-contributory, qualified and non-qualified
defined benefit plans. It also sponsors defined benefit pension plans which cover non-U.S. employees who are not
U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, France, India, Switzerland, and the
Netherlands.
98
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The following tables summarize the balance sheet impact, including the benefit obligations, assets and
funded status associated with the pension plans.
Change in benefit obligation:
Benefit obligation at beginning of year (1)...................... $
Service cost.....................................................................
Interest cost.....................................................................
Actuarial losses (gains) ..................................................
Net benefits paid.............................................................
Other ...............................................................................
Benefit obligation at end of year ....................................
Change in plan assets:
Fair value of plan assets at beginning of year (1) ............
Actual return (loss) on plan assets..................................
Contributions ..................................................................
Net benefits paid.............................................................
Other ...............................................................................
Fair value of plan assets at end of year ..........................
Funded status of plans (non-current) ................................... $
U.S. Plans
2019
2018
Non-U.S. Plans
2019
2018
286 $
5
13
51
(13)
2
344
274
70
-
(13)
-
331
(13) $
$
279
1
2
5
(1)
-
286
279
(4)
-
(1)
-
274
(12) $
93 $
5
2
27
-
10
137
20
2
2
(2)
5
27
(110) $
95
1
-
(3)
-
-
93
20
-
-
-
-
20
(73)
(1) 2018 "Beginning of year" is the Spin-Off date, October 29, 2018.
Amounts recognized in Accumulated other comprehensive (income) loss associated with pension plans at
December 31, 2019 and 2018 are as follows:
Prior service credit ............................................................... $
Net actuarial loss..................................................................
Net amount recognized ........................................................ $
(3) $
12
9 $
(4) $
16
12
$
U.S. Plans
2019
2018 (1)
Non-U.S. Plans
2019
2018 (1)
- $
13
13 $
-
5
5
(1) 2018 begins at the Spin-Off date, October 29, 2018. 2017 activity was recognized under the Shared Plans.
99
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The components of net periodic benefit cost and other amounts recognized in Comprehensive (income) loss
for pension plans include the following components:
U.S. Plans
Non-U.S. Plans
2019
2018 (1)
2019
2018 (1)
Net Periodic Benefit Cost
Service cost .......................................................................... $
Interest cost ..........................................................................
Expected return on plan assets.............................................
Amortization of prior service credit.....................................
Actuarial losses ....................................................................
Other ....................................................................................
Net periodic benefit cost ...................................................... $
$
5
13
(16)
(1)
1
-
2
$
1 $
2
(3)
-
-
-
- $
$
5
2
(1)
-
16
2
24
$
1
-
-
-
-
-
1
(1) 2018 begins at the Spin-Off date, October 29, 2018. 2017 activity was recognized under the Shared Plans.
The components of net periodic benefit cost other than the service cost are included in Other expense, Net
in the Consolidated and Combined Statement of Operations for the years ended December 31, 2019 and 2018.
U.S. Plans
Non-U.S. Plans
2019
2018 (1)
2019
2018 (1)
Other Changes in Plan Assets and Benefits Obligations
Recognized in Other Comprehensive (Income) Loss
Actuarial (gains) losses ........................................................
Actuarial gains recognized during the year .........................
Total recognized in other comprehensive loss (income) ..... $
Total recognized in net periodic benefit cost and other
comprehensive income (loss)............................................... $
(3)
-
(3) $
12
-
12 $
25
(17)
8 $
(1) $
12 $
32 $
(3)
-
(3)
(2)
(1) 2018 begins at the Spin-Off date, October 29, 2018. 2017 activity was recognized under the Shared Plans.
The estimated prior service (credit) for pension benefits that will be amortized from Accumulated other
comprehensive (income) loss into net periodic benefit (income) cost in 2020 are expected to be $(1) million and $0
million for U.S. and non-U.S. pension plans, respectively.
Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit
(income) cost for benefit plans are presented in the following table as weighted averages.
Actuarial assumptions used to determine benefit
obligations as of December 31:
Discount rate ..................................................................
Expected annual rate of compensation increase ............
3.3%
3.4%
4.5%
3.4%
1.1%
2.4%
1.9%
2.3%
U.S. Plans
2019
2018
Non-U.S. Plans
2019
2018
Actuarial assumptions used to determine net periodic
benefit cost for the twelve months ended December 31,
2019 and two months ended December 31, 2018:
Discount rate - benefit obligation...................................
Expected rate of return on plan assets............................
Expected annual rate of compensation increase ............
4.5%
5.7%
3.4%
4.5%
5.7%
3.4%
2.0%
2.8%
2.4%
1.9%
3.3%
2.3%
100
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The discount rate for the U.S. pension plans reflects the current rate at which the associated liabilities could
be settled at the measurement date of December 31. To determine discount rates for the U.S. pension plans, the
Company uses a modeling process that involves matching the expected cash outflows of its benefit plans to a yield
curve constructed from a portfolio of high-quality, fixed income debt instruments. The Company uses the single
weighted-average yield of this hypothetical portfolio as a discount rate benchmark.
The expected rate of return on U.S. plan assets of 5.7% is a long-term rate based on historical plan asset
returns over varying long-term periods combined with current market conditions and broad asset mix considerations.
The Company reviews the expected rate of return on an annual basis and revises it as appropriate.
For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each
country.
The following amounts relate to pension plans with accumulated benefit obligations exceeding the fair
value of plan assets.
December 31,
U.S. Plans
2019
2018
Non-U.S. Plans
2019
2018
Projected benefit obligation ................................................. $
Accumulated benefit obligation........................................... $
Fair value of plan assets....................................................... $
344 $
332 $
331 $
286 $
$
281
$
274
137 $
116 $
27 $
93
80
20
The Company utilized a third-party investment management firm to serve as its Outsourced Chief
Investment Officer; however, the Company has appointed an internal fiduciary committee that monitors adherence
to the investment guidelines the firm will follow.
The Company employs an investment approach whereby a mix of equities and fixed income investments
are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities and plan funded status. The investment portfolio contains a
diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across
U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Other assets such as real
estate and hedge funds may be used to improve portfolio diversification.
101
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
The non-U.S. investment policies are different for each country as local regulations, funding requirements,
and financial and tax considerations are part of the funding and investment allocation process in each country.
A majority of the U.S. pension plan assets as of December 31, 2019 do not have published pricing and are
valued using Net Asset Value (“NAV”) which approximates fair value. NAV by asset category and fair value by
asset category are as follows for December 31, 2019 and 2018:
U.S. Plans
2019
Level
1
Level
2
Level
3
Total NAV
$
$
4
Cash.............................................. $
-
Short-term investments ................
100
Equity ...........................................
15
Investment funds ..........................
132
U.S. treasury obligations ..............
32
Government bonds .......................
16
Corporate bonds ...........................
Real estate / property....................
32
Total assets at fair value ............... $ 331
-
-
100
15
132
32
16
32
$ 327
$
4
-
-
-
-
-
-
-
4
$
$
-
-
-
-
-
-
-
-
-
$
$
2018
Level
1
Level
2
Level
3
$
Total
-
-
-
-
-
-
-
-
-
-
12
119
-
-
-
143
-
$ 274
$
-
12
119
-
-
-
143
-
$ 274
$
$
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
-
-
-
-
The fair values of the non-U.S. pension plan assets as by asset category are as follows:
December 31, 2019
December 31, 2018
Non-U.S. Plans
Equity................................................ $
Short-term investments.....................
Government bonds............................
Corporate bonds................................
Insurance contracts ...........................
Other .................................................
Total assets at fair value ................... $
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
-
- $
-
-
-
-
-
-
6
8
-
16
6
24 $
6 $
4
1
2
6
1
20 $
6 $
4
1
2
-
1
14 $
1 $
-
1
1
8
16
27 $
- $
-
1
1
-
-
2 $
1 $
-
-
-
-
-
1 $
- $
-
-
-
-
-
- $
5
The following table summarizes changes in the fair value of Level 3 assets for Non-U.S. plans:
Balance at October 29, 2018 ....................................................................................................
Return on plan assets................................................................................................................
Purchases, sales and settlements, net .......................................................................................
Balance at December 31, 2018.................................................................................................
Return on plan assets................................................................................................................
Purchases, sales and settlements, net .......................................................................................
Other.........................................................................................................................................
Balance at December 31, 2019.................................................................................................
$
$
Non-U.S. Plans
5
1
-
6
2
15
1
24
102
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Excluding assets valued using NAV, Cash, Short-term Investments, Equity along with our Government
Bonds and Corporate bonds held as of December 31, 2018 are valued at the closing price reported in the active
market in which the individual securities are traded. Corporate Bonds and Government Bonds held as of December
31, 2019 are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities
with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not
be observable such as credit and liquidity risks. Other investments as of December 31, 2019 and Insurance Contracts
are classified as Level 3 as there are neither quoted prices nor other observable inputs for pricing. Insurance
Contracts are issued by insurance companies and are valued at cash surrender value, which approximates the
contract fair value. Other investments consist of a collective pension foundation that is valued and allocated by the
plan administrator.
The Company utilizes the services of retirement and investment consultants to actively manage the assets
of our pension plans. The Company has established asset allocation targets and investment guidelines based on the
guidance of the consultants. The Company’s target allocations are 50% fixed income investments, 30% global
equity investments, 10% global real estate investments and 10% cash and other investments.
The Company’s general funding policy for qualified defined benefit pension plans is to contribute amounts
at least sufficient to satisfy regulatory funding standards. In 2019, it was not required to make contributions to the
U.S. pension plans and no contributions were made. There is no requirement to make any contributions to the U.S.
pension plans in 2020. In 2019, contributions of $2 million were made to the non-U.S. pension plans to satisfy
regulatory funding requirements. In 2020, the Company expects to make contributions of cash and/or marketable
securities of approximately $2 million to the non-U.S. pension plans to satisfy regulatory funding standards.
Contributions for both the U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company
assets.
Benefit payments, including amounts to be paid from Company assets, and reflecting expected future
service, as appropriate, are expected to be paid as follows:
2020..................................................................................................................... $
2021..................................................................................................................... $
2022..................................................................................................................... $
2023..................................................................................................................... $
2024..................................................................................................................... $
2025-2029 ........................................................................................................... $
Note 21. Segment Financial Data
U.S. Plans
Non-U.S. Plans
2
2
2
2
3
19
18 $
19 $
19 $
22 $
23 $
112 $
The Company globally manages its business operations through two reportable operating segments,
Products & Solutions and ADI Global Distribution:
Products & Solutions—The Products & Solutions business is a leading global provider of products,
software solutions and technologies that help homeowners stay connected and in control of their comfort, security
and energy use.
ADI Global Distribution—The ADI Global Distribution business is a leading global distributor of low-
voltage electronic and security products.
Segment information is consistent with how management reviews the businesses, makes investing and
resource allocation decisions and assesses operating performance.
103
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Prior to the first quarter of 2019, the Company’s Chief Operating Decision Maker (“CODM”) managed and
evaluated its segment performance based on segment profit defined as segment income (loss) before taxes excluding
Other expense, net (primarily environmental cost now subject to the Honeywell Reimbursement Agreement),
interest expense, pension expense, environmental expense related to Resideo’s owned sites and restructuring charges.
Beginning in the first quarter of 2019, the Company’s CODM changed the way segment performance is evaluated
by making financial decisions and allocating resources based on Segment Adjusted EBITDA. Segment Adjusted
EBITDA is defined as segment net income before income taxes, net interest (income) expense, depreciation and
amortization plus environmental expense, Honeywell Reimbursement Agreement expense, stock compensation
expense, restructuring charges, other expense, net and other costs not directly relating to future ongoing business of
the segments, such as Spin-Off related costs, and consulting fees relating to restructuring programs. adjustments. All
periods have been adjusted to present the new measure of segment income.
Years Ended December 31,
2018
2017
2019
Revenue
Total Products & Solutions revenue............................................ $
Less: Intersegment revenue .........................................................
External Products & Solutions revenue .................................
External ADI Global Distribution revenue ............................
Total revenue .................................................................... $
2,487
312
2,175
2,813
4,988
$
$
2,474
305
2,169
2,658
4,827
$
$
2,379
337
2,042
2,477
4,519
Years Ended December 31,
2018
2017
2019
Segment Adjusted EBITDA
Products & Solutions ................................................................... $
ADI Global Distribution..............................................................
Total ....................................................................................... $
314
188
502
$
$
460
164
624
$
$
Years Ended December 31,
2018
2017
2019
Capital expenditures
Products & Solutions ................................................................... $
ADI Global Distribution..............................................................
Total ....................................................................................... $
88
7
95
$
$
73
8
81
$
$
The table below provides a reconciliation of net income to Segment Adjusted EBITDA:
409
143
552
44
7
51
Years Ended December 31,
2018
2017
2019
Net income (loss).............................................................................. $
Net interest expense (income) (1) .................................................
Tax expense (benefit)........................................................................
Depreciation and amortization ..........................................................
Environmental expense (2) ..........................................................
Honeywell Reimbursement Agreement expense (3) .......................
Stock compensation expense (4)...................................................
Restructuring charges........................................................................
Other (5) ....................................................................................
Segment Adjusted EBITDA...................................................... $
36
66
35
80
2
108
25
37
113
502
$
$
104
$
405
13
(301)
66
340
49
20
5
27
624
$
(394)
(3)
560
67
282
-
16
23
1
552
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
(1) For the year ended December 31, 2019, 2018, and 2017 interest expense was $69 million, $20 million and $-
million net of interest income of $3 million, $7 million, and $3 million, respectively.
(2) Represents current environmental expense for Resideo’s owned sites as well as pre-Spin-Off historical
environmental expenses as reported under 100% carryover basis for sites now covered under the Honeywell
Reimbursement Agreement
(3) Represents recorded expenses related to the Honeywell Reimbursement Agreement.
(4) Stock compensation expense adjustment includes only non-cash expenses.
(5) For the year ended December 31, 2019, represents $80 million in costs directly related to the Spin-Off, $20
million related to developments on legal claims that arose prior to the Spin-Off and consulting fees related to
restructuring programs, and $13 million in non-operating expense adjustment which excludes net interest
(income). For the year ended December 31, 2018, represents $23 million in costs directly related to the Spin-
Off, and $4 million in non-operating (income) expense adjustment which excludes net interest (income). For
the year ended December 31, 2017, represents $1 million in non-operating (income) expense adjustment which
excludes net interest (income).
The Company’s CODM does not use segment assets information to allocate resources or to assess
performance of the segments and therefore, total segment assets have not been disclosed.
105
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
Note 22. Geographic Areas—Financial Data
Net Revenue (1)
Years Ended December 31,
2019
2018 2017 2019
Long-lived Assets (2)
December 31,
United States ..................................................... $ 3,423 $ 3,289
1,138
Europe ...............................................................
400
Other International ............................................
$ 4,988 $ 4,827
1,117
448
$ 3,074
1,063
382
$ 4,519
$
$
186 $
103
27
316 $
2018 2017
162
$
82
21
265
184
91
25
300
$
(1) Revenue between geographic areas approximate market and is not significant. Net revenue is classified
according to their country of origin. Included in United States net revenue are export sales of $27 million, $31
million and $29 million in 2019, 2018 and 2017, respectively.
(2) Long-lived assets are comprised of property, plant and equipment—net.
Note 23. Unaudited Quarterly Financial Information
The following tables show selected unaudited quarterly results of operations for 2019 and 2018. The
quarterly data have been prepared on the same basis as the audited annual financial statements and include all
adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results of
operations for these periods.
March 31 June 30 September 30 December 31
2019
Net Revenue .................................... $
Gross Profit......................................
Net Income (loss) ............................
Earnings (loss) per share -basic.......
Earnings (loss) per share - diluted ...
1,216 $
313
48
0.39
0.39
1,242 $
296
(11)
(0.09)
(0.09)
1,226 $
289
8
0.07
0.06
2018
March 31 June 30 September 30 (b) December 31
Net Revenue .................................... $
Gross Profit .....................................
Net Income ......................................
Earnings per share - basic (a) ..........
Earnings per share - diluted (a) .......
1,165 $
343
45
0.37
0.37
1,196 $
346
33
0.27
0.27
1,200 $
347
311
2.54
2.54
Year Ended
December 31,
4,988
1,190
36
0.29
0.29
1,304 $
292
(9)
(0.07)
(0.07)
Year Ended
December 31,
4,827
1,366
405
3.31
3.30
1,266 $
330
16
0.13
0.13
(a) On October 29, 2018, the date of the Spin-Off, 122,498,794 shares of the Company's Common Stock were
distributed to Honeywell stockholders of record as of October 16, 2018. Basic and Diluted EPS for all periods
prior to the Spin-Off reflect the number of distributed shares, or 122,498,794 shares.
(b) Basic and diluted EPS for the three months ended September 30, 2018 has been revised from the third quarter
10-Q to correctly reflect the exclusion of 467,764 treasury shares received by Resideo as part of the Spin-Off.
This increased earnings per share by $0.01 and $0.02 for the three and nine months ended September 30, 2018,
respectively.
106
RESIDEO TECHNOLOGIES, INC.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures designed to give reasonable assurance that
information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is accumulated and communicated to
management to allow timely decisions regarding required disclosures.
Management recognizes that any disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud have been or will be detected.
Our Chief Executive Officer and Interim Chief Financial Officer, with the assistance of other members of
our management, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this Annual Report on Form 10-K. Based upon such evaluation, our Chief Executive Officer and Interim
Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable
assurance level as of the end of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting
is a process designed to provide reasonable assurance to our management and board of directors regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).
Based on this assessment, management determined that the Company maintained effective internal control
over financial reporting as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report
which is included in Item 8. Financial Statements and Supplementary Data.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended
December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. We have implemented, and continue to refine, internal controls and key system functionality to
enable the preparation of financial information related to the new lease standard (ASU No. 2016-02) upon adoption
on January 1, 2019. There were no significant changes to our internal control over financial reporting due to the
adoption of the new lease standard.
107
RESIDEO TECHNOLOGIES, INC.
Item 9B. Other Information
None.
108
RESIDEO TECHNOLOGIES, INC.
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in our Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after our year ended December 31, 2019 in connection with our 2020 Annual
Meeting of Stockholders, or the 2020 Proxy Statement, and is incorporated herein by reference.
Item 11.
Executive Compensation
Information relating to executive compensation is contained in the Proxy Statement referred to above in
Item 10. Directors, Executive Officers and Corporate Governance, and such information is incorporated herein by
reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information relating to certain beneficial ownership of certain stockholders and management, as well as
certain other information required by this Item 12, will be contained in the Proxy Statement referred to above in
Item 10. Directors, Executive Officers and Corporate Governance, and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to certain relationships and related transactions, as required by this Item 13, will be
contained in the Proxy Statement referred to above in Item 10. Directors, Executive Officers and Corporate
Governance, and such information is incorporated herein by reference.
Item 14.
Principal Accounting Fees and Services
Information relating to fees paid to and services performed by Deloitte & Touche LLP and our Audit
Committee’s pre-approval policies and procedures with respect to non-audit services are contained in the Proxy
Statement referred to above in Item 10. Directors, Executive Officers and Corporate Governance, and such
information is incorporated herein by reference.
109
RESIDEO TECHNOLOGIES, INC.
PART IV.
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
The consolidated and combined financial statements and related notes, together with the report of Deloitte
& Touche LLP, Independent Registered Public Accounting Firm, appear in Part II Item 8. Financial Statements and
Supplementary Data of this Form 10-K.
(a)(2) Financial Statements Schedules
All schedules have been omitted because they are not required or because the required information is given
in the Consolidated and Combined Financial Statements or Notes thereto.
(a)(3) Exhibits
The Exhibits listed below on the Exhibit Index are filed or incorporated by reference as part of this Form
10-K.
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.1
3.2
EXHIBIT INDEX
Exhibit Description
Indemnification and Reimbursement Agreement, dated October 14, 2018, between New HAPI Inc.
and Honeywell International Inc. (this Agreement has been updated to include exhibits thereto) (filed
herewith)
Separation and Distribution Agreement, dated October 19, 2018, between Honeywell International
Inc. and Resideo Technologies, Inc.* (incorporated by reference to Exhibit 2.1 to Resideo’s Form 8-K
filed on October 19, 2018, File No. 001-38635)
Transition Services Agreement, dated October 19, 2018, between Honeywell International Inc. and
Ademco Inc., a subsidiary of Resideo Technologies, Inc.* (incorporated by reference to Exhibit 2.2 to
Resideo’s Form 8-K filed on October 19, 2018, File No. 001-38635)
Tax Matters Agreement, dated October 19, 2018, between Honeywell International Inc. and Resideo
Technologies, Inc.* (incorporated by reference to Exhibit 2.3 to Resideo’s Form 8-K filed on October
19, 2018, File No. 001-38635)
Employee Matters Agreement, dated October 19, 2018, between Honeywell International Inc. and
Resideo Technologies, Inc.* (incorporated by reference to Exhibit 2.4 to Resideo’s Form 8-K filed on
October 19, 2018, File No. 001-38635)
Patent Cross-License Agreement, dated October 19, 2018, between Honeywell International Inc. and
Resideo Technologies, Inc.* (incorporated by reference to Exhibit 2.5 to Resideo’s Form 8-K filed on
October 19, 2018, File No. 001-38635)
Trademark License Agreement, dated October 19, 2018, between Honeywell International Inc. and
Resideo Technologies, Inc.* (incorporated by reference to Exhibit 2.6 to Resideo’s Form 8-K filed on
October 19, 2018, File No. 001-38635)
Amended and Restated Certificate of Incorporation of Resideo Technologies, Inc. (incorporated by
reference to Exhibit 3.1 to Resideo’s Form 8-K filed on October 29, 2018, File No. 001-38635)
Amended and Restated By-laws of Resideo Technologies, Inc. (incorporated by reference to Exhibit
3.2 to Resideo’s Form 8-K filed on October 29, 2018, File No. 001-38635)
110
RESIDEO TECHNOLOGIES, INC.
Exhibit
Number
4.1
4.2
Description of Securities of Registrant (filed herewith)
Exhibit Description
Indenture, dated as of October 19, 2018, among Resideo Funding Inc., Resideo Technologies, Inc., the
other guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee.
(incorporated by reference to Exhibit 4.1 to Resideo’s Form 8-K filed on October 19, 2018, File No.
001-38635)
4.3
Form of Resideo Technologies, Inc.’s 6.125% Notes due 2026 (included in Exhibit 4.2)
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
Offer Letter of Michael G. Nefkens (incorporated by reference to Exhibit 10.01 to Resideo’s Form 10
filed on August 23, 2018, File No. 001-38635)
Offer Letter of Joseph D. Ragan III (incorporated by reference to Exhibit 10.02 to Resideo’s Form 10
filed on August 23, 2018, File No. 001-38635)
Form of Internal Hire Offer Letter (incorporated by reference to Exhibit 10.03 to Resideo’s Form 10
filed on August 23, 2018, File No. 001-38635)
Form of External Hire Offer Letter (incorporated by reference to Exhibit 10.04 to Resideo’s Form 10
filed on August 23, 2018, File No. 001-38635)
Resideo Technologies Supplemental Savings Plan ‡ (incorporated by reference to Exhibit 10.05 to
Resideo’s Form 10-K filed on March 18, 2019, File No. 001-38635)
Resideo Technologies, Inc. Severance Plan For Designated Officers as amended on November 15,
2018 ‡ (incorporated by reference to Exhibit 10.07 to Resideo’s Form 10-K filed on March 18, 2019,
File No. 001-38635)
Credit Agreement, dated as of October 25, 2018, by and among Resideo Technologies, Inc. Resideo
Holding Inc., Resideo Intermediate Holding Inc., Resideo Funding Inc., the Lenders and Issuing
Banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent. (incorporated by
reference to Exhibit 10.1 to Resideo’s Form 8-K/A filed on October 29, 2018, File No. 001-38635)
First Amendment to Credit Agreement dated as of November 26, 2019, by and among the Company
Resideo Holding Inc., a Delaware corporation, Resideo Intermediate Holding Inc., a Delaware
corporation, Resideo Funding Inc., a Delaware corporation, the lenders and issuing banks party
thereto, and JPMorgan Chase Bank, N.A., as administrative agent. (incorporated by reference to
Exhibit 10.1 to Resideo’s Form 8-K filed on November 27, 2019. File No. 001-38635)
Resideo Amended and Restated 2018 Stock Incentive Plan (incorporated by reference to Exhibit 10.1
to Resideo's Form 10-Q filed on August 7, 2019, File No. 001-38635)
2018 Stock Plan for Non-Employee Directors of Resideo Technologies, Inc. ‡ (incorporated by
reference to Exhibit 4.4 to Resideo’s Form S-8 filed on December 6, 2018, File No. 333-228687)
2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Stock Option
Award Agreement. ‡ (incorporated by reference to Exhibit 4.5 to Resideo’s Form S-8 filed on
December 6, 2018, File No. 333-228687)
2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Restricted Stock
Unit Agreement. ‡ (incorporated by reference to Exhibit 4.6 to Resideo’s Form S-8 filed on December
6, 2018, File No. 333-228687)
2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Restricted Stock
Unit Agreement (for replacement awards). ‡ (incorporated by reference to Exhibit 4.7 to Resideo’s
Form S-8 filed on December 6, 2018, File No. 333-228687)
111
RESIDEO TECHNOLOGIES, INC.
Exhibit Description
2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Performance Stock
Unit Agreement. ‡ (incorporated by reference to Exhibit 4.8 to Resideo’s Form S-8 filed on December
6, 2018, File No. 333-228687)
2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates Form of Performance Unit
Agreement. ‡ (incorporated by reference to Exhibit 4.9 to Resideo’s Form S-8 filed on December 6,
2018, File No. 333-228687)
2018 Stock Plan for Non-Employee Directors of Resideo Technologies, Inc. Form of Stock Option
Award Agreement. ‡ (incorporated by reference to Exhibit 4.10 to Resideo’s Form S-8 filed on
December 6, 2018, File No. 333-228687)
2018 Stock Plan for Non-Employee Directors of Resideo Technologies, Inc. Form of Restricted Stock
Unit Agreement. ‡ (incorporated by reference to Exhibit 4.11 to Resideo’s Form S-8 filed on
December 6, 2018, File No. 333-228687)
Resideo Technologies UK Sharebuilder Plan. ‡ (incorporated by reference to Exhibit 4.12 to
Resideo’s Form S-8 filed on December 6, 2018, File No. 333-228687)
Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates
Form of Stock Option Award Agreement. ‡ (incorporated by reference to Exhibit 10.20 to Resideo's
Form 10-K filed on March 18, 2019, File No. 001-38635)
Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates
Form of Restricted Stock Unit Agreement. ‡ (incorporated by reference to Exhibit 10.21 to Resideo’s
Form 10-K filed on March 18, 2019, File No. 001-38635)
Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates
Form of Performance Stock Unit Agreement. ‡ (incorporated by reference to Exhibit 10.22 to
Resideo's Form 10-K filed on March 18, 2019, File No. 001-38635)
Amended and Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates
Form of Performance Unit Agreement. ‡ (incorporated by reference to Exhibit 10.23 to Resideo's
Form 10-K filed on March 18, 2019, File No. 001-38635)
Resideo Supplemental Pension Plan ‡ (incorporated by reference to Exhibit 10.24 to Resideo's Form
10-K filed on March 18, 2019, File No. 001-38635)
Bonus Plan of Resideo Technologies, Inc. (incorporated by reference to Exhibit 10.1 to Resideo’s
Form 8-K filed on February 14, 2019, File No. 001-38635)
Employment Separation Agreement and Release with Joseph D. Ragan dated October 21, 2019. ‡
(filed herewith)
Amended and Restated Restricted Stock Unit Agreement with Joseph D. Ragan dated November 6,
2019. ‡ (filed herewith)
Exhibit
Number
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Employment Offer letter agreement with Niccolo de Masi dated January 5, 2020 ‡ (filed herewith)
10.28
10.29
Amended and Restated Restricted Stock Unit Agreement with Niccolo de Masi dated January 6, 2020
‡ (filed herewith)
Employment Separation Agreement and Release with Mike Nefkens dated January 22, 2020 ‡ (filed
herewith)
21.1
List of subsidiaries of the registrant (filed herewith)
112
RESIDEO TECHNOLOGIES, INC.
Exhibit
Number
23.1
24.1
31.1
31.2
32.1
32.2
Exhibit Description
Consent of Deloitte & Touche LLP, independent registered public accounting firm (filed herewith)
Powers of Attorney ‡ (filed herewith)
Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS
XBRL Instance Document (filed herewith)
101.SCH XBRL Taxonomy Extension Schema (filed herewith)
101.CAL XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
* Certain schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The
Company hereby undertakes to furnish copies of any of the omitted schedules and similar attachments upon
request by the U.S. Securities and Exchange Commission.
Indicates management contracts or compensatory plans or arrangements.
‡
Item 16. Form 10-K Summary
The Company has elected not to include a Form 10-K summary under this Item 16.
113
RESIDEO TECHNOLOGIES, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: February 27, 2020
Resideo Technologies, Inc.
By:/s/ Robert Ryder
Robert Ryder
Interim Chief Financial Officer
(on behalf of the Registrant and as the
Registrant’s Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Name
/s/ Michael G. Nefkens
Michael G. Nefkens
/s/ AnnMarie Geddes
AnnMarie Geddes
*
Roger B. Fradin
*
Paul F. Deninger
*
Brian G. Kushner
*
Jack R. Lazar
*
Nina L. Richardson
*
Andrew C. Teich
*
Sharon Wienbar
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Date
February 27, 2020
Interim Chief Accounting Officer
(Principal Accounting Officer)
February 27, 2020
Chairman of the Board
February 27, 2020
Director
Director
Director
Director
Director
Director
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
*By:
/s/ Jeannine J. Lane
(Jeannine J. Lane, Attorney-in-Fact)
February 27, 2020
114
April 24, 2020
Dear Resideo Shareholders:
In our first full year as a public company, Resideo faced considerable challenges and took significant actions to improve
performance. Through it all, our talented employees have worked tirelessly to deliver trusted and reliable products and
technology, and premier brands, to millions of customers around the world.
To meaningfully enhance our financial and operational performance, we are undergoing a business transformation to
strengthen Resideo’s competitive position and enable the company to achieve long-term success and value-creation. We are
making changes to reduce our operating costs, while simultaneously making critical investments to improve our new product
introductions, value engineering and product management.
In recent months, we have:
(cid:129)
Launched a multi-year, multi-phase operational and financial review and program to grow revenue and gross margin,
optimize SG&A, and improve efficiency and working capital management. Through this effort we have identified specific
SG&A cost saving and direct and indirect spend reduction opportunities.
(cid:129) Formed a special committee of the Board, the Strategic & Operational Committee, to oversee the comprehensive
operational and financial review underway at Resideo and provide guidance during the leadership transitions underway.
(cid:129) Appointed Sach Sankpal, an experienced operational
leader, as president of the Products & Solutions business to
enhance our new product introduction process, accelerate our value engineering initiatives and augment our product
management capabilities.
(cid:129) Strengthened the board of directors with the appointment of two new independent directors. Brian Kushner joined the
board, bringing decades of experience leading corporate transformations, including more than a dozen assignments as a
transformational CEO, and Cynthia Hostetler
financial and risk
management expertise.
joined the board, adding significant
investment,
(cid:129) Engaged a leading independent executive search firm to help identify the company’s next CEO and CFO.
We are writing this letter to you at a time when COVID-19 is rapidly spreading across our country. We have assembled a
cross-functional team, which includes our executive officers, for continuously monitoring the impact of the COVID-19 outbreak
on our business operations and implementing measures to manage liquidity and other risks. The Board is actively engaged in
overseeing these risk management strategies and initiatives, working closely with management during this unprecedented
situation to maintain information flow and timely review of issues arising from the pandemic.
We remain focused on Resideo’s transformation, and we believe our outlook for the future is promising. Resideo’s employees
will continue to drive our success, and they are the foundation of our confidence in Resideo’s ability to deliver for our
customers. We are excited to unlock the value inherent in Resideo, and we ask for your support.
Thank you for your investment in Resideo, and for the confidence you place in us as we work to ensure that Resideo achieves
its full potential.
Sincerely,
Roger B. Fradin
Chairman of the Board
Andrew C. Teich
Lead Independent Director
901 E. 6th Street, Austin, TX 78702
2020 PROXY STATEMENT
Notice of 2020 Annual Meeting of Shareholders
DATE
Monday,
June 8, 2020
TIME
PLACE
1:00 p.m.
Eastern Daylight Time
Via the internet at
www.virtualshareholdermeeting.com/
REZI2020
Our 2020 annual meeting will be a live virtual meeting. There will be no physical location for the annual meeting. You will be able to participate
in the annual meeting, vote your shares electronically and submit your questions during the live virtual meeting by visiting
www.virtualshareholdermeeting.com/REZI2020 and entering the 16-digit control number provided in your proxy materials. You may also
submit questions in advance of the meeting by visiting www.proxyvote.com. For more information on accessing the virtual annual meeting, see
Question 5 in the section entitled “Questions and Answers About the Annual Meeting and Voting” on page 71.
Agenda:
Election of Class II Directors
Advisory vote to approve executive compensation
Ratification of the appointment of independent registered public accounting firm
Approval of the Resideo Employee Stock Purchase Plan
Transact such other business as may properly come before the meeting
How to Vote: Your vote is important to us. Unless you vote live at the virtual annual meeting, the deadline for receiving your vote is 11:59 p.m.
Eastern Daylight Time, on June 7, 2020.
VIA INTERNET
BY PHONE
BY MAIL
VIA VIRTUAL MEETING
Visit www.proxyvote.com
to vote your shares via the
internet. You will need the
16-digit control number
provided in your proxy
materials when you access
the web page.
If your shares are held in
the name of a bank,
brokerage firm or similar
organization, follow the
telephone voting
instructions, if any,
provided on your voting
instruction card. If your
shares are registered in
your name, call
1-800-690-6903. You will
need the 16-digit control
number provided in your
proxy materials when you
call.
Complete and sign the
proxy card or voting
instruction form and return
it in the enclosed postage
pre-paid envelope.
You may vote your shares live at the
virtual annual meeting by visiting
www.virtualshareholdermeeting.com/
REZI2020. You will need to enter
the 16-digit control number provided in
your proxy materials to vote your shares at
the virtual annual meeting.
This Notice of 2020 Annual Meeting of Shareholders and related proxy materials are being distributed or made available to shareholders
beginning on April 24, 2020.
On behalf of Resideo’s Board of Directors,
JEANNINE LANE
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL, CORPORATE SECRETARY AND CHIEF COMPLIANCE OFFICER
Important Notice Regarding the Availability of Proxy Materials for the 2020 Annual Meeting of Shareholders to be held on Monday,
June 8, 2020: our Proxy Statement and 2019 Annual Report are available free of charge on our Investor Relations website at
investor.resideo.com.
2020 PROXY STATEMENT
Table of Contents
Proxy Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 1: Election of Class II Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Majority Voting For Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Qualifications and Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Governance Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Board and Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board’s Role in Risk Oversight
Enterprise Risk Management Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating Board Candidates – Procedures and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Meetings and Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board and Committee Evaluations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Employee Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our People, Our Environment and Our Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delinquent Section 16(a) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership of Certain Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership of Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 2: Advisory Vote to Approve Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Executive Compensation Philosophy and Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elements of Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Components of Our Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards-Fiscal Year 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at 2019 Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested-Fiscal Year 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . .
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 4: Approval of the Resideo Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Questions and Answers About the Annual Meeting and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
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5
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Appendix A: Resideo Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
2020 PROXY STATEMENT
Proxy Statement Summary
Below are highlights of certain information in this Proxy Statement. As it is only a summary, it may not
contain all of the information that is important to you. For more complete information, please refer to the
complete Proxy Statement and Resideo’s 2019 Annual Report before you vote. References to “Resideo,”
the “Company,” “we,” “us” or “our” refer to Resideo Technologies, Inc.
2020 Annual Meeting of Shareholders
Date and Time:
June 8, 2020, 1:00 p.m. EDT
Place:
Via the internet at www.virtualshareholdermeeting.com/
REZI2020
Record Date:
April 15, 2020
Voting:
Admission:
Shareholders as of the record date are entitled to vote. Each
share of common stock is entitled to one vote for each director
nominee and one vote for each of the other proposals to be
voted on.
To enter Resideo’s virtual annual meeting via
www.virtualshareholdermeeting.com/REZI2020, you will need
the 16-digit control number provided in your proxy materials.
How to Cast Your Vote
Your vote is important! Please cast your vote and play a part in the future of Resideo.
Shareholders of record on the Record Date can vote through any of the following ways:
INTERNET
PHONE
MAIL
VIRTUAL MEETING
Visit
www.proxyvote.com
Call 1-800-690-6903
toll-free from the
U.S. or Canada
Return the signed
proxy card
Vote your
shares live at the
virtual annual meeting
2020 PROXY STATEMENT | 1
The deadline for voting via the internet or by telephone is 11:59 p.m. EDT on June 7, 2020. If you vote by
mail, your proxy card must be received before the virtual annual meeting.
Beneficial owners who own shares through a bank, brokerage firm or similar organization can vote by
returning the voting instruction form, or by following the instructions for voting via the internet or by
telephone, as provided by the bank, brokerage firm or similar organization. If you own shares in different
accounts or in more than one name, you may receive different voting instructions for each type of
ownership. Please vote all of your shares.
If you are a shareholder of record or a beneficial owner, you may choose to vote at the virtual annual
meeting. Even if you plan to attend our virtual annual meeting, please cast your vote as soon as
possible. For more information on voting your shares, please see “Questions and Answers About the
Annual Meeting and Voting” beginning on page 71.
About Resideo and the Spin-Off
Resideo is a leading global provider of critical comfort, residential thermal solutions and security solutions
primarily in residential environments. We manage our business operations through two segments,
Products & Solutions and ADI Global Distribution, which contributed 43.6% and 56.4%, respectively, of our
net revenue for the year ended December 31, 2019. In addition, Products & Solutions sold $312 million to
ADI Global Distribution for the year ended December 31, 2019. The Products & Solutions segment offerings
consist of solutions in Comfort, Residential Thermal Solutions (“RTS”) and Security categories and include
temperature and humidity control, thermal, 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 security and low-voltage electronic and security products which include
intrusion and smart home,
fire, video surveillance, access control, power, audio and video, Pro AV,
networking, communications, wire and cable, enterprise connectivity and structured wiring.
We were incorporated in Delaware on April 24, 2018. We separated from Honeywell International Inc.
(“Honeywell”) on October 29, 2018, becoming an independent publicly traded company as a result of a pro
rata distribution of our common stock to shareholders of Honeywell (the “Spin-Off”).
Voting Matters and Board Recommendations
VOTING MATTERS
BOARD
RECOMMENDATIONS
PAGE REFERENCE
(FOR MORE DETAIL)
Proposal 1.
Election of Class II Directors
FOR Each Nominee
Proposal 2.
Advisory Vote to Approve
Executive Compensation
Proposal 3.
Ratification of the Appointment of
Independent Registered Public
Accounting Firm
Proposal 4.
Approval of the Resideo
Employee Stock Purchase Plan
FOR
FOR
FOR
5
35
64
67
2 | 2020 PROXY STATEMENT
Age Independent
Board Committee
Memberships
Our Board of Directors
Name
Roger Fradin
(Chairman)
Michael Nefkens
(President & CEO)
Paul Deninger
Cynthia Hostetler
Brian Kushner
66
50
61
57
61
No
No
Yes
Yes
Yes
Jack Lazar
54
Yes
Nina Richardson
Andrew Teich
(Lead Independent Director)
61
59
Yes
Yes
Sharon Wienbar
58
Yes
Finance
Innovation and Technology
None
Audit
Finance (Chair)
Innovation and Technology
None
Finance
Strategic & Operational
Audit (Chair)
Innovation and Technology
Strategic & Operational
Compensation
Nominating and Governance (Chair)
Strategic & Operational
Compensation
Finance
Innovation and Technology (Chair)
Nominating and Governance
Strategic & Operational (Chair)
Audit
Compensation (Chair)
Nominating and Governance
Other Public Company Board Service
Juniper Industrial Holdings, Inc.
L3Harris Technologies, Inc.
Vertiv Holdings Co
None
EverQuote
Iron Mountain Inc.
Vulcan Materials Company
Cumulus Media Inc.
Mudrick Capital Acquisition
Corporation
Thryv, Inc.
Box, Inc.
Casper Sleep Inc.
Mellanox Technologies
Silicon Laboratories, Inc.
Silicon Laboratories, Inc.
Cohu, Inc.
Sensata Technologies Holding PLC
Colfax Corporation
Corporate Governance Highlights
We are committed to strong corporate governance practices and policies, as described below, that support
effective Board leadership and prudent management practices.
Annual election of all directors commencing in 2022, following an initial three-year phase-out of our
classified board
Majority voting for directors in uncontested elections
Lead Independent Director with specified duties and responsibilities
Robust risk oversight by full Board and Committees
Annual review of Committee charters and Corporate Governance Guidelines
Independent Audit, Compensation and Nominating and Governance Committees
Newly formed Strategic & Operational Committee that oversees the comprehensive operational and
financial review underway at Resideo, provides guidance during the CEO transition period and oversees
the Company’s management of COVID-19 pandemic related health and safety and business continuity
concerns
Finance Committee that reviews and oversees Resideo’s capital structure and opportunities for
maximizing shareholder value
Innovation and Technology Committee that oversees Resideo’s overall strategic direction and
investment in technology initiatives
Rigorous risk oversight of “enterprise” as well as “product” cybersecurity programs by the Audit and
Innovation and Technology Committees
2020 PROXY STATEMENT | 3
Annual Board and Committee evaluations
Proposed annual advisory vote to approve executive compensation
Meaningful stock ownership guidelines for directors and executives
Adoption of proxy access
Limits on memberships on other boards
A Board that is actively engaged in recruiting qualified, diverse director candidates
Commitment to health, safety and environmental sustainability
Pay parity oversight by the Compensation Committee
Oversight of our code of business conduct, health, safety and environmental matters, equity
employment opportunity and harassment policies and practices by the Nominating and Governance
Committee
Policies prohibiting short sales, hedging, margin accounts and pledging
Executive Compensation Preview
The Compensation Discussion and Analysis section of this Proxy Statement provides a focused discussion
of our executive compensation philosophy and the pay programs applicable to our named executive officers.
Our compensation program design directly links compensation to the performance of our business and
rewards fiscal year results through our annual incentive plan and long-term performance with equity awards.
Our Named Executive Officers
Our leadership team includes the following Named Executive Officers (“NEOs”):
NAME
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
POSITION
President and Chief Executive Officer
Interim Chief Financial Officer
President, ADI Global Distribution
Executive Vice President, Chief Human Resources Officer
Former Chief Innovation Officer
Former Executive Vice President, Chief Financial Officer
Forward-Looking Statements
This Proxy Statement and the cover letter contains “forward-looking statements” regarding expectations
about future business and financial results, which speak only as of the date of this Proxy Statement.
Although we believe that the forward-looking statements contained in this Proxy Statement are based upon
reasonable assumptions, such statements involve known and unknown risks, uncertainties, and other
factors, which may cause the actual results or performance of the Company to be materially different from
any future results or performance expressed or implied by such forward-looking statements. Such risks and
those described under the headings “Risk Factors” and
uncertainties include, but are not
“Cautionary Statement Concerning Forward-Looking Statements” in our Annual Reports on Form 10-K for
the year ended December 31, 2019. You are cautioned not to place undue reliance on these forward-looking
statements, which are not guarantees of future performance, and actual results, developments and business
decisions may differ from those envisaged by our forward-looking statements. Except as required by law, we
undertake no obligation to update such statements to reflect events or circumstances arising after the date
of this presentation, and we caution investors not to place undue reliance on any such forward-looking
statements.
limited to,
4 | 2020 PROXY STATEMENT
Proposal 1: Election of Class II Directors
Our Board is divided into three classes with each class consisting, as nearly as may be possible, of one third of the
total number of directors. The directors designated as Class II directors have terms expiring at this year’s Annual
Meeting of Shareholders. The directors designated as Class III directors have terms expiring at the 2021 Annual
Meeting of Shareholders. Directors elected to succeed those directors whose terms then expire will be elected for a
term of office to expire at the 2022 Annual Meeting of Shareholders. Beginning at the 2022 Annual Meeting of
Shareholders, all of our directors will stand for election each year for annual terms, and our Board will therefore no
longer be divided into three classes. Our Board has nominated the Class II director nominees for re-election to the
Board. We do not know of any reason why any nominee would be unable to serve as a director. If any nominee
should become unavailable to serve prior to the Annual Meeting, the shares represented by proxy will be voted for
the election of such other person as may be designated by the Board. The Board may also determine to leave the
vacancy temporarily unfilled or reduce the authorized number of directors in accordance with the By-Laws.
Resideo’s By-Laws provide that in any uncontested election of directors (an election in which the number of
nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of
votes cast “FOR” his or her election than votes cast “AGAINST” his or her election will be elected to the Board.
Majority Voting for Directors
Resideo’s By-Laws provide a majority voting standard for election of directors in uncontested elections. Each
director will be elected by the affirmative vote of a majority of the votes cast, meaning that the number of votes
cast “FOR” a director nominee exceeds fifty percent (50%) of the number of votes cast with respect to that
director’s election.
No incumbent director nominee shall qualify for service as a director unless he or she agrees to submit upon
re-nomination to the Board an irrevocable resignation effective upon such director nominee’s failure to receive a
majority of the votes case in an uncontested election. The Nominating and Governance Committee (excluding the
nominee, if applicable) will make a recommendation to the Board as to whether to accept or reject the resignation,
or whether other action should be taken. The Board, excluding the nominee, will act on the resignation and
publicly disclose its decision in accordance with the By-Laws.
An election of directors is considered to be contested if there are more nominees for election than positions on the
Board to be filled by election at the meeting of shareholders. In a contested election, the required vote would be a
plurality of votes cast.
Director Nominees
The Board has affirmatively determined that each of the nominees qualifies for election under the Company’s
criteria for evaluation of directors. See “Nominating Board Candidates – Procedures and Qualifications” on
page 21 for more information on qualifications for director nominees. The Nominating and Governance Committee
is responsible for nominating a slate of director nominees who collectively have the complementary experience,
qualifications, skills and attributes to guide the Company and function effectively as a Board. The Committee
believes that each of the nominees has key personal attributes that are important to an effective board, including
integrity, industry background, contribution to the composition, diversity and culture of the Board, educational
background, the ability and willingness to constructively challenge management and the ability and commitment to
devote sufficient time to Board duties. Set forth below is biographical information about the director nominees and
their specific experience, qualifications and skills that have led the Board and the Nominating and Governance
Committee to conclude that they should continue to serve as directors of Resideo. In addition, the Board has
determined that each non-employee director nominee qualifies as an independent director under NYSE corporate
governance listing standards and the Company’s director independence standards as further described under
“Director Independence” on page 16. In addition, the biographical information about the other members of the
Board and their specific experience, qualifications and skills are included.
2020 PROXY STATEMENT | 5
The Board has established a director retirement policy whereby, unless the Board otherwise determines,
non-employee directors shall serve only until the Annual Meeting of Shareholders immediately following their 75th
birthday.
Director Qualifications and Skills
Our directors have a broad range of experience that spans different industries and encompasses the relevant
business and technology sectors. Directors bring a variety of qualifications, skills and viewpoints to our Board that
both strengthen their ability to carry out their oversight responsibilities on behalf of our shareholders and bring
richness to Board deliberations. As described above and in the director biographies, our directors have key
experiences, qualifications and skills that are relevant and important in light of our business, structure and growth
strategy and include the following:
DIRECTOR QUALIFICATIONS AND SKILLS CRITERIA
Senior Leadership Experience
Experience serving as CEO or a senior executive that provides a practical understanding of how complex
organizations function and is able to support our commercial strategy, growth and performance
Consumer Products
Experience with the retail consumer industry, e-commerce, customer service and consumer dynamics that
aligns with our business strategies and opportunities
Manufacturing
Experience with the operations of manufacturing facilities that provide critical perspectives in understanding
and evaluating operational planning, management and risk mitigation of our business
Technology
Experience developing and adopting new technologies as well as leading innovation initiatives that support the
execution of our vision in the smart home market
Global Relations
International business strategy, operations and substantive expertise in international matters relevant to our
global business
Finance
Experience with finance and financial reporting processes, including monitoring and assessing a company’s
operating performance to ensure accurate financial reporting and robust controls
Public Company Board Service
Service on the boards and board committees of public companies that provides an understanding of corporate
governance practices and risk management oversight as well as insights into board management and relations
between the board, the CEO and senior management that will support our commitment to maintain a strong
governance framework as an independent public company
Marketing
Expertise in brand development, marketing and sales in local markets on a global scale relevant to our global
business
Operations
Managing the operations of a business and possessing a deep understanding of the end-markets we serve
Strategy
Practical understanding of the development and implementation of strategic priorities and of the risks and
opportunities that can impact a company’s operations and strategies which will serve to drive our long-term
growth
Mergers & Acquisitions
Experience in business development and mergers and acquisitions to support our initiatives to identify and
execute on tuck-in acquisitions and investments
6 | 2020 PROXY STATEMENT
The table below is a summary of the range of qualifications and skills that each director brings to the Board. The
table does not include all of the qualifications that each director offers, and the fact that a particular experience,
skill, or qualification is not checked for a specific director does not mean that the director does not possess it.
NAME
Roger Fradin
(Chairman)
Michael Nefkens
(President & CEO)
Paul Deninger
Cynthia Hostetler
Brian Kushner
Jack Lazar
Nina Richardson
Andrew Teich
(Lead Independent Director)
Sharon Wienbar
I
I
E
C
N
E
R
E
P
X
E
P
H
S
R
E
D
A
E
L
R
O
N
E
S
I
S
T
C
U
D
O
R
P
R
E
M
U
S
N
O
C
I
G
N
R
U
T
C
A
F
U
N
A
M
Y
G
O
L
O
N
H
C
E
T
I
S
N
O
T
A
L
E
R
L
A
B
O
L
G
Y
N
A
P
M
O
C
C
I
L
B
U
P
E
C
N
A
N
F
I
I
G
N
T
E
K
R
A
M
I
S
N
O
T
A
R
E
P
O
Y
G
E
T
A
R
T
S
A
&
M
2020 PROXY STATEMENT | 7
Director Biographies
The Board of Directors unanimously recommends a vote “FOR” Proposal 1 to elect
each of the following Class II director nominees.
Nominees for Election (Class II Directors)
Included in each biography are the key qualifications that led to the conclusion that such directors
should serve on our Board.
Independent Director
Director since 2020
Committee
Memberships:
(cid:129) None
CYNTHIA HOSTETLER, Age 57
Key Qualifications:
(cid:129) Broad investment, financial and risk management skills
(cid:129) Experienced public and investment company board member
(cid:129) Significant experience with investment management, including ESG and investor relations
issues
Other Current Public Company Directorships:
(cid:129) Vulcan Materials Company
Background
Ms. Hostetler is a professional director of public companies and investment funds in the
United States, and serves on several mutual fund boards, including as Trustee of Invesco
Ltd., Atlanta, Georgia (international mutual funds) since 2017; Director of TriLinc Global
Impact Fund, LLC, Los Angeles, California (international
fund) since 2013;
Trustee of Aberdeen International Funds, New York, New York (international mutual funds)
from 2013 to 2017; Director of Artio Global Funds, New York, New York (international mutual
funds) from 2010 to 2013; and Director of Edgen Group Inc., Baton Rouge, Louisiana (energy
infrastructure) from 2012 to 2014. Ms. Hostetler served as the Head of Private Equity and
Vice President of Investment Funds of Overseas Private Investment Corporation from 2001
to 2009 and as a board member and President of First Manhattan Bancorporation from 1991
to 2006. Ms. Hostetler began her career as a corporate lawyer with Simpson Thatcher &
Bartlett in New York. Ms. Hostetler earned her bachelor’s degree from Southern Methodist
University and holds a Juris Doctor from the University of Virginia School of Law.
investment
8 | 2020 PROXY STATEMENT
BRIAN KUSHNER, Age 61
Key Qualifications:
(cid:129) Decades of experience leading corporate transformation efforts
(cid:129) Proven expertise in corporate performance
(cid:129) Served in roles that
include chairman, director, chief executive officer and chief
restructuring officer at more than 30 public and private companies
Other Current Public Company Directorships:
(cid:129) Cumulus Media Inc.
(cid:129) Mudrick Capital Acquisition Corporation
(cid:129) Thryv, Inc.
Background
Mr. Kushner has served as a Senior Managing Director at FTI Consulting, Inc., a global
business advisory firm, since 2009, where he serves as leader of the Private Capital Advisory
Services practice and as the co-leader of the Technology practice, the Aerospace, Defense
and Government Contracting practice and the Activism and M&A Solutions practice. Prior to
joining FTI, Mr. Kushner was the co-founder of CXO, L.L.C., a boutique interim and
turnaround management consulting firm that was acquired by FTI at
the end of
2008. Mr. Kushner periodically served as the chief executive officer (“CEO”), interim CEO, or
the chief restructuring officer (“CRO”) of companies that elected to utilize bankruptcy
proceedings as part of their financial restructuring process and, as such, he served as an
executive officer of various companies that filed bankruptcy petitions under federal
law,
including, among others, Relativity Media LLC in 2015. Over the past
three decades,
Mr. Kushner has served as a director, CEO or CRO of over 30 public and private technology,
manufacturing,
telecom and defense companies, during which time he worked on the
acquisition or disposition of more than 20 companies. Mr. Kushner received his B.S. degree
in Applied and Engineering Physics from Cornell University, his M.S. degree in Applied and
Engineering Physics from Cornell University and a PhD in Applied Physics with a minor in
Electrical Engineering, also from Cornell University. He previously served as a director at
Luxfer Holdings PLC (2016-2018).
JACK LAZAR, Age 54
Key Qualifications:
(cid:129) Strong financial, technological and operational expertise
(cid:129) Experienced technology company executive and consultant
(cid:129) Expertise in best practices for a public company on a global scale
Other Current Public Company Directorships:
(cid:129) Box, Inc.
(cid:129) Casper Sleep Inc.
(cid:129) Mellanox Technologies, Ltd.
(cid:129) Silicon Laboratories Inc.
Background
Mr. Lazar has been an independent business consultant since March 2016. From January
2014 to March 2016, he served as the chief financial officer of GoPro, Inc., a provider of
wearable and mountable capture devices. From January 2013 to January 2014, he was an
independent business consultant. From May 2011 to January 2013, Mr. Lazar served as
senior vice president, corporate development and general manager of Qualcomm Atheros,
Inc., a developer of communications semiconductor solutions. Mr. Lazar is a certified public
accountant (inactive) and received his B.S. degree in commerce with an emphasis in
accounting from Santa Clara University. He previously served as a director at TubeMogul,
Inc. (2013-2016) and Quantenna Communications (2016-2019).
2020 PROXY STATEMENT | 9
Independent Director
Director since 2019
Committee
Memberships:
(cid:129) Finance
(cid:129) Strategic & Operational
Independent Director
Director since 2018
Committee
Memberships:
(cid:129) Audit (Chair)
(cid:129) Innovation and
Technology
(cid:129) Strategic & Operational
Continuing Directors
Class III Directors (with terms expiring at the 2021 Annual Meeting of Shareholders)
ROGER FRADIN, Age 66
Key Qualifications:
(cid:129) Extensive experience as an executive at Honeywell
(cid:129) In-depth knowledge of the fire and security solutions and automation and control solutions
industries
(cid:129) Significant operational and product development experience
(cid:129) Financial expertise and experience in capital markets
(cid:129) Broad experience in marketing, including international markets
Non-Executive
Chairman of the Board
Independent Director
Director since 2018
Other Current Public Company Directorships:
(cid:129) Juniper Industrial Holdings, Inc.
(cid:129) L3Harris Technologies, Inc. (formerly Harris Corporation)
(cid:129) Vertiv Holdings Co (formerly GS Acquisition Holdings)
Committee
Memberships:
(cid:129) Finance
(cid:129) Innovation and
Technology
Independent Director
Director since 2018
Committee
Memberships:
(cid:129) Compensation
(cid:129) Nominating and
Governance (Chair)
(cid:129) Strategic & Operational
Background
Mr. Fradin joined Honeywell in 2000 when Honeywell acquired Pittway Corporation, where he
served as president and chief executive officer of the Security and Fire Solutions segment.
Mr. Fradin served as president and chief executive officer of Honeywell’s Automation and
Control Solutions business from January 2004 to April 2014 and served as vice chairman of
Honeywell from April 2014 to February 2017. Mr. Fradin served as an independent contractor
to Honeywell from March 2018 to September 2018. He has also served as an operating
executive with The Carlyle Group since 2016 and an advisor to Seal Rock Partners since
2014. Mr. Fradin received his M.B.A. and B.S. degrees from The Wharton School at the
University of Pennsylvania. While a student at Wharton, Mr. Fradin also served as a member
of its faculty from 1976 to 1977. He previously served as a director of MSC Industrial Direct
(1998-January 2020) and Pitney Bowes (2012-2019).
NINA RICHARDSON, Age 61
Key Qualifications:
(cid:129) Extensive global operational and leadership experience in the technology sector
(cid:129) Experience ranging from start-up environmental to multi-billion dollar corporations
(cid:129) In-depth knowledge of human resources
Other Current Public Company Directorships:
(cid:129) Silicon Laboratories, Inc.
(cid:129) Cohu, Inc.
Background
Ms. Richardson serves as managing director of Three Rivers Energy, Inc., a company she
co-founded in 2004, and has been an independent consultant since March 2015. From
February 2013 to February 2015, Ms. Richardson served as chief operating officer of GoPro,
Inc. She has also held several executive positions of increasing responsibility at Flextronics,
Inc., a global electronics and manufacturing service provider. Ms. Richardson received her
B.S. degree in industrial engineering from Purdue University and an executive M.B.A. from
Pepperdine University. She previously served as a director at Zayo Group Holdings, Inc.
(2015-2018), Callidus Software, Inc. (2017-2018) and Silicon Graphics International Corp.
(2016).
10 | 2020 PROXY STATEMENT
ANDREW TEICH, Age 59
Key Qualifications:
(cid:129) Seasoned executive with experience in acquisitions and operational integration
(cid:129) Extensive sales and marketing skills
(cid:129) Expertise in artificial intelligence technology
Other Current Public Company Directorships:
(cid:129) Sensata Technologies Holding PLC
Background
Mr. Teich has been a private technology consultant since June 2017. From May 2013 until
June 2017, he served as the chief executive officer and president of FLIR Systems, Inc., a
public multinational imaging and sensing company, and a director from July 2013 to June
2017. Mr. Teich joined FLIR Systems, Inc. in 1999 and held various positions of increasing
responsibility within the company including president of
the Commercial Systems,
Commercial Vision Systems and Thermography divisions throughout his tenure. Mr. Teich
received his B.S. degree in marketing from Arizona State University and is an alumnus of the
Harvard Business School Advanced Management Program.
Lead Independent
Director
Director since 2018
Committee
Memberships:
(cid:129) Compensation
(cid:129) Finance
(cid:129) Innovation and
Technology (Chair)
(cid:129) Nominating and
Governance
(cid:129) Strategic & Operational
(Chair)
Class I Directors (with terms expiring at the 2022 Annual Meeting of Shareholders)
PAUL DENINGER, Age 61
Key Qualifications:
(cid:129) Extensive senior management experience in operations and strategy
(cid:129) Extensive experience in banking, capital markets and merger and acquisition strategies
(cid:129) Deep knowledge of the technology sector
Other Current Public Company Directorships:
(cid:129) EverQuote
(cid:129) Iron Mountain Inc.
Background
Mr. Deninger served as a senior advisor to Evercore Inc., a publicly held investment banking
advisory firm, from June 2016 to February 2020. Mr. Deninger served as a senior managing
director with Evercore from February 2011 to June 2016. From December 2003 until October
2010, Mr. Deninger served as a vice chairman at Jefferies Group LLC, a wholly-owned
subsidiary of Jefferies Financial Group Inc., a diversified financial services company. Prior to
that, he served as chairman and chief executive officer of Broadview International LLC, a
mergers and acquisitions advisory firm focused on the technology industry. Mr. Deninger
received his B.S. from Boston College and his M.B.A. from Harvard Business School.
Independent Director
Director since 2018
Committee
Memberships:
(cid:129) Audit
(cid:129) Finance (Chair)
(cid:129) Innovation and
Technology
2020 PROXY STATEMENT | 11
MICHAEL NEFKENS, Age 50
Key Qualifications:
(cid:129) Extensive experience running a complex, multi-national organization
(cid:129) Expert on company transformation
(cid:129) Extensive background in the technology sector
(cid:129) Strong record of delivering innovative solutions and shareholder value
(cid:129) Customer focused
Other Current Public Company Directorships:
(cid:129) None
Background
Prior to joining Resideo, Mr. Nefkens served as the president and chief executive officer of
Honeywell’s Homes Business since May 2018 and has served as a member of the Board
since the Spin-Off. Mr. Nefkens served as executive vice president and general manager of
Regions & Industries at DXC Technology Company from April 2017 to February 2018.
Mr. Nefkens served as executive vice president and general manager of Enterprise Services
at Hewlett Packard Enterprise Company from November 2015 to April 2017. Prior to that,
Mr. Nefkens performed a similar role at Hewlett-Packard Co. (“HP Co.”) from December 2012
to November 2015, having been appointed to the role in an acting capacity in August 2012.
Previously, Mr. Nefkens served as senior vice president and general manager of Enterprise
Services in the EMEA region at HP Co. from November 2009 to August 2012. Mr. Nefkens
received his bachelor’s degree in finance from Texas Christian University and his M.B.A. from
Duke University’s Fuqua School of Business. He served as a director of Riverbed
Technology, Inc. from September 2014 to April 2015.
SHARON WIENBAR, Age 58
Key Qualifications:
(cid:129) Extensive experience as an operating executive and strategist
in the software and
technology sectors
(cid:129) Leadership in technology investments and partnerships
(cid:129) Expertise in start-up operations and venture capital investing
Other Current Public Company Directorships:
(cid:129) Colfax Corporation
Background
Ms. Wienbar was chief executive officer of Hackbright Academy, a technology training firm,
from 2015 to 2016. From 2007 to 2015, she served as a partner at Scale Venture Partners, a
technology and healthcare venture capital firm. Ms. Wienbar received her A.B. and A.M.
degrees in engineering from Harvard University and her M.B.A. from Stanford University. She
Inc.’s venture advisory committee and as a director of
previously served on Microsoft
Everyday Health, Inc. (2007-2016) and Glu Mobile, Inc. (2004-2008).
President, Chief
Executive Officer and
Director
Director since 2018
Committee
Memberships:
(cid:129) None
Independent Director
Director since 2018
Committee
Memberships:
(cid:129) Audit
(cid:129) Compensation (Chair)
(cid:129) Nominating and
Governance
12 | 2020 PROXY STATEMENT
Our Governance Framework
Our corporate governance framework is a set of principles, guidelines and practices that support strong
performance and long-term value creation for our shareholders. Our commitment to good corporate governance is
integral to our business and reflects not only regulatory requirements, NYSE listing standards and broadly
recognized governance practices, but also effective leadership by our senior management team and oversight by
our Board.
Our Board is committed to maintaining the highest standards of corporate governance. Our Board is guided by
our Corporate Governance Guidelines, which address director responsibilities, director skills and characteristics,
memberships on other boards, director access to management and other employees, director orientation and
continuing education, director retirement and the annual performance evaluations of the Board and Committees.
Because corporate governance practices evolve over time, our Board will review and approve our Corporate
Governance Guidelines, Committee charters and other governance policies at least once a year and update them
as necessary and appropriate.
Our Board and Culture
Our Board is deeply engaged, provides informed and meaningful guidance and feedback, and maintains an open
dialogue with management based on a clear understanding of our strategic plans. At each Board meeting, we
review components of our long-term strategy with our directors and engage in constructive dialogue which our
leadership team embraces. Our directors have full and free access to our officers and employees to address
questions, comments or concerns. Additionally, the Board and Committees have the power to hire independent
legal, financial or other advisors without approval from, or consultation with, Resideo management.
Our Board also takes an active role in ensuring we embrace “best practices” in corporate governance. The
partnership and oversight of a strong and multi-faceted Board with diverse perspectives rooted in deep
experience in, global business, finance, technology and strategy are essential to creating long-term shareholder
value.
Corporate Governance Overview
Presented below are some highlights of our corporate governance program. You can find details about these and
other corporate governance policies and practices within this Proxy Statement.
KEY GOVERNANCE PRACTICES
CORPORATE GOVERNANCE
GUIDELINES
(cid:129) Our Corporate Governance Guidelines have been designed to assist the Board in the
exercise of its duties and responsibilities to our Company. They reflect the Board’s
commitment
the Board and
management levels with a view to achieving our strategic objectives.
the effectiveness of decision-making at
to monitor
(cid:129) The guidelines are reviewed annually and subject to modification by the Board at any
time.
INDEPENDENT
BOARD
(cid:129) 7 of our 9 directors are independent as defined by the listing standards of the NYSE.
(cid:129) Mr. Fradin is a former employee of Honeywell. Mr. Nefkens is a management director.
BOARD
COMPOSITION
(cid:129) Currently, the Board has fixed the number of directors at 9.
(cid:129) The Board will regularly assess its performance and can adjust the number of directors
according to the needs of the Board and the Company.
(cid:129) As shown under “Director Qualifications and Skills” beginning on page 6 and in the
biographies of the directors beginning on page 8, our Board has a diverse mix of skills,
experience and backgrounds that support our growth and commercial strategy.
2020 PROXY STATEMENT | 13
KEY GOVERNANCE PRACTICES
LEAD INDEPENDENT
DIRECTOR
(cid:129) The Board has appointed Mr. Teich as Lead Independent Director. Mr. Teich
possesses the attributes that the Board believes will ensure independent oversight of
management. See “Board Leadership Structure” on page 15 for additional information.
BOARD
COMMITTEES
MEMBERSHIPS ON
OTHER BOARDS
(cid:129) The Board consists of five standing committees: Audit, Compensation, Nominating and
Governance, Finance and Innovation and Technology, and one special committee:
Strategic & Operational.
(cid:129) Each of the Audit, Compensation, Nominating and Governance and the Strategic &
Operational Committees is composed entirely of independent directors.
(cid:129) Each Board Committee has a written charter that will be reviewed and re-assessed
annually.
(cid:129) Each Committee charter is posted and available on our Investor Relations website at
investor.resideo.com.
(cid:129) Under our Corporate Governance Guidelines, directors who serve as chief executive
officers of public companies should not serve on more than three public company
boards (including their own); provided, however,
to the
Company’s CEO, such CEO may not sit on more than two public company boards
(including service on the Company’s Board).
that solely with respect
(cid:129) Other directors should not serve on more than five public company boards (including
service on our Board).
BOARD DIVERSITY
(cid:129) Three of our nine Board members are women. The Nominating and Governance
Committee actively considers diversity when evaluating new candidates.
ROBUST RISK OVERSIGHT
(cid:129) Our full Board is responsible for risk oversight, and has designated Committees to have
particular oversight of certain key risks. Our Board oversees management as it fulfills its
responsibilities for the assessment and mitigation of risks and for taking appropriate
risks.
BOARD AND COMMITTEE
SELF-EVALUATION
(cid:129) The Board conducts an annual self-evaluation led by the Nominating and Governance
Committee to determine whether it and its Committees are functioning effectively and to
solicit feedback from directors as to whether the Board is continuing to evolve and be
refreshed in a manner that serves the needs of the Company.
MAJORITY VOTING OF
DIRECTORS
(cid:129) Our By-Laws provide for majority voting in uncontested elections of directors. Any
directors standing for re-nomination to the Board shall agree to submit an irrevocable
resignation effective upon that director’s failure to receive a majority vote and the
acceptance of the resignation by the Board.
CODE OF BUSINESS
CONDUCT
(cid:129) Our Code of Business Conduct applies equally to all of our directors, officers and
employees, as well as those of our subsidiaries, affiliates and joint ventures.
(cid:129) Material amendments to, or waivers of, the Code of Business Conduct granted to any of
our directors or executive officers will be posted on our website at www.resideo.com.
(cid:129) To date, no such amendments have been made or waivers granted.
(cid:129) Our Code of Business Conduct is drafted to provide guidance to our directors, officers,
employees and others covered by the Code of Business Conduct as to what they
should and should not do to comply with our policies. The statements contained therein
are not representations and should not be relied upon as such by third parties, including
shareholders.
COMMITMENT TO HEALTH,
SAFETY AND
ENVIRONMENTAL
SUSTAINABILITY
(cid:129) We customized our global health, safety and environmental (“HSE”) management
system to reflect what is important to our business. Our leadership is committed to and
accountable for our sustainability efforts to ensure that sufficient
resources are
deployed to manage our commitments and maintain appropriate controls.
BOARD OVERSIGHT OF
POLITICAL
CONTRIBUTIONS
(cid:129) The Nominating and Governance Committee oversees our policies and practices
relating to political contributions.
14 | 2020 PROXY STATEMENT
KEY GOVERNANCE PRACTICES
PROXY ACCESS
(cid:129) Subject to certain terms and conditions, our By-Laws provide that shareholders who
have maintained continuous qualifying ownership of at least 3% of our outstanding
common stock for at least three years may use our annual meeting proxy statement to
nominate a number of director candidates not to exceed the greater of two candidates
or 20% of the number of directors then in office.
SUCCESSION
PLANNING
(cid:129) Our Board oversees and annually reviews leadership development and assessment
initiatives, as well as short- and long-term succession plans for the CEO and other
senior management.
HEDGING AND
PLEDGING
PROHIBITIONS
(cid:129) All of our directors, officers and employees are prohibited from engaging in short sales
of Resideo securities and selling or purchasing puts or calls or otherwise trading in or
writing options on Resideo securities and using certain financial instruments (including
forward sale contracts, equity swaps, collars and exchange funds), holding securities in
margin accounts or pledging Resideo securities as collateral, in each case, that are
designed to hedge or offset any decrease in the market value of Resideo securities.
STOCK OWNERSHIP
GUIDELINES
(cid:129) We have meaningful stock ownership guidelines:
(cid:129) CEO: 6x base salary
(cid:129) Other Executive Officers: 3x base salary
(cid:129) Non-employee directors: 5x annual cash retainer
(cid:129) Five year period to meet the ownership requirement
Our Certificate of Incorporation, By-Laws, Committee Charters, Corporate Governance Guidelines and Code of Business
Conduct are available on our Investor Relations website at investor.resideo.com. Paper copies of these documents can
be obtained by writing to Resideo Technologies, Inc., 901 E. 6th Street, Austin, TX 78702, Attention: Corporate Secretary.
Board Leadership Structure
The Company’s current Board leadership structure consists of a non-executive Chairman of the Board, and,
because the Chairman is not independent due to his prior employment with Honeywell, a Lead Independent
Director who was appointed by the independent directors of the Board. The Board believes the current structure
of separating the roles of Chairman and CEO, as well as having a Lead Independent Director, allows for
alignment of corporate governance with the interests of shareholders. The Board believes that this structure
allows our CEO to focus on operating and managing the Company, leverages our Chairman’s experience in
guidance and oversight, and ensures overall
independence of the Board through clearly defined roles and
responsibilities of the Lead Independent Director. While the Board believes that this structure currently is in the
best interests of Resideo and its shareholders, it does not have a policy with respect to separating the roles of
Chairman and CEO and appointing a Lead Independent Director if the Chairman is independent and could adjust
the structure in the future as it deems appropriate.
Lead Independent Director
The Board has determined that Mr. Fradin, a former employee of Honeywell, may not currently be independent
and has appointed Mr. Teich as the Lead Independent Director in accordance with our Corporate Governance
Guidelines. In electing Mr. Teich, the independent directors of the Board considered Mr. Teich in light of the
following selection criteria:
(cid:129) Qualifies as independent, in accordance with relevant listing standards;
(cid:129) Able to commit the time and level of engagement required to fulfill the substantial responsibilities of the role;
and
(cid:129) Possesses effective communication skills to facilitate discussions among members of the Board, including
among the independent directors, Mr. Nefkens and Mr. Fradin, and engage with key stakeholders.
2020 PROXY STATEMENT | 15
As the Lead Independent Director, Mr. Teich has the following duties and responsibilities:
(cid:129) Review Board meeting agendas and Board meeting schedules to ensure there is sufficient
time for
discussion of all agenda items;
(cid:129) Provide input regarding presentation materials and other written information provided to directors for Board
meetings;
(cid:129) Preside at all meetings at which the Chairperson is not present
including executive sessions of
the
independent directors;
(cid:129) Be available for consultation and direct communications with the Company’s shareholders; and
(cid:129) Perform such other duties as the Board may determine from time to time.
Director Independence
Providing objective, independent judgment is at the core of the Board’s oversight function. The Nominating and
Governance Committee conducts an annual review of the independence of the directors and reports its findings to
the full Board. The Board has affirmatively determined that all non-employee directors, other than Mr. Fradin who
is a former employee of Honeywell, satisfy the independence criteria in the applicable NYSE listing standards and
SEC rules (including the enhanced criteria with respect
the Audit Committee and the
Compensation Committee). Regarding Mr. Fradin, the Board considered that more than three years have elapsed
since Mr. Fradin was employed by Honeywell, but acknowledges that other relationships described in this Proxy
Statement currently suggest that Mr. Fradin may not be fully independent.
to members of
For a director to be considered independent, the Board must determine that the director does not have any
material relationships with Resideo, either directly or as a partner, shareholder or officer of an organization that
has a relationship with Resideo, other than as a director and shareholder. Material relationships can include
vendor, supplier, consulting, legal, banking, accounting, charitable and family relationships, among others. In
addition to Mr. Fradin, Mr. Nefkens as an employee of Resideo, does not satisfy the independence criteria
described below.
Criteria for Director Independence
The Board considered all relevant facts and circumstances in making its determination that all of our directors are
independent other than Mr. Fradin and Mr. Nefkens, including the following:
(cid:129) No such director or nominee receives any direct compensation from Resideo other than under the
non-employee director compensation program described beginning on page 24.
(cid:129) No immediate family member (within the meaning of the NYSE listing standards) of any such director or
nominee is an employee of Resideo or otherwise receives direct compensation from Resideo.
(cid:129) No such director or nominee is affiliated with Resideo or any of its subsidiaries or affiliates.
(cid:129) No such director or nominee is an employee of Resideo’s independent accountants and no such director or
nominee (or any of their respective immediate family members) is a current partner of Resideo’s independent
accountants, or was within the last three years, a partner or employee of Resideo’s independent accountants
and personally worked on Resideo’s audit.
(cid:129) No such director or nominee is a member, partner or principal of any law firm, accounting firm or investment
banking firm that receives any consulting, advisory or other fees from Resideo.
(cid:129) No Resideo executive officer is on the compensation committee of the board of directors of a company that
their respective immediate family
employs any of our non-employee directors or nominees (or any of
members) as an executive officer.
(cid:129) No such director or nominee (or any of their respective immediate family members) is indebted to Resideo,
nor is Resideo indebted to any such director or nominee (or any of their respective immediate family
members).
16 | 2020 PROXY STATEMENT
(cid:129) No such director or nominee serves as an executive officer of a charitable or other tax-exempt organization
that received contributions from Resideo.
(cid:129) While a non-employee director’s or nominee’s service as an outside director of another company with which
Resideo does business would generally not be expected to raise independence issues, the Board also
considered those relationships and confirmed the absence of any material commercial relationships with any
such company. Specifically, those commercial relationships were in the ordinary course of business for
Resideo and the other companies involved and were on terms and conditions available to similarly situated
customers and suppliers.
The above information was derived from Resideo’s books and records and responses to questionnaires
completed by the directors in connection with the preparation of this Proxy Statement.
Committees of the Board
Our Board consists of five standing Committees: Audit, Compensation, Nominating and Governance, Finance and
Innovation and Technology, and one special committee: Strategic & Operational. The Board has adopted written
charters for each Committee, which are available on our Investor Relations website at investor.resideo.com. All
Board members are invited to attend the meetings of each Committee, except as restricted by independence
standards.
The following table sets forth the Board Committees and the current members of each of the Committees.
Independent
Audit
Compensation
Nominating
and
Governance
Finance
Innovation
and
Technology
Strategic &
Operational
Member
Member
Member
Chair
Member
Chair
Member
9
Member
Member
Chair
11
Member
Member
Chair
Member
Member
Chair
Member
Member
Member
Member
Chair
7
4
2
1
Roger Fradin
Michael Nefkens
Paul Deninger
Cynthia Hostetler
Brian Kushner
Jack Lazar
Nina Richardson
Andrew Teich
Sharon Wienbar
2019 Meetings
2020 PROXY STATEMENT | 17
Each of the Audit, Compensation, Nominating and Governance and Strategic & Operational Committees consists
in accordance with SEC
solely of directors who have been determined by the Board to be independent
independence standards (including the
regulations, NYSE listing standards and the Company’s director
heightened independence standards and considerations for members of
the Audit and Compensation
Committees).
COMMITTEE
AUDIT COMMITTEE
Jack Lazar, Chair
Paul Deninger
Sharon Wienbar
RESPONSIBILITIES
(cid:129) Appoint and recommend to the shareholders for approval the firm to be engaged as the Company’s
independent auditor and be directly responsible for the compensation, retention and oversight of the
independent auditor,
including the resolution of disagreements between management and the
independent auditor regarding financial reporting;
(cid:129) Review the results of each external audit and other matters related to the conduct of the audit and
advise the Board on whether it recommends that the audited financial statements be included in the
Annual Report on Form 10-K;
(cid:129) Review with management and the independent auditors, prior to filing, the interim financial results to
be included in quarterly reports on Form 10-Q;
(cid:129) Evaluate the independent auditor’s performance at least annually;
(cid:129) Approve all non-audit engagements with the independent auditor;
(cid:129) Review reports of the independent auditor and the chief internal auditor related to the adequacy of
the Company’s internal accounting controls, disclosure processes and its procedures designed to
ensure compliance with laws and regulations;
(cid:129) Consider and review, in consultation with the independent auditor and the chief internal auditor, the
scope and plan for forthcoming external and internal audits;
(cid:129) Review annually the performance of the internal audit group;
(cid:129) Review management’s assessment of the effectiveness of the Company’s internal control over
financial reporting;
(cid:129) Review, approve and establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls, auditing matters and
for the confidential, anonymous submission by employees of concerns regarding questionable
accounting or auditing matters or other legal, ethical, reputational or regulatory concerns;
(cid:129) Produce the annual Report of the Audit Committee included in the Proxy Statement; and
(cid:129) Together with the full Board, exercise oversight of management’s enterprise risk management
(ERM) program.
Each member of the Audit Committee is an independent director under applicable SEC rules and NYSE listing standards and is “financially
literate” under NYSE listing standards. The Board has determined that Mr. Lazar and Mr. Deninger each qualify as an “audit committee
financial expert” under applicable SEC rules. In addition to Resideo, Mr. Lazar serves on the audit committee of three other public
reporting companies. The Board has determined that Mr. Lazar’s simultaneous service on these other boards does not impair his ability to
serve effectively on the Company’s Audit Committee.
COMPENSATION
COMMITTEE
Sharon Wienbar, Chair
Nina Richardson
Andrew Teich
(cid:129) Review and approve the corporate goals and objectives relevant to the compensation of the CEO,
evaluate the CEO’s performance relative to these goals and objectives and determine and approve
the CEO’s compensation level;
(cid:129) Review and approve the individual goals and objectives of the other executive officers and set the
annual salary and other remuneration of the executive officers;
(cid:129) Periodically review the operation and structure of the Company’s compensation programs, and
consider the Company’s practices and programs related to internal pay equity;
(cid:129) Review proposals for and determine total share usage under the Company’s equity compensation
programs;
(cid:129) Review the development of our senior executives, including succession plans, and make
recommendations to the Board relating to the election of executive officers;
(cid:129) Review or take such action in connection with the bonus, stock, retirement and other benefit plans of
the Company and its subsidiaries;
(cid:129) Establish and review annual stock ownership guidelines applicable to directors and senior
management;
(cid:129) Review and discuss with management
the Compensation Discussion and Analysis and other
executive compensation disclosure included in the Proxy Statement;
(cid:129) Produce the annual Compensation Committee Report included in the Proxy Statement; and
(cid:129) Exercise sole authority to retain and terminate a compensation consultant, as well as to approve the
consultant’s fees and other terms of engagement. See “Oversight of Compensation Consultant” on
page 19 regarding the Compensation Committee’s engagement of a compensation consultant.
The Compensation Committee may form and delegate its authority to subcommittees and management, when appropriate, including
delegation to the CEO to determine and approve annual incentive and long-term incentive awards for non-executive employees of the
Company as prescribed by the Compensation Committee. For more information on the responsibilities and activities of the Compensation
Committee, including its processes for determining executive compensation, see “Compensation Discussion and Analysis” beginning on
page 36.
18 | 2020 PROXY STATEMENT
COMMITTEE
NOMINATING AND
GOVERNANCE
COMMITTEE
Nina Richardson, Chair
Andrew Teich
Sharon Wienbar
FINANCE COMMITTEE
Paul Deninger, Chair
Roger Fradin
Brian Kushner
Andrew Teich
INNOVATION AND
TECHNOLOGY
COMMITTEE
Andrew Teich, Chair
Paul Deninger
Roger Fradin
Jack Lazar
STRATEGIC &
OPERATIONAL
COMMITTEE
Andrew Teich, Chair
Brian Kushner
Jack Lazar
Nina Richardson
RESPONSIBILITIES
(cid:129) Make recommendations to the Board concerning size, composition and organization of the Board,
qualifications and criteria for election to the Board, nominees to be proposed by the Company for
election to the Board, retirement from the Board, whether to accept any resignation tendered by a
director and Board Committee assignments;
(cid:129) Actively seek individuals qualified to become Board members and recommend them to the full Board
including those suggested or
including evaluating all potential candidates,
for consideration,
nominated by third parties;
(cid:129) Make recommendations to the Board on whether to include disclosures in the Proxy Statement on
director independence, governance and director nomination matters;
(cid:129) Oversee the Company’s new director orientation program and continuing education program for
incumbent directors;
(cid:129) Review and reassess the adequacy of the Company’s Corporate Governance Guidelines;
(cid:129) Review and report to the Board on the Company’s policies and programs relating to health, safety
and environmental matters, equal employment opportunity, anti-harassment, political contributions,
and such other matters, including the Company’s Code of Business Conduct, that impact the
Company’s role as a responsible corporate citizen; and
(cid:129) Oversee the annual performance review of the Board and its Committees.
(cid:129) Review matters related to the Company’s capital structure and allocation,
financial condition,
leverage and financial strategies, interest rate risk, expense management, strategic investments and
joint ventures, real estate
dispositions such as significant mergers, acquisitions, divestitures,
purchases and other debt and equity investments;
(cid:129) Consider, review and recommend to the Board any Company dividend and share repurchase
policies and programs;
(cid:129) Approve the Company’s derivatives and hedging policies and strategies for managing interest rate
and foreign exchange rate exposure;
(cid:129) Review the Company’s investment policies and practices, credit ratings and ratings strategy;
(cid:129) Review the Company’s investor relations strategy; and
(cid:129) Review the types of information to be disclosed in connection with earnings releases and earnings
guidance provided to analysts and rating agencies.
(cid:129) Facilitate the Board’s oversight, review, discussion and understanding of the Company’s major
technology and innovation strategies and plans in the following key areas:
– investments in technology and software;
– development and execution of technology strategies;
– overall strategy, effectiveness and risk profile of its product technology and software cybersecurity
program;
– technology trends with significant impacts on our business; and
– research and development operations.
(cid:129) Facilitate the Board’s oversight of the Company’s operational and financial review, including the
following:
– review and evaluate the Company’s product and market strategy;
– oversee gross margin improvement efforts and general and administrative expense simplification
actions; and
– review supply chain optimization and operational improvements;
(cid:129) Provide focus and insight to the management team, particularly during the CEO transition period;
and
(cid:129) Oversee the Company’s management of COVID-19 pandemic related health and safety and
business continuity matters.
Compensation Committee Matters
Compensation Committee Interlocks and Insider Participation
No current member of the Compensation Committee has served as one of our officers or employees at any time.
None of our executive officers serves as a member of the compensation committee of any other company that
has an executive officer serving as a member of our Compensation Committee or Board.
Oversight of Compensation Consultant
The Compensation Committee has sole authority to retain a compensation consultant to assist the Compensation
Committee in the evaluation of director, CEO or senior management compensation, but only after considering all
factors relevant to the consultant’s independence from management. In addition, the Compensation Committee is
directly responsible for approving the consultant’s compensation, evaluating its performance and terminating its
engagement.
2020 PROXY STATEMENT | 19
The Compensation Committee has retained Frederic W. Cook & Co.
(“FW Cook”) as its independent
compensation consultant to assist the Compensation Committee with the design of our executive compensation
programs as well as to provide objective advice on compensation practices and the competitive landscape for the
compensation of Resideo’s executive officers. FW Cook reports to the Compensation Committee, has direct
access to Compensation Committee members,
interacts with Resideo management when necessary and
appropriate and attends Compensation Committee meetings either in person or by telephone. FW Cook provides
services only to the Compensation Committee as an independent consultant and does not have any other
consulting engagements with, or provide any other services to, Resideo. The independence of FW Cook has been
assessed according to factors stipulated by the SEC and the Compensation Committee concluded that no conflict
of interest exists that would prevent FW Cook from independently advising the Compensation Committee.
FW Cook compiles information and provides advice regarding the components and mix (short-term/long-term;
fixed/variable; cash/equity) of the executive compensation programs of Resideo and its peer group (see page 39
for further details regarding the compensation peer group) and analyzes the relative performance of Resideo and
the compensation peer group with respect to the financial metrics generally used in the programs. FW Cook also
provides information regarding emerging trends and best practices in executive compensation. The
Compensation Committee also received general advice from FW Cook in 2019 and 2020 regarding the terms of
the severance and transition agreements entered into with Resideo’s executive officers.
Compensation Input from Senior Management
The Compensation Committee considers input from senior management in making determinations regarding the
overall executive compensation program and the individual compensation of the executive officers. As part of
Resideo’s annual planning process, the CEO, CFO, and Chief Human Resources Officer develop targets for
Resideo’s incentive compensation programs and present them to the Compensation Committee. These targets
are reviewed by the Compensation Committee to ensure alignment with our strategic and annual operating plans,
taking into account the targeted year-over-year and multi-year improvements as well as identified opportunities
and risks. The CEO does not provide recommendations on his own compensation. The CEO recommends base
salary adjustments and cash and equity incentive award levels for Resideo’s other executive officers. The
recommendations of the CEO are based on performance appraisals (including an assessment of the achievement
of pre-established financial and non-financial management objectives) together with a review of supplemental
performance measures and prior compensation levels relative to performance. The CEO presents to the
Compensation Committee and the full Board his evaluation of each executive officer’s contribution and
performance over the past year, strengths and development needs and actions and presents to the Nominating
and Governance Committee and the full Board succession plans for each of the executive officers.
The Board’s Role in Risk Oversight
The Board is actively engaged in overseeing and reviewing the Company’s strategic direction and objectives,
taking into account (among other considerations) Resideo’s risk profile and exposures. It is management’s
responsibility to manage risk as overseen and assessed by the Board. The Board receives regular updates on
risk exposures and there is open communication between management and the directors. The Company has
established processes to report and monitor for material risks applicable to the Company. The Board oversees
these reporting processes and will review annually Resideo’s enterprise risk management programs.
The Board as a whole has responsibility for risk oversight, including succession planning relating to the CEO and
risks relating to the competitive landscape, strategy, business conditions and capital requirements of
the
Company. The Committees of the Board also oversee Resideo’s risk profile and exposures relating to matters
within the scope of their authority. The Board regularly receives detailed reports from the Committees regarding
risk oversight in their areas of responsibility.
The Audit Committee discusses the Company’s risk profile, risk management, and exposure (and Resideo’s
policies relating to the same) with management,
the internal auditors and the independent auditors. Such
discussions include the Company’s major financial risk exposures and the steps management has taken to
monitor and control these exposures. The Audit Committee is also charged with oversight of Resideo’s enterprise
risk management program, and risks relating to enterprise-wide cybersecurity, including review of the state of the
Company’s cybersecurity program, emerging cybersecurity developments and threats and the Company’s
strategy to mitigate cybersecurity risks.
20 | 2020 PROXY STATEMENT
The Compensation Committee considers risks related to the attraction and retention of talent and the design of
compensation programs and incentive arrangements. The Compensation Committee periodically undertakes a
review of Resideo’s incentive structure to avoid encouraging material risk taking through financial incentives.
The Nominating and Governance Committee considers risks related to the Company’s reputation,
environmental and sustainability matters, health and safety issues, equal employment opportunity, anti-
harassment matters and community/government relations. The Nominating and Governance Committee also
oversees succession planning for the Board and the appropriate assignment of directors to the Board Committees
for risk oversight and other areas of responsibilities.
The Finance Committee considers risks related to the Company’s capital structure, capital allocation decisions,
financial condition,
interest rate risk, expense management and strategic
investments and dispositions.
leverage and financial strategies,
The Innovation and Technology Committee considers risks related to the Company’s overall technology and
innovation strategies and its product technology and software cybersecurity program.
The Strategic & Operational Committee considers risks related to the Company’s product and market strategy
and oversight related to the CEO transition period and the Company’s management of COVID-19 pandemic
related health and safety and business continuity matters.
Enterprise Risk Management Program
As a part of its overall risk management strategy, the Company, with advice from the Audit Committee, has
adopted an Enterprise Risk Management (“ERM”) framework consisting of enhancements to our ability to manage
uncertainty and mitigate risk as we drive shareholder value creation. The ERM framework is being deployed to
create a robust risk management program that is aligned with the Company’s strategic and business objectives.
The ERM program is overseen and governed by the Audit Committee and managed by members of senior
management. Working with the ERM program management team, the Board and the Audit Committee regularly
assess the overall risks applicable to the Company, its businesses and functions.
In 2019, the Audit Committee, in conjunction with management, utilized the ERM framework to establish the ERM
program and completed its first ERM assessment based on an enterprise-wide “top down” and “bottom up” view
of commercial, strategic, legal, compliance, cybersecurity and reputational risks. On an annual basis, the ERM
assessment results, as well as management action plans to mitigate or minimize the risks identified, are
presented to the Audit Committee and the full Board to provide visibility into the risks that impact us and the plans
to mitigate them.
Nominating Board Candidates – Procedures and Qualifications
Minimum Qualifications for Director Nominees and Board Member Attributes
Board Composition, Characteristics and Skills
Collectively,
the Board must be capable of effectively overseeing risk management, capital allocation and
leadership succession. In addition, the composition of the Board, as well as the perspective and skills of its
individual members, needs to align with the Company’s growth and commercial strategy. Board composition and
the members’ perspectives and skills should evolve at an appropriate pace to meet the challenges of the
Company’s changing commercial and strategic goals. The identification and evaluation of director candidates is
an essential part of this process.
The Nominating and Governance Committee has primary responsibility for reviewing with the Board, on an annual
basis, the requisite skills and characteristics of Board members, as well as the composition of the Board as a
independence, procedures for shareholder
whole. This assessment
suggestion or nomination of candidates for the Board and any requirements of applicable law or listing rules.
includes a consideration of director
While the Company’s Corporate Governance Guidelines do not prescribe diversity standards, as a matter of
practice, the Nominating and Governance Committee considers diversity in the context of the Board as a whole
2020 PROXY STATEMENT | 21
and takes into account
the personal characteristics (gender, ethnicity, age) and experience (industry,
professional, public service) of current and prospective directors to facilitate Board deliberations that reflect a
broad range of perspectives. The Board believes that increased heterogeneity leads to better governance. The
Nominating and Governance Committee is dedicated to actively seeking to recruit director candidates with diverse
characteristics and attributes who satisfy the Board’s nomination criteria and will contribute to the collaborative
culture of the Board.
Identifying and Recruiting New Members of the Board
The Nominating and Governance Committee shall actively seek individuals qualified to become directors.
Through discussions with the Chairman, Lead Independent Director, CEO and other Board members, specific skill
sets, experience and knowledge important for new Board members will be identified and prioritized in accordance
with the procedures set forth in the Nominating and Governance Charter, the Company’s Corporate Governance
Guidelines, organizational documents and applicable law. Potential candidates meeting these criteria then will be
identified either by professional recruiting agencies, reputation or existing Board members. Candidates are
interviewed by the Chairman, CEO, Chair of the Nominating and Governance Committee, and other members of
the Board, as appropriate, to ensure that candidates not only possess the requisite skills and characteristics but
also the personality, leadership traits, work ethic and independence to effectively contribute as a member of the
Board. On successful completion of this process, the Nominating and Governance Committee will recommend the
proposed candidate to the Board and the Board may nominate the successful candidate for election to the Board
at the annual meeting of shareholders or such other time as the Board determines appropriate.
The Nominating and Governance Committee has the sole authority to retain and terminate any search firm to be
used to identify director candidates, and has sole authority to approve the search firm’s fees and other retention
terms. Search firms retained by the Nominating and Governance Committee shall be provided guidance as to the
particular experience, skills or other characteristics that the Board is then seeking. Commencing in the fall of
2019, the Nominating and Governance Committee retained third-party search firms to identify potential director
candidates, and directed the firms to ensure that the pool of candidates included women and other diverse
candidates. The Nominating and Governance Committee may also retain other external advisors, including for the
purposes of performing background reviews of potential candidates.
Except as described below, Resideo’s current Board members were either identified through a nationally-
the Board. Ms. Hostetler and
recognized search firm or were recommended by Resideo’s Chairman of
Mr. Kushner joined the Board since the 2019 annual meeting of shareholders. Ms. Hostetler was identified as a
potential director candidate by a search firm retained by the Nominating and Governance Committee to identify
and assess potential director candidates. Mr. Kushner was identified as a potential director candidate by an
independent member of the Board.
General Criteria
In addition to the specific criteria and priorities developed collectively, director candidates are considered by the
Nominating and Governance Committee in light of a range of more general criteria:
(cid:129) Exemplification of the highest standards of personal and professional integrity
(cid:129) Experience and industry background that align with the Company’s strategic and business objectives
(cid:129) Potential contribution to the composition, diversity and culture of the Board
(cid:129) Age, educational background and relative skills and characteristics
(cid:129) Ability and willingness to constructively challenge management through active participation in Board and
Committee meetings and to otherwise devote sufficient time to Board duties
Shareholder Recommendations for Director Nominees
Any shareholder wishing to recommend a candidate for director should submit the recommendation in writing to
Resideo Technologies, Inc., Nominating and Governance Committee, 901 E. 6th Street, Austin, TX 78702,
Attention: Corporate Secretary. The written submission should comply with all requirements set forth in the
Company’s Certificate of Incorporation and By-Laws. The Nominating and Governance Committee will consider
all candidates recommended by shareholders who comply with the foregoing procedures and satisfy the minimum
qualifications for director nominees and Board member attributes.
22 | 2020 PROXY STATEMENT
Advance Notice Director Nominations
Resideo’s By-Laws provide that any shareholder entitled to vote at an annual meeting of shareholders may
nominate one or more director candidates for election at that annual meeting by following certain prescribed
procedures. To be timely, the shareholder must provide written notice of the shareholder’s intent to make such a
nomination or nominations to Resideo’s Corporate Secretary not less than 90 days nor more than 120 days prior
to the first anniversary date of the immediately preceding annual meeting, except as otherwise provided in our
By-Laws. The notice must contain all of the information required in our By-Laws. Any such notice must be sent to
Resideo Technologies, Inc., 901 E. 6th Street, Austin, TX 78702, Attention: Corporate Secretary. For the 2021
annual meeting of shareholders, such notice must be delivered to the Corporate Secretary no earlier than
February 8, 2021 and no later than March 10, 2021.
Proxy Access Director Nominations
In addition to advance notice procedures, our By-Laws also include provisions permitting, subject to certain terms
and conditions set forth therein, shareholders who have maintained continuous qualifying ownership of at least
3% of our outstanding common stock for at least three years to nominate a number of director candidates not to
exceed the greater of two candidates or 20% of the number of directors then in office who will be included in our
annual meeting proxy statement. Shareholders who wish to nominate a proxy access candidate must follow the
procedures described in our By-Laws. Proxy access candidates and the shareholder nominators meeting the
qualifications and requirements set forth in our By-Laws will be included in the Company’s proxy statement and
ballot. To be timely, a shareholder’s proxy access notice must be delivered to our principal executive offices,
Resideo Technologies, Inc., 901 E. 6th Street, Austin, TX 78702, Attention: Corporate Secretary, no less than 120
days and no more than 150 days prior to the first anniversary date that we commenced mailing of our definitive
proxy statement (as stated in such proxy statement) for the immediately preceding annual meeting, except as
otherwise provided in the By-Laws. For the 2021 annual meeting, such notice must be delivered to our principal
executive offices no earlier than November 25, 2020 and no later than December 25, 2020.
Director Onboarding and Continuing Education
Under our Corporate Governance Guidelines, all new directors participate in an orientation program upon joining
the Board. Orientation includes presentations by senior management
to familiarize our new directors with
Resideo’s strategic plans, financial statements and key issues, policies and practices and materials pertaining to
its Committees, corporate governance policies and practices and the Company’s businesses,
the Board,
functions,
the Company’s expense, seminars,
conferences and other continuing education programs designed for directors of public companies.
initiatives and processes. Board members may attend, at
Board Meetings and Attendance
The Board met ten times in 2019. The directors attended at least 75% of the meetings of the Board and
Committees on which they served. Though we have no specific policy regarding director attendance at annual
meetings of shareholders, our directors are expected to attend. All of the then-serving directors attended our 2019
annual meeting of shareholders, except Niccolo de Masi, who previously served as a director and executive
officer until January 2020.
Board and Committee Evaluations
As part of the Board’s commitment to good governance, the Board conducts an annual process to assess the
effectiveness of the full Board and the operations of its Committees. The Nominating and Governance Committee
will oversee the evaluation of the Board as a whole and its Committees and solicit feedback from directors as to
whether the Board is continuing to evolve and to be refreshed in a manner that serves our business and strategic
needs. After distribution of the self-evaluation materials to directors, the Nominating and Governance Committee
will receive comments from all directors and report to the Board, identifying areas for improvement in the
performance of the Board and its Committees. The Nominating and Governance Committee intends to retain an
external third-party to facilitate the evaluation process at least once every three years.
The Nominating and Governance Committee will annually review the scope and content of the self-evaluation to
ensure it is contemporary, appropriate for the needs of the Company and that actionable feedback is solicited on
the operation and effectiveness of the Board and its Committees.
2020 PROXY STATEMENT | 23
Before recommending the re-nomination of a slate of incumbent directors for an additional term, the Nominating
incumbent directors possess the requisite skills and
and Governance Committee will evaluate whether
perspective, both individually and collectively, to continue to serve our business and strategic needs. This
assessment will
include members’ qualification as independent, strength of character, judgment and ability to
devote sufficient time to attendance at, and preparation for, Board meetings.
Non-Employee Director Compensation
Director Compensation
Our Compensation Committee, with assistance from the independent compensation consultant, periodically
reviews and makes recommendations to our Board regarding the form and amount of compensation for
non-employee directors. Directors who are also our employees receive no compensation for service on our
Board.
We believe that annual compensation for non-employee directors should consist of both a cash component,
designed to compensate members for their service on the Board and its Committees, and an equity component,
designed to align the interests of directors and shareholders. Our non-employee directors generally receive
pro-rated equity grants when they first join the Board.
The table below outlines the current annual compensation program for our non-employee directors.
Board of Directors Annual Cash Compensation
Member of the Board of Directors
Chairman of Board—Additional Cash Retainer
Lead Director—Additional Cash Retainer
Board Committee Membership—Additional Cash Retainers*:
Chair of the Audit Committee
Member of Audit Committee
Chair of the Compensation Committee
Member of the Compensation Committee
Chair of the Finance Committee
Member of the Finance Committee
Chair of the Nominating and Governance Committee
Member of the Nominating and Governance Committee
Chair of the Innovation and Technology Committee
Member of Innovation and Technology Committee
Chair of the Strategic & Operational Committee**
Member of the Strategic & Operational Committee
Annual Retainer ($)
90,000
175,000
25,000
25,000
10,000
15,000
7,500
10,000
5,000
10,000
5,000
10,000
5,000
360,000
10,000
Committee Chair retainers include the member retainer fees.
*
** Reflects significant time and travel commitment related to oversight of the Company’s comprehensive operational and financial review and
CEO transition.
Board of Directors Annual Equity Compensation
Annual Restricted Stock Unit (“RSU”) grants generally vest on the earliest of the first anniversary of
the date of grant, the director’s death or disability, or removal from the Board coincident with the
occurrence of a change in control.
Annual Retainer
Each non-employee
director receives an
RSU grant with a
grant date value of
$120,000 on the
date of the Annual
Meeting of
Shareholders.
24 | 2020 PROXY STATEMENT
Cash elements are paid in quarterly installments in arears and prorated if necessary, including for changes in
Committee service or for partial years of service. We do not separately compensate our directors for attending
Board or Committee meetings.
Director Deferred Compensation Plan
In September 2019, the Compensation Committee approved the adoption of the Resideo Deferred Compensation
Plan for Non-Employee Directors (the “Director Deferred Compensation Plan”). This plan encourages our
directors to hold a portion of their compensation in the form of equity or deferred cash, which can only be
monetized at the end of their tenure on the Board or in other limited circumstances. At the same time, the
their annual equity award in
Compensation Committee also permitted non-employee directors to defer
accordance with the terms of our 2018 Stock Plan for Non-Employee Directors of Resideo Technologies, Inc. (the
“Director Stock Plan”).
Prior to the first day of each calendar year beginning on or after January 1, 2020, each non-employee director
may (i) elect to convert all of his or her annual cash retainer fees as well as any annual committee and chair fees
other than reimbursements otherwise payable to him or her by the Company into deferred stock units or deferred
cash pursuant to the Director Deferred Compensation Plan, and (ii) elect to defer payment of his or her annual
equity grant of restricted stock units once the award has vested in accordance with its terms and conditions. Each
deferred stock unit under the Director Deferred Compensation Plan and each vested restricted stock unit that a
non-employee director has elected to defer under the terms of the Director Stock Plan represents the right to
receive one share of our common stock generally on the first day of the seventh calendar month following the
date the non-employee director incurs a separation of service from us.
Other Benefits: Non-employee directors are also provided with $350,000 in business travel accident insurance.
Director Compensation for 2019
In 2019, each non-employee director received his or her annual cash retainer amount in addition to the annual
equity retainer award of RSUs with a grant date fair value of approximately $120,000. Annual equity retainers
generally vest with respect to 100% of the RSUs awarded on the first anniversary of the grant date, subject to
continued service on the Board. Beginning in 2020, each of our non-employee directors has the ability to elect to
defer all of his or her annual cash retainer as well as his or her annual equity retainer award pursuant to the terms
of our Director Deferred Compensation Plan and Director Stock Plan, respectively, as discussed above. The table
below reflects the 2019 compensation paid to our non-employee directors.
Director Name
Roger Fradin
Niccolo de Masi(2)
Paul Deninger
Brian Kushner(3)
Jack Lazar
Nina Richardson
Andrew Teich(4)
Sharon Wienbar
Fees Earned or
Paid in Cash
($)
Stock Awards
(1)($)
275,000
15,833
115,000
8,219
120,822
108,322
172,089
120,000
119,999
0
119,999
63,601
119,999
119,999
252,817
119,999
Total
($)
394,999
15,833
234,999
71,820
240,821
228,321
424,906
239,999
(1) The stock award values set forth in the above 2019 Director Compensation Table represent the aggregate grant date fair value of stock
awards computed in accordance with FASB ASC Topic 718. Annual equity retainer awards in the form of RSUs totaling 5,799 shares
were made to non-employee directors on June 12, 2019 with a fair value of $20.693 per share.
(2) Mr. de Masi earned cash retainer fees as a non-employee director of the Resideo board through February 12, 2019 after which time he
became President, Products & Solutions and Chief Innovation Officer of Resideo, effective February 13, 2019 and became ineligible to
earn any additional cash retainer amounts or an annual non-employee director equity retainer grant. Mr. de Masi resigned from the Board
effective January 6, 2020.
(3) Mr. Kushner received an RSU award for 6,704 shares with a fair value of $9.487 per share upon joining the Resideo board on
December 2, 2019. This award will vest in full on June 12, 2020.
2020 PROXY STATEMENT | 25
(4)
In addition to the standard annual equity retainer grant of RSUs awarded on June 12, 2019 described in the paragraph above, Mr. Teich
also received an RSU award for 14,000 shares with a grant date fair value of $9.487 per share as a component of his compensation for
his appointment as Chair of the Strategic & Operational Committee. This award will vest with respect to one-twelfth (1/12) of the units
monthly throughout 2020, until this Committee has completed its work and is dissolved. Any unvested shares remaining at that time will
be forfeited.
A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 2019
may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended
December 31, 2019.
Director Name
Roger Fradin
Niccolo de Masi(1)
Paul Deninger
Brian Kushner(2)
Jack Lazar
Nina Richardson
Andrew Teich
Sharon Wienbar
Outstanding
Equity Awards
as of 12/31/2019
(#)
16,956
11,157
16,956
6,704
16,956
16,956
30,956
16,956
# Outstanding equity awards for all directors with the exception of Mr. Kushner include an RSU award for 11,157 shares granted on
November 16, 2018 which will vest for 50% of the shares on November 16, 2021 and the remaining shares will vest on November 16, 2022,
plus 5,799 shares granted under the 2019 annual equity retainer on June 12, 2019 which will vest in full on June 12, 2020. Mr. Teich also
received an RSU award for 14,000 shares in recognition of his role as Chair of the Strategic & Operational Committee as noted above.
(1) Mr. de Masi’s award will continue to vest pursuant to the terms of his award agreement, which was amended effective January 6, 2020.
(2) Mr. Kushner’s award for 6,704 shares was granted on December 2, 2019 and will vest in full on June 12, 2020.
Stock Ownership Guideline for Non-Employee Directors
To further align the interests of directors with the long-term interests of our shareholders, non-employee directors
are required to own, until their separation from service from the Board, at least five times the value of their annual
cash retainer, or $450,000, in our common stock by the fifth anniversary of their appointment to the Board. For
purposes of the guidelines, share ownership includes shares of Resideo common stock, restricted stock units and
deferred stock units. Accordingly, the guidelines align our directors’ economic interests in the performance of the
Company with those of our shareholders.
As of December 31, 2019, Mr. Fradin and Mr. Teich have already met the minimum stock ownership required
under our stock ownership guidelines. The other directors are still within the first five years of their service on the
Board.
26 | 2020 PROXY STATEMENT
Other Executive Officers
In addition to Mr. Nefkens, whose biographical
information is included on page 12, the following is a list of
individuals serving as executive officers of Resideo as of the date of this Proxy Statement. All of Resideo’s
executive officers have been appointed by the Board and serve at the discretion of the Board and CEO. There are
no family relationships among any of our executive officers.
NAME, AGE,
YEAR FIRST APPOINTED
AN EXECUTIVE OFFICER
Robert Ryder, 60, 2019
Interim Chief
Financial Officer
POSITION
BUSINESS EXPERIENCE
Robert Aarnes, 50, 2018
President, ADI
Global Distribution
Michael Flink, 59, 2018
Executive Vice
President of
Transformation
Mr. Ryder currently serves as the President of Horsepower Advisors,
LLC, a consulting firm through which his services have been retained
by the Company. Immediately prior to that role, he served as the
chief financial officer for Constellation Brands, a global beverage and
alcohol company, from 2007 to 2015. Mr. Ryder has also held chief
financial officer positions with IMG and American Greetings
Corporation, as well accounting and finance positions of increasing
responsibility at PepsiCo, Inc. Mr. Ryder started his career in public
accounting at Price Waterhouse. He received a bachelor’s degree
from the University of Scranton in Accounting and Finance. Mr. Ryder
is also a Certified Public Accountant.
Prior to joining the Company, Mr. Aarnes served as president of
Honeywell’s ADI Global Distribution business since January 2017.
Mr. Aarnes served as vice president and general manager of
Honeywell’s ADI North America business from November 2014 to
January 2017. Mr. Aarnes served as vice president of operations of
Honeywell’s ADI North America business from January 2013 to
November 2014. Prior to joining Honeywell, Mr. Aarnes served as
president and chief executive officer of GUNNAR Optiks, LLC, a
company that specializes in developing and manufacturing digital
eyewear,
from September 2008 to November 2012. Mr. Aarnes
received his bachelor’s degree in political science from the United
States Naval Academy and his MBA in management from San Diego
State University.
Mr. Flink has served as the Company’s Executive Vice President of
Transformation since January 2020, and previously served as the
Company’s Executive Vice President and Chief Sales and Marketing
Officer from October 2018 to January 2020. Prior to joining the
Company, Mr. Flink served as president of Honeywell Homes
Products since June 2018. Mr. Flink served as president of
Honeywell’s Homes Business from January to May 2018. Prior to
this, he served as President of Honeywell Security and Fire from
January 2017 to December 2017. Mr. Flink served as president of
Honeywell’s ADI Global Distribution business from December 2014 to
January 2017. Mr. Flink served as president of Honeywell’s ADI
Americas business from September 2010 to December 2014. He was
managing director of Honeywell’s Security division, Middle East
region, from September 2006 to September 2010. He was managing
director of Honeywell’s ADI Global Distribution business, EMEA
region, from December 2004 to September 2006. Mr. Flink served as
vice president of marketing and operations of Honeywell from March
2003 to December 2004. Mr. Flink received his bachelor’s degree in
communications from North Carolina State University.
2020 PROXY STATEMENT | 27
POSITION
BUSINESS EXPERIENCE
NAME, AGE,
YEAR FIRST APPOINTED
AN EXECUTIVE OFFICER
Stephen Kelly, 52, 2018
Executive Vice
President and
Chief Human
Resources Officer
Prior to joining the Company, Mr. Kelly served as vice president of
Human Resources and Communications for Honeywell’s aerospace
business from 2014 to 2018. Mr. Kelly was the vice president of
Corporate Human Resources, Organizational Development &
Learning at Honeywell from 2013 to 2014. Mr. Kelly joined Honeywell
in 2008 and has served in various human resources leadership
positions for Honeywell’s aerospace business. He was vice president
for Honeywell’s aerospace business’s
of Human Resources
in 2013. Previously, Mr. Kelly was vice
commercial segment
president of Human Resources
for Honeywell’s Aerospace
Defense & Space unit from 2011 to 2013. He was vice president of
Human Resources for Honeywell’s aerospace Engineering &
Marketing unit
to joining Honeywell,
Mr. Kelly was vice president of Human Resources for the Dental
business at Danaher Corporation, a global science and technology
innovator, from 2007 to 2008. Mr. Kelly was Vice President of the
EMEA region and global head of staffing and talent management of
the Industrial Technologies business at Danaher from 2005 to 2007.
to joining Danaher, Mr. Kelly was the head of Human
Prior
Resources for BHA Group,
Inc., a leading global supplier of
replacement parts and services for industrial air pollution control
systems. Mr. Kelly received his bachelor’s degree in personnel
administration from the University of Kansas and a master’s degree
in organizational development from Ottawa University.
from 2008 to 2011. Prior
Prior to joining the Company, Ms. Lane was the Vice President and
General Counsel of Honeywell Homes since January 2018. She was
the Vice President and General Counsel of Honeywell Security and
Fire from 2015 to 2017, Honeywell Fire Business and Honeywell
Safety Business from 2014 to 2015, Honeywell Life Safety Business
from 2013 to 2014 and Honeywell Security from 2004 to 2013.
Ms. Lane holds a bachelor’s degree in political science from SUNY
University at Albany and a Doctorate of Law from Albany Law School.
from November 2010 to October 2015,
Prior to joining the Company, Mr. Sankpal served as senior vice
president for Emerging Industries at Trimble, Inc. from October 2015
to December 2019. Mr. Sankpal served in various leadership roles in
Honeywell
including Vice
President of Strategic Marketing and Vice President/General
Manager and President of Honeywell Safety Products. Prior to that,
Mr. Sankpal served in various leadership, strategy and operations
roles at Avaya, Inc. and Navigant Consulting. Mr. Sankpal earned his
bachelor’s degree in civil engineering from Rutgers University, his
master’s degree in civil engineering from the University of Maryland
and his MBA from Dartmouth College.
Jeannine Lane, 59, 2018
Sachin Sankpal, 52, 2020
Executive Vice
President,
General Counsel,
Corporate
Secretary and
Chief Compliance
Officer
President,
Products &
Solutions
28 | 2020 PROXY STATEMENT
Our People, Our Environment and Our
Community
Our Culture
Resideo has an aspirational vision called our Performance Signature®, which defines who we want to be as a
company. We will keep doing what works, get rid of what does not and start new elements that we will need to be
successful in the smart home market.
We promote a business with a clear purpose that we can all be proud of, that innovates in new ways, operates
with high velocity and agility to get the job done, and is vested in our people.
Our Performance Signature® contains four energies that are intricately woven together to guide us in shaping the
culture of Resideo. Energies are clusters of mindsets and behaviors with a strong link to business performance.
Each of these describes a different aspect of the culture we need in order to succeed; driven by purpose, high
velocity operators, breakout innovators, vested in our people.
Vested in Our People
Those who are Vested in Our People assist in the growth of those around them and bring joy to the business
through care, transparency and building trust.
High Velocity Operators
Those who are High Velocity Operators consistently produce great products by working at a high-paced rhythm.
They know how to operate within resource constraints and make decisions that serve the business as a whole
while collaborating with those who need to be involved.
Driven by Purpose
Our business grows and thrives by focusing on our customer, commitment, courage and knowing where we are
going and why. Those who are Driven by Purpose demonstrate their commitment and passion by coming up with
distinctive solutions that create true value for our customers, partners, people and shareholders.
Breakout Innovators
Those who are Breakout Innovators set
calibrated risk taking.
Diversity and Inclusion
the industry standard through boldness, curiosity, questioning and
Resideo is committed to encouraging a diverse and inclusive environment that helps attract and retain the global
talent needed to drive our business forward. We have adopted a Code of Business Conduct (“Code”) that requires
our employees to respect each other and promote a positive workplace. We regularly report the results of our
efforts regarding diversity and inclusion and any reported allegations involving the Code to the Board.
In early 2020, we refreshed our Code, which continues to require that employees treat each other with dignity and
respect, and links to our Global Harassment and Retaliation policy, prohibiting workplace harassment in any form.
Per our Code, we believe that our diverse, talented global workforce is the key to our success. In 2019, we
launched BeingYou@Resideo, an initiative to establish discussion forums such as Women@Resideo and
Pride@Resideo, and we offered unconscious bias training to all our employees. We continue to require our
businesses and regions to report to our executive leadership about progress with respect to our diversity and
inclusion initiatives. Similarly, as part of our commitment to our communities and our world, Resideo respects a
2020 PROXY STATEMENT | 29
broad range of human rights. In 2019, we also implemented a Supplier Code of Conduct, available on our
website, to communicate the expectation that suppliers treat their employees with dignity and respect. Per our
codes and policies, Resideo does not condone child labor, trafficking in persons or forced labor in any form.
Employee Engagement through Total Rewards
Our compensation and benefits programs provide us with a solid foundation to attract, motivate and retain a
technically-skilled workforce. As our strategy focuses us on being the market leader in the connected homes
space, we emphasize a strong pay-for-performance culture. Our total rewards programs provide incentives to
drive “top line” growth profitably, efficiently generate the cash needed to invest in innovative solutions and reward
achievement of near and long-term business performance targets.
We have expanded the use of stock-based incentives to strengthen the alignment of manager interests with that
of our shareholders and to encourage managers to think like owners of Resideo.
We provide comprehensive, competitive and contemporary benefits that recognize the diversity of our workforce.
We provide benefits and services that help meet the varying needs of our employees and promote choice. Our
package includes generous paid time off, flexible work schedules, education assistance programs and more. We
believe the combination of our competitive pay-for-performance compensation programs and our comprehensive
health and welfare benefits demonstrate our commitment to a compelling total rewards value proposition for our
employees.
Environmental Sustainability and Health and Safety Overview
A focused approach to sustainability is a priority for us – our leadership is committed to and accountable for our
sustainability efforts to ensure that sufficient resources are deployed to manage our commitments and maintain
appropriate controls. This commitment is documented in our Sustainability Opportunity policy endorsed by our
CEO and publicly available on our website.
To support this sustainability focus, we have established an Operational Sustainability Committee, led by our HSE
team and consisting of representatives from leadership, government relations and product stewardship. The
Committee’s purpose is to evaluate the holistic sustainability agenda of the company, including water, waste,
energy and greenhouse gas emissions and provide leadership with guidance on operational and strategic issues.
We communicate with internal and external stakeholders to promote awareness of their responsibilities and how
they can contribute to improving sustainability efforts. As part of our Supply Chain Management processes we
make our Supplier Code of Conduct available for review on our website in a multitude of languages. We review all
direct material suppliers against this and physically audit before approval. Further, we include a link to the
Supplier Code of Conduct in our standard purchase order.
In 2019, as a new, stand-alone public company, we measured and analyzed our Health, Safety and
Environmental Sustainability performance across a comprehensive set of sustainability metrics. We used
guidance issued by the Sustainability Accounting Standards Board (SASB) for our industry and have used 2019
as our baseline year. We are using this data to target reductions and sustainability projects for specific Resideo
facilities in 2020.
We will continue to monitor the SASB standards applicable to our industry and will seek to increase compliance
and reporting. We will also monitor practices and disclosures by others in our industry.
Based on our risk analysis we are focusing on our facilities located in extremely high water-stressed regions and
other facilities that have a low waste diversion rate (waste diverted from landfill) for hazardous and non-hazardous
waste, as well as general energy efficiency improvement projects across our portfolio.
Based on baseline year data analysis, we have set our sustainability goals on reducing energy and water
consumption, greenhouse gas emissions, and increase waste recycling in our operations by 20% by 2025.
30 | 2020 PROXY STATEMENT
Environmental Sustainability
In 2019, we implemented global environmental projects at our sites that saved energy and reduced our carbon
footprint.
(cid:129) We reduced energy consumption by 53 BBTU (Billion British Thermal Units), which represents a 9%
year-on-year reduction from 2018.
(cid:129) We reduced our greenhouse gas emissions by 3013 metric tons of CO2e (CO2 equivalent), which represents
a 5% year-on-year reduction from 2018.
(cid:129) Our Nagykanizsa site in Hungary received the “Energy Efficient Company” award for the second time in
2019. The lighting projects at the site save a total of 298 Mwh (MegaWatt Hours) of electricity per annum.
(cid:129) Our Tijuana site in Mexico (a high water stressed area) implemented a water reuse project in 2019, saving
180 CuM (Cubic Meters) per annum.
Health and Safety
injuries and illnesses per 100
Our global Total Case Incident Rate or “TCIR” (the number of occupational
employees) was 0.24 at
the end of 2019, which is significantly lower than the North American Industry
Classification System injury rate for Automatic Environmental Controls of 3.7 as reported by the U.S. Bureau of
Labor Statistics.
We monitor our safety through a balanced scorecard of key performance indicators. In addition to reactive
incident management
investigation and root cause analysis indicators, we measure and analyze the data
generated from our hazard observation, designated HSE inspections by line managers and internal audit
programs by accredited HSE lead auditors to provide insights and intelligence that help us proactively mitigate
issues before they result in incidents.
Social Responsibility
Committed to a Sustainable Future
Resideo is working to address some of the fundamental global challenges we face. We are starting at home –
with our neighborhoods and communities – and committing to making a difference.
As a company, we provide people with tools to manage their whole home to keep it more comfortable, safe,
secure and healthy. We encourage our employees to participate in grass-roots efforts and initiatives that will drive
continuous improvement in our communities and in the world.
2020 PROXY STATEMENT | 31
Related Party Transactions
Certain Transactions with Related Parties
Our ADI Global Distribution business (“ADI”) leases its administrative office building in Melville, New York at a
current rent of approximately $1,100,000 per year through 2023 and reimburses the landlord for certain real
estate taxes and insurance premiums paid on the property, the future value of which cannot be determined
through 2023. ADI has the right to prematurely terminate the lease after March 2022 for a termination fee of
$150,000. After ADI entered into this lease, the property was acquired by a partnership known as “New Island
Holdings.” There have been no material amendments to the lease since the property was acquired by New Island
Holdings. Mr. Fradin, the Chairman of our Board, is a limited partner in New Island Holdings, holding a 12%
ownership interest. The value of the aggregate payments allocable to Mr. Fradin’s share of New Island Holdings
from January 1, 2018 through the expiration of the lease in March 2023 is approximately $706,000. The limited
partners of New Island Holdings receive distributions based on total lease payments generated from the portfolio
of buildings that the partnership owns, less applicable mortgage and other expenses.
In connection with the Spin-Off, Resideo and Honeywell entered into a Separation and Distribution Agreement, an
Employee Matters Agreement, an Indemnification and Reimbursement Agreement, a Tax Matters Agreement, a
Transaction Services Agreement, a Trademark License Agreement and a Patent Cross-License Agreement.
These agreements govern the relationship between Resideo and Honeywell including the allocation of various
assets, liabilities, rights and obligations as well as transition services to be provided by Honeywell to Resideo and
by Resideo to Honeywell. For additional details regarding these agreements see our Form 10-K for the year
ended December 31, 2019.
Review, Approval and Ratification of Transactions with Related Parties
The Company has a written Policy Concerning Related Party Transactions (the “Policy”) regarding the review,
approval and ratification of transactions between the Company and related parties. The Policy applies to any
transaction in which Resideo or its subsidiary is a participant, the amount involved exceeds $120,000 and a
related party has a direct or indirect material interest. A related party means any director or executive officer of the
Company, any nominee for director, any shareholder known to the Company to be the beneficial owner of more
than 5% of any class of the Company’s voting securities and any immediate family member of any such persons.
Under the Policy, reviews are conducted by management to determine which transactions or relationships should
be referred to the Audit Committee for consideration. The Audit Committee then reviews the material facts and
circumstances regarding a transaction and determines whether or not the transaction is fair and reasonable and
consistent with the Policy and whether the transaction should be ratified or approved. The Policy is in addition to
the provisions addressing conflicts of interest in our Code of Business Conduct and any similar policies regarding
conflicts of interest adopted by the Board. Our directors, executive officers and all other employees are expected
to comply with the terms of the Code of Business Conduct.
32 | 2020 PROXY STATEMENT
Beneficial Ownership
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who
beneficially own more than 10% of a registered class of the Company’s equity securities, to file initial reports of
ownership and reports of changes in ownership of the Company’s common stock and other equity securities with
the SEC within specified periods. Due to the complexity of the reporting rules, the Company undertakes to file
such reports on behalf of its directors and executive officers and has instituted procedures to assist them with
these obligations. Based solely on a review of
filings with the SEC and written representations from the
Company’s directors and executive officers, the Company believes that in 2019 all of its directors and executive
officers filed the required reports on a timely basis with respect to Resideo’s equity securities under Section 16(a),
except that Mr. Fradin’s Form 3 filed in October 2018 inadvertently omitted reporting the 2,622 shares he directly
held and the 8 shares that he held indirectly through a limited liability company.
Stock Ownership of Certain Beneficial Owners
The following shareholders reported to the SEC that they beneficially owned more than 5% of Resideo common
stock as of December 31, 2019.
Name and Address of Beneficial Owner
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
BlackRock, Inc.
55 East 52nd Street,
New York, NY 10055
Praesidium Investment Management Company, LLC
1411 Broadway – 29th Floor
New York, NY 10018
Title of
Class
Amount and Nature of
Beneficial Ownership
(#)
Percent of
Class (1)
Common Stock
11,299,609(2)
9.20%
Common Stock
11,155,978(3)
9.10%
Common Stock
7,781,233(4)
6.30%
(1) Percentage ownership based on the Schedule 13G/A filings of The Vanguard Group and BlackRock, Inc. as further described below.
(2) According to Schedule 13G/A filed with the SEC on February 12, 2020, The Vanguard Group is the beneficial owner of 11,299,609 shares
(with sole voting power with respect to 63,775 shares, shared voting power with respect to 21,436 shares, sole dispositive power with
respect to 11,231,095 shares and shared dispositive power with respect to 68,514 shares). Vanguard Fiduciary Trust Company (‘‘VFTC’’),
a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 47,078 shares or 0.03% of the common stock
outstanding of the Company as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia,
Ltd. (‘‘VIA’’), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 38,133 shares or 0.03% of the common
stock outstanding of the Company as a result of its serving as investment manager of Australian investment offerings.
(3) According to Schedule 13G/A filed with the SEC on February 6, 2020, BlackRock, Inc. is the beneficial owner of 11,155,978 shares (with
sole voting power with respect to 10,565,745 shares and sole dispositive power with respect to 11,155,978 shares).
(4) According to a Schedule 13D filed with the SEC on December 13, 2019, Praesidium Investment Management Company, LLC
(“Praesidium”), in its capacity as investment manager to certain managed accounts and investment fund vehicles on behalf of investment
advisory clients, is the beneficial owner of 7,781,233 shares (with sole voting power with respect to 7,331,691 shares and sole dispositive
power with respect to 7,781,233 shares). As the managing members of Praesidium, Peter Uddo and Kevin Oram may be deemed to
beneficially own such shares.
2020 PROXY STATEMENT | 33
Stock Ownership of Directors and Executive Officers
The following table shows the ownership of Resideo common stock, as of April 15, 2020, by each director, each
of the NEOs, and all directors and executive officers (serving as of such date) as a group. The address of each
director and executive officer shown in the table below is c/o Resideo Technologies, Inc., 901 E. 6th Street, Austin,
to stock ownership guidelines. Please see the
TX 78702. Executive officers and directors are subject
“Compensation Discussion and Analysis” for a discussion of executive stock ownership guidelines and the “Stock
Ownership Guideline for Non-Employee Directors” for a discussion of non-employee stock ownership guidelines.
Name
Non-Employee Directors
Roger Fradin
Paul Deninger
Cynthia Hostetler
Brian Kushner
Jack Lazar
Nina Richardson
Andrew Teich
Sharon Wienbar
Named Executive Officers
Michael Nefkens(1)
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi(2)
Joseph Ragan(3)
Shares of
Common Stock(4)
Rights to Acquire
Shares of
Common Stock(5)
Total(6)
64,039
11,377
6,143
6,704
36,386
16,297
68,375
16,277
5,799
5,799
6,143
6,704
5,799
5,799
8,133
5,799
94,114
135,486
0
22,943
12,684
44,247
13,222
22,900
43,778
58,571
64,738
13,222
Percentage
of Class
Beneficially
Owned
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
58,240
5,578
0
0
30,587
10,498
60,242
10,478
41,372
22,900
20,835
45,887
20,491
0
All Current Directors and Executive Officers as a Group
(16 individuals)
402,526
251,134
653,660
*
Indicates that the percentage of beneficial ownership does not exceed 1%, based on 123,140,863 shares of Company common stock
outstanding as of April 15, 2020.
(1) Mr. Nefkens is also a director of Resideo.
(2) Mr. de Masi also served as a director of Resideo until January 6, 2020, and executive officer of Resideo until January 7, 2020, and his
employment terminated on March 13, 2020.
(3) Mr. Ragan served as Executive Vice President and Chief Financial Officer of Resideo until November 6, 2019, at which time his
employment terminated.
(4) This column includes shares held of record, shares held by a bank, broker or nominee for the person’s account, shares held through
family trust arrangements and shares held jointly with the named individuals’ spouses. For Mr. Fradin, this column includes 8 shares held
by a limited liability company owned by Mr. Fradin.
(5) This column includes shares of Company common stock that may be acquired under employee stock options that are exercisable as of
April 15, 2020 or will become exercisable within 60 days thereafter and shares subject to restricted stock units that will vest within 60 days
of April 15, 2020. No non-employee directors have Company stock options.
(6) This table does not include performance-based restricted share units or time-based stock options and restricted stock units that will not be
earned and/or paid within 60 days of April 15, 2020.
34 | 2020 PROXY STATEMENT
Executive Compensation
Proposal 2: Advisory Vote to Approve Executive Compensation
We seek an annual non-binding advisory vote from our shareholders to approve the compensation of our Named
Executive Officers as described in the “Compensation Discussion and Analysis” section beginning on page 36
and the accompanying compensation tables beginning on page 51. This vote is commonly known
as “Say-on-Pay”.
We encourage you to read the “Compensation Discussion and Analysis” and accompanying compensation tables
to learn more about our executive compensation programs and policies. Our Board believes that its 2019
compensation-related pay decisions and our executive compensation programs align the interests of shareholders
and executives by emphasizing variable compensation tied to achieving measurable goals that drive value.
This vote is not intended to address a specific item of compensation, but rather our overall compensation policies
and procedures related to the Named Executive Officers. Because the Say-on-Pay vote is advisory, it will not be
binding upon our Board. However, our Board will take into account the outcome of the vote and discussions with
investors when considering future executive compensation arrangements.
Our Board recommends that shareholders vote in favor of the following resolution:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Named
Executive Officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders
pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including
the Compensation Discussion and Analysis, the 2019 Summary Compensation Table and the other related tables
and disclosure.”
The Board of Directors unanimously recommends a vote “FOR” Proposal 2, to approve,
on an advisory basis, the compensation of the Company’s Named Executive Officers,
as stated in the above resolution.
2020 PROXY STATEMENT | 35
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
As a newly public company, we have unique opportunities and challenges in attracting,
retaining and
appropriately incentivizing our key employees. We believe these challenges and opportunities are best addressed
by a compensation program directly linking compensation to the performance of our business and rewarding long-
term performance with equity. Specifically, we sought to embed this objective into our compensation framework
by clearly linking pay and performance under our annual and long-term incentive compensation program design
for 2019. We adopted performance measures under these programs that align the key elements of our strategy
with our objective of growing shareholder value, as described in detail below. We also maintain meaningful
compensation governance policies, including stock ownership guidelines, an incentive recoupment policy and a
policy prohibiting hedging and pledging of our stock by executives.
The second half of 2019 and early 2020 were a time of leadership transition for us. In late 2019, we began a
comprehensive operational and financial review of Resideo to enhance long-term shareholder value, guided by
the newly formed Strategic & Operational Committee of the Board. The review is designed to create a more
efficient and profitable Resideo, building on the strength of our franchise. The Board has implemented certain
leadership transitions in connection with this stage in our company’s development.
On November 6, 2019, the Board terminated the employment of Joseph Ragan, our former Executive Vice
President and Chief Financial Officer, and appointed Robert Ryder as our Interim Chief Financial Officer effective
November 7, 2019 while the Board conducts a search for a permanent chief financial officer.
Subsequently on December 2, 2019, we announced that our Board is conducting a search for the Company’s
next president and chief executive officer. Mr. Nefkens is assisting in the transition and continues to run the
business during the search for his successor.
Effective January 7, 2020, Sach Sankpal was appointed our President, Products & Solutions. Niccolo de Masi,
who previously served as our President, Products & Solutions and Chief Innovation Officer, continued as our
Chief
terminated on
March 13, 2020. Mr. de Masi resigned from the Board on January 6, 2020 when he ceased serving as an
executive officer.
Innovation Officer, which was not an executive officer position, until his employment
Our Named Executive Officers
Our leadership team includes the following Named Executive Officers (“NEOs”):
NAME
POSITION
Michael Nefkens
President and Chief Executive Officer
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Interim Chief Financial Officer
President, ADI Global Distribution
Executive Vice President, Chief Human Resources Officer
Former Chief Innovation Officer(1)
Former Executive Vice President, Chief Financial Officer(2)
(1) Mr. de Masi served as President, Products & Solutions and Chief Innovation Officer from February 13, 2019 to January 6, 2020. He
continued serving as our Chief Innovation Officer, which was not an executive officer position, until his employment terminated on
March 13, 2020.
(2) Mr. Ragan’s employment was terminated effective November 6, 2019.
Because we do not maintain employment
their
compensation and benefits are described throughout this Compensation Discussion and Analysis section and
supporting tables.
letter agreements with our NEOs,
the material
terms of
36 | 2020 PROXY STATEMENT
Our Executive Compensation Philosophy and Approach
We operate in a highly competitive and rapidly evolving market. Our ability to compete and succeed in this
environment depends on our ability to recruit, incentivize and retain talented individuals.
We believe we have created a compensation program for our employees, including our executives, that provides
a compelling and engaging opportunity. The program offers rewards for performance and engages our
participants by requiring them to focus on driving the business to generate long-term value for our shareholders.
We believe this approach is building a performance-driven leadership culture. Utilizing this philosophy, our
executive compensation program has been designed to:
(cid:129) Be market competitive, targeting median pay levels for total annual compensation, as defined by our peer
group;
(cid:129) Create sustained increases in shareholder value through incentives designed to drive high performance;
(cid:129) Reward achievement of near- and long-term business performance targets;
(cid:129) Make pay decisions based on an executive’s skills and responsibilities, individual performance, experience,
importance to the organization, retention, affordability and internal pay equity;
(cid:129) Encourage employees to think like owners and align the interests of our leaders at all levels with those of our
shareholders by granting equity awards to mid-level and senior leaders; and
(cid:129) Deliver compensation in accordance with good governance practices that do not encourage undue risk-taking
by our employees.
These objectives played a critical role in the design of our executive compensation strategy as a newly
independent company in 2019. As examples, our executive compensation program for 2019 utilized revenue
growth as a component of our annual incentive plan and granted a portion of equity compensation in the form of
stock options. We remain committed to best practices in compensation governance for public companies, as
described in more detail below, and will regularly review our executive compensation strategy to maintain
alignment with our objectives.
2020 PROXY STATEMENT | 37
Our Commitment to Compensation Best Practices
As part of our executive compensation program, our Compensation Committee is committed to regularly review
and consider best practices in governance and executive compensation. Following the Spin-Off, we implemented
and maintain the following policies and practices.
WHAT WE DO
WHAT WE DON’T DO
Maintain robust stock ownership guidelines requiring
our officers and directors to hold a significant
ownership position in the Company
Provide compensation packages where more than
50% of our NEOs’ 2019 compensation is delivered in
equity compensation
✖ Allow hedging or pledging of our securities by our
directors and employees, including our NEOs
✖ Backdate or spring-load equity awards
✖ Reprice stock options or stock appreciation rights
without shareholder approval
Tie our incentive compensation programs directly to
the creation of shareholder value
✖ Offer any compensation programs or policies which
reward excessive risk-taking
Link our annual bonus plan goals directly to our
annual operating plan to drive our growth plan
✖ Provide multi-year guaranteed payments to
executive officers
✖ Offer tax reimbursement payments or gross-ups on
any severance or change-in-control payments
✖ Provide any significant perquisites
Use multiple performance metrics for our 2019 annual
and long-term incentive plans and include a maximum
cap on our incentive award payouts
Ensure a significant portion of our NEOs’
compensation is variable and based on company
performance - 86% for our CEO and 80% on average
for our other NEOs in 2019
Retain an independent compensation consultant,
selected by our Compensation Committee, to advise
on competitive compensation practices
Provide for severance benefits to our NEOs in
connection with a change-in-control of the Company
that requires a double trigger
Require our NEOs, where permitted by law, to sign
non-competition and intellectual property agreements
Set the annual goals for our CEO with consultation
and regular performance evaluations by our
independent directors
Maintain a compensation recoupment (“clawback”)
policy triggered by a material restatement of the
Company’s financial statements which is applicable to
all our NEOs
Evaluate and manage risk in our compensation
programs
38 | 2020 PROXY STATEMENT
Peer Group and Market Data
With the assistance of our independent compensation consultant, FW Cook, our Compensation Committee we
selected the companies below to include in our peer group based on similar size revenue and market
capitalization as well as alignment with our current profile, targeting industrial and distribution companies and
internet and technology companies and focusing on the connected home. This peer group was used to support
2019 compensation decisions.
(cid:129) A.O. Smith Corp.
(cid:129) Acuity Brands, Inc.
(cid:129) ADT Inc.
(cid:129) Alarm.com Holdings, Inc.
(cid:129) Allegion plc
(cid:129) Anixter International, Inc.
(cid:129) Arlo Technologies Inc.
(cid:129) BlackBerry Limited
(cid:129) Fortune Brands Home & Sec.
(cid:129) Itron, Inc.
(cid:129) Juniper Networks, Inc.
(cid:129) Lennox International Inc.
(cid:129) NCR Corporation
(cid:129) NETGEAR, Inc.
(cid:129) Nuance Communications
(cid:129) Owens Corning
(cid:129) Pentair plc
(cid:129) Watsco, Inc.
While our Compensation Committee considers peer group information provided by its independent consultant as
part of its benchmarking analysis, it may also refer to other available resources including published compensation
data from surveys to fully understand competitive compensation practices in the external marketplace for
executive talent. While the Compensation Committee uses median benchmark data to guide its compensation
decisions, actual compensation levels may vary based on the Compensation Committee’s consideration of other
factors described below.
Elements of Compensation
Overview
Our Compensation Committee has the primary authority to determine and approve the compensation of our
NEOs. The Committee is charged with reviewing our executive compensation policies and practices annually to
ensure that
the total compensation paid to our NEOs is fair, reasonable, competitive to our peers and
commensurate with the level of expertise and experience of our NEOs.
Our Compensation Committee reviews and approves the total amount of compensation for our NEOs and the
allocation of total compensation among each of the components of compensation. Their decisions in 2019 were
determined principally on the following factors:
(cid:129)
Individual and Company performance;
(cid:129) Each executive’s scope of responsibility and experience;
(cid:129) The judgment and general
industry knowledge obtained through years of service with comparably-sized
companies in our industry and other similar industries; and
(cid:129)
Input about competitive market practices from our independent compensation consultant.
Our management team and human resources leadership worked closely with the Compensation Committee to
analyze competitive market practices and effectively design and implement our executive compensation program.
Our CEO regularly participates in Compensation Committee meetings and develops and provides
recommendations to the Compensation Committee regarding the compensation for our NEOs (excluding himself)
and the design of our incentive compensation programs. Our CEO and other NEOs are not present when their
own compensation arrangements are discussed by the Compensation Committee.
2020 PROXY STATEMENT | 39
Resideo’s 2019 Executive Compensation Program
We have designed both near- and long-term incentive compensation packages that we believe are competitive
and support the compensation objectives described above.
BASE SALARY
(cid:129) Salaries are competitive with median market practice for the individual’s role, taking
into consideration individual performance, experience, scope of role relative to market
benchmarks and other factors
ANNUAL INCENTIVE PLAN
LONG-TERM INCENTIVES
(cid:129) As a newly independent company, our 2019 annual incentives were tied to achieving
growth and profitability targets approved by the Board.
(cid:129) Financial metrics for 2019 were revenue, adjusted EBITDA and operating cash flow
(cid:129) The individual performance component of each executive’s annual
incentive was
linked to an assessment of each NEO’s individual business initiatives
(cid:129) Each metric was treated independently when calculating the annual incentive
(cid:129) Target long-term incentive values were granted to our NEOs in three equally weighted
equity instruments:
(cid:129) Stock options vesting annually over three years in equal, one-third installments
(cid:129) RSUs vesting annually over three years in equal, one-third installments
(cid:129) Performance share units (“PSUs”) with a three-year performance period utilizing
performance goals measuring revenue and adjusted EBITDA performance targets
set at time of grant
The Compensation Committee approved a 2019 executive compensation program which reflects our business
strategy and a strong pay-for-performance culture. Our Compensation Committee views stock options as an
equity instrument
that strongly aligns the compensation realized by our NEOs and the long-term returns
generated for our shareholders, as no compensation is earned unless the Company’s stock price increases from
the level at which the option is granted. In addition, PSUs provide for multi-year revenue and adjusted EBITDA
performance measurement and reinforce the goals established through our long-range planning process and
approved by our Board. Our RSU awards further align the interests of our NEOs with our shareholders and
provide a meaningful retention vehicle. Lastly, our long-term incentive plan only offers share-settled awards for all
long-term incentive awards, further ensuring an alignment with the interests of our shareholders.
The charts below illustrate our NEOs’ compensation mix, which is heavily tied to variable compensation directly
linked to company performance and aligned with our strong pay-for-performance compensation philosophy.
2019 CEO Total Target
Direct Compensation
2019 Avg. Other NEO Total Target
Direct Compensation
14%
14%
19%
Base Salary
Annual Incentive
20%
20%
Base Salary
Annual Incentive
67%
86%
Long Term Incentives
59%
21%
Long Term Incentives
Variable
80%
Variable
In determining the financial metrics used to set performance targets for our 2019 annual and long-term incentive
compensation awards, our leadership team and Compensation Committee considered, among other factors,
feedback received directly from certain shareholders and determined that revenue growth, profitability and cash
flow measures were appropriate for our annual
incentive program. The Compensation Committee also
determined that revenue and profitability measures would be right for our long-term incentive plan for our first full
year as an independent company. In coming to this decision, the Compensation Committee considered the fact
that as a newly public company, we could not effectively establish measures which compare our performance
against competitors or our executive compensation peer group.
40 | 2020 PROXY STATEMENT
Preview of 2020 Executive Compensation Design Changes
the Compensation Committee added relative total shareholder return
For the 2020 compensation program,
(rTSR) to the financial metrics used under our PSUs and increased the weight of performance-based equity within
the mix of awards offered to our executive officers to 50% of the total long-term incentive mix. Specifically, the
Compensation Committee approved a long-term incentive (LTI) program consisting of 50% performance-based
share units, 30% stock options, and 20% time-based restricted stock units. All PSUs have a three year
performance period and PSUs subject to the rTSR metric will be earned by comparing our total shareholder return
to the total shareholder return of other companies in the S&P 400 Industrials Index as of the beginning of 2020.
factors such as their
Base Salary
Our base salaries provide a competitive level of fixed compensation for our NEOs that is aligned with their role
and accounts for additional
level of experience and individual performance. The
Compensation Committee considers competitive fixed cash compensation to be an important foundation of a
competitive total compensation program that will both retain and motivate our executives. At least annually, the
Compensation Committee reviews the competitiveness of base salaries relative to external benchmarks and
considers changes, as appropriate, taking into consideration market data as well as factors specific to our
Company,
including key elements of our compensation philosophy described above. During the 2019
compensation review, only Mr. Nefkens and Mr. Aarnes received salary adjustments of 2.3% and 12.5%
respectively.
2019 Annual Incentive Plan
The annual
incentive opportunity performance metrics established by the Compensation Committee included
measuring Resideo’s performance by weighting revenue at 40%, Adjusted EBITDA and operating cash flow at
20% each and the remaining 20% measuring individual performance and achievements, as determined by the
Compensation Committee. The revenue measure is based on the total value of the products and services sold to
our customers net of discounts and returns. The adjusted EBITDA measure represents our earnings before
interest, taxes, depreciation, and amortization and provides a reasonable measure of the profitability of our
operations. The operating cash flow measure is calculated as adjusted EBITDA plus changes in working capital
less adjusted capital expenditures during the year. The annual incentive award financial metrics for our NEOs,
other than Mr. Aarnes and Mr. de Masi, were calculated solely based on overall Resideo results. The financial
metrics used to determine Mr. Aarnes’ annual incentive payment were based solely on the results of ADI. The
financial metrics used to determine Mr. de Masi’s annual incentive payment were calculated and weighted equally
between overall Resideo results and the results for the Products & Solutions business.
The Compensation Committee performed a qualitative assessment of
the
approved objectives specified for each officer for 2019 and their accomplishments against those objectives as
summarized on pages 43 and 44 below.
individual performance against
In connection with our recent
the Compensation Committee chose to pay each of
Mr. Nefkens and our former executive officers, Mr. Ragan and Mr. de Masi, in accordance with the Company’s
actual financial results with respect to the financial metric components of the award but reduced the individual
performance component for each of their awards by 50%, resulting in the individual performance component
payment of 10% rather than 20%.
leadership transition,
2020 PROXY STATEMENT | 41
The tables below summarize the plan goals and performance results for 2019 for the Company overall, for ADI
and for the Products & Solutions business. These measures were used to determine the bonus payments to the
NEOs as shown on page 45. Under the 2019 annual incentive plan, our NEOs were eligible to receive a bonus
ranging from a threshold payment of 20% to a maximum of 200% of the target award allocated to achievement of
the Revenue and Adjusted EBITDA goals, and ranging from a threshold payment of 16% to a maximum of 200%
of
the Operating Cash Flow goal. With 100% target goal
achievement, the resulting payment would be 100% of the target bonus for that performance metric.
the target award allocated to achievement of
Financial Performance (80% of bonus)
For the period January 1 - December 31, 2019
Total Company
Resideo Revenue (40%)
Resideo Adjusted EBITDA (20%)
Resideo Operating Cash Flow (20%)
Threshold
($M)
4,613
353
234
Goal
($M)
5,014
420
285
Maximum
($M)
5,515
504
342
Actual
($M)
4,986
360
191
Financial Performance (80% of bonus)
For the period January 1 - December 31, 2019
ADI Global Distribution
ADI Revenue (40%)
ADI Adjusted EBITDA (20%)
ADI Operating Cash Flow (20%)
Threshold
($M)
2,583
196
175
Goal
($M)
2,808
233
214
Maximum
($M)
3,089
280
257
Actual
($M)
2,813
231
215
Financial Performance (80% of bonus)
For the period January 1 - December 31, 2019
Products and Solutions (P&S)
P&S Revenue (20%)
P&S Adjusted EBITDA (10%)
P&S Operating Cash Flow (10%)
Threshold
($M)
2,101
572
464
Goal
($M)
2,284
681
566
Maximum
($M)
2,512
817
679
Actual
($M)
2,173
533
397
Financial
Performance
%
99%
86%
67%
Financial
Performance
%
100%
99%
100%
Financial
Performance
%
95%
78%
70%
*For P&S, consolidated Resideo financial performance as reflected in the table above accounted for the remaining
40% of the financial component.
2019 Annual Incentive Award - Financial and Individual
For the period January 1 - December 31, 2019
Performance Achievement
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Financial Performance
Result (80%)
Individual Performance
(20%)
Total Award
%
42%
—
79%
42%
31%
42%
10%
—
30%
39%
10%
10%
52%
—
109%
81%
41%
52%
42 | 2020 PROXY STATEMENT
In determining the actual 2019 bonus awards paid to each executive, the following formula was applied.
Annual Incentive
Cash Bonus
=
Base Salary
×
Target Bonus
Percentage
× [
Financial
Performance
Payout
Percentage
+
Individual
Performance
Payout
Percentage
]
2019 Annual Incentive Plan – Individual Performance Objectives (20% of target award)
The Compensation Committee conducted a qualitative assessment to determine the individual performance
objectives portion of the 2019 annual incentive award payout, which accounts for 20% of the target award. The
Committee first reviewed corporate performance for each business unit and functional area and noted general
2019 accomplishments that were significant
to understanding individual NEO performance. Each NEO’s
objectives and results against those objectives is discussed below:
Michael Nefkens, President and Chief Executive Officer
Objectives
Results
(cid:129) Establish organizational effectiveness to reflect new organizational
structure
(cid:129) Establish three-year strategy
(cid:129) Launch ADT Command portfolio, North American and EMEA
general market release and next generation thermostat
(cid:129) Establish new corporate headquarters
(cid:129) Establish cybersecurity capabilities and governance
(cid:129) Establish corporate scorecard with targets
(cid:129) Establish budget and line of business targets
In connection with Mr. Nefkens’ transition, the Committee approved
a payout of Mr. Nefkens’ personal performance component at 50%
of target for this component (equal to 10% of total target incentive),
in recognition of satisfaction of many of the objectives related to the
Spin-Off and the Company’s first year of operations as an
independent organization. In particular, the Committee considered
Mr. Nefkens’ achievement of the following:
➣ Implemented an effective operating cadence with the
leadership team that includes regular customer visits
➣ Completed analysis of organization spend and corporate cost
structure and kicked off strategy development with lines of
business.
➣ Completed the relocation of the corporate headquarters to
Austin, Texas
➣ Completed the assessment of cyber capabilities
Robert Aarnes, President, ADI Global Distribution
Objectives
Results
(cid:129) Develop 3-5 year growth strategy
(cid:129) Develop EBITDA margin expansion plan and two-year financial
plan
(cid:129) Execute ADI sales and marketing initiatives to deliver successful
launches and growth objectives
Based on the results below, the Committee approved a payout of
Mr. Aarnes’ personal performance component at 150% of target for
this component (equal to 30% of total target incentive)
➣ Developed and successfully implemented strategy with
significant results in revenue and EBITDA expansion
➣ EBITDA expansion targets, plans and required investments
approved and in place
➣ Completed restructuring activities, including headcount
realignment
➣ Coordinated 2020 regional and line of business budgets to
reflect expansion goals
➣ Implemented supplier stratification goal and plan for 2020
➣ Supported Super Connected platforms, including thermostat
➣ Implemented product launch pipeline
2020 PROXY STATEMENT | 43
Stephen Kelly, Executive Vice President and Chief Human Resources Officer
Objectives
Results
(cid:129) Develop global benefits and compensation programs to compete
with high-tech/consumer products companies and enable us to
attract and retain top talent
(cid:129) Create and launch – diversity and social responsibility programs
Based on the results below, the Committee approved a payout of
Mr. Kelly’s personal performance component at 195% of target for
this component (equal to 39% of total target incentive)
➣ Implemented the Resideo Signature Awards, a contemporary
recognition program that promotes Resideo values and
Performance Signature
➣ Designed and implemented the Resideo Bonus Plan that
establishes better alignment between our pay for performance
philosophy and business results
➣ Completed implementation of Total Rewards proposals for
recruiting and engaging high technology workforce in the
Austin technology center—Resideo Named one of 100 Best
Places to Work in Austin 2020
➣ Completed the design of new employee stock purchase plan
for launch in June 2020
➣ Launched various diversity affinity organizations at Resideo
Niccolo de Masi, Former Chief Innovation Officer – Former President, Products & Solutions and Chief
Innovation Officer
Objectives
Results
(cid:129) Develop 3-5 year growth strategy and begin execution
(cid:129) Develop a comprehensive, global manufacturing optimization
strategy; begin review and execution
(cid:129) Drive acquisitions and strategic partnerships to take us into water,
energy management, air, and electrical monitoring
(cid:129) Strengthen sales capability across segments
In connection with Mr. de Masi’s transition, the Committee
approved a payout of Mr. de Masi’s personal performance
component at 50% of target for this component (equal to 10% of
total target incentive), in recognition of satisfying many of the
objectives related to the Spin-Off and the Company’s first year of
operations as an independent organization. In particular, the
Committee considered Mr. de Masi’s achievement of the following:
➣ Established roadmaps for each line of business
➣ Hired applications team and drove new experience with
gamification
➣ Made progress on new retail thermostat model
➣ Provided framework on channels to market for major
businesses
➣ Improved manufacturing planning to reduce past dues and
improved on-time delivery, while maintaining world-class safety
programs
➣ Completed three acquisitions, Buoy, Whisker Labs and
LifeWhere, and negotiated key strategic partnerships
➣ Developed new sales incentive program to drive upside for
sales leaders
Joseph Ragan, Former Executive Vice President and Chief Financial Officer
Objectives
Results
(cid:129) Develop 3-5 year financial plan
(cid:129) Establish corporate financial plan in conjunction with new strategy
rollout
(cid:129) Establish a robust cybersecurity posture for Resideo by deploying
security capabilities and governance in conjunction with Resideo’s
exit from Honeywell transition services agreements
In connection with Mr. Ragan’s separation, the Committee
approved a payout of Mr. Ragan’s personal performance
component at 50% of target for this component (equal to 10% of
total target incentive), in recognition of the objectives related to the
Spin-Off and the Company’s first year of operations as an
independent organization. In particular, the Committee considered
Mr. Ragan’s achievement of the following:
➣ Completed 2019 operating plan
➣ Completed assessment of cyber capabilities and product
security assessment
44 | 2020 PROXY STATEMENT
Based on achievement of the financial and individual performance objectives as described above, the following
table sets forth the target amount and actual annual incentive payout for each NEO for fiscal 2019:
Name
Michael Nefkens
Robert Ryder(1)
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(2)
Target Bonus ($)
Actual Bonus ($)
1,260,000
N/A
450,000
344,000
843,750
420,411
655,200
N/A
490,500
279,328
345,938
218,614
(1) Mr. Ryder is not eligible for an annual
incentive bonus per the terms of our engagement letter with Horsepower Advisors, LLC, the
consulting firm through which we have retained his services.
(2) Mr. Ragan’s target bonus reflected above is pro-rated based on the actual number of days he was employed during 2019.
2019 Long-Term Incentives
The goal of our long-term incentive plan is to align the compensation of our executives with the interests of
shareholders by encouraging sustained long-term improvement in operational and financial performance and
long-term increase in shareholder value. Long-term incentives also serve as retention instruments and provide
equity-building opportunities for executives. Equity awards to our employees are granted under the Amended and
Restated 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates (the “2018 Stock Incentive
Plan”). Our first annual grants of LTI awards to the CEO and other NEOs as an independent, public company
were issued on February 11, 2019, with the exception of Mr. de Masi, who joined Resideo as an executive officer
on February 13, 2019. The Compensation Committee approved a mix of annual LTI awards in the form of
performance stock units, stock options, and restricted stock units of equal value. The number of shares underlying
the RSUs and PSUs was determined by dividing one-third of the total value of the LTI award by the average
closing stock price of Resideo common stock on the three trading days leading up to and including the grant date.
The number of stock options granted was calculated by dividing one-third of the total value of the annual LTI
award by the Black-Scholes stock option value determined on the date of grant.
The table below provides a summary of the value and number of options and units granted to each NEO in 2019.
NAME
ROLE
Total
Value of
LTI
Award ($)
Option
Value
(33%) ($)
TRSU
Value
(33%) ($)
PSU
Value
(33%) ($)
# of NQ
Stock
Options
# of
TRSUs
# of
PRSUs
Grant
price of
stock
options ($)
Michael Nefkens
President and CEO 4,300,000
1,433,333
1,433,333
1,433,333
211,406
58,767
58,767
24.39
Robert Ryder*
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Interim Chief
Financial Officer
President, ADI
Global Distribution
EVP, Chief Human
Resources Officer
Former President,
Products & Solutions
and Chief Innovation
Officer
Former EVP, Chief
Financial Officer
—
—
—
—
—
—
—
N/A
1,400,000
466,666
466,666
466,666
68,829
19,133
19,133
24.39
774,000
257,999
257,999
257,999
38,053
10,578
10,578
24.39
2,700,000
900,000
900,000
900,000
132,743
36,101
36,101
25.04
1,100,000
366,666
366,666
366,666
54,080
15,033
15,033
24.39
* Mr. Ryder received no equity awards in his role as interim Chief Financial Officer.
Note that Mr. de Masi became an officer on February 13, 2019, therefore his stock options were issued on that
date based on the Black-Scholes value determined on that date and reflects a strike price based on the fair
market value of Resideo stock on February 13, 2019. Similarly, the number of RSU and PSU shares awarded
were determined using the three-day average closing stock price through February 13, 2019.
2020 PROXY STATEMENT | 45
2019 Stock Options
The stock options awarded in 2019 will vest ratably over three-years with one third of the option shares vesting on
each anniversary of the grant date until fully vested in February 2022, assuming the recipient is continually
employed through each vesting date. The options will expire if unexercised prior to the seventh anniversary of the
grant date. All of the stock options issued in 2019 were out-of-the money as of the date of this Proxy Statement.
2019 Restricted Stock Units
The restricted stock units awarded in 2019 will vest ratably over three-years with one third of the shares vesting
on each anniversary of the grant date until fully vested in February 2022, assuming the recipient is continually
employed through each vesting date.
2019 Performance Stock Units
The performance stock units awarded in 2019 will vest based on achievement of Resideo’s financial results over
three years from January 1, 2019 through December 31, 2021.
The performance metrics applicable to the 2019 PSU awards are revenue and adjusted EBITDA with each metric
applied equally – 50% weight for each goal. The total shares which can be earned by an executive under these
awards ranges from 20% of the target award to a maximum of 200% of target. One-third (1/3) of the total target
PSUs will apply to the measures for each of the three years of the performance period covered by the 2019 PSU
award and may be earned independently of PSUs applicable to the performance goals for the other two years.
Once deemed to be earned, the PSUs for any year under the 2019 PSU award will no longer be subject to the
performance measures for a subsequent year(s).
Other Compensatory Decisions Applicable to 2019
In connection with the management transitions described above, the Compensation Committee approved certain
separation and engagement agreements, summarized below, to affect a smooth transition of leadership.
Separation Agreements
Mr. Nefkens. In connection with our CEO transition, Mr. Nefkens is entitled to receive severance benefits in
accordance with and subject to the conditions of the Company’s Severance Plan (as defined below under “Other
Components of Our Compensation Program—Severance”). In addition, subject to the conditions of the Severance
Plan and other conditions set forth in his separation agreement, Mr. Nefkens is also entitled to receive continued
vesting of the founder’s grant restricted stock units granted on October 29, 2018, and a payment equal to his
2020 target annual incentive award, which is equal to 140% of his base salary (with his base salary remaining
unchanged from 2019), pro-rated for the portion of 2020 during which Mr. Nefkens remained employed. In
addition, and subject to the same conditions, Mr. Nefkens is entitled to a long-term incentive grant for 2020 valued
at $1.433 million that vests monthly during fiscal 2020 with a minimum vesting of three months. Following the
severance period, Mr. Nefkens will be engaged to provide consulting services for twelve months for an annual fee
of $200,000, as described below. The severance benefits above are conditioned on Mr. Nefkens’ execution of and
compliance with the separation agreement, including a release in favor of the Company and strict adherence to
the restrictive covenants, which include one-year non-competition and two-year non-solicitation restrictions. If
Mr. Nefkens exercises his right to terminate his employment on a date not selected by the Board of Directors,
then he will receive only the severance benefits in accordance with the Company’s Severance Plan. Furthermore,
in the event of a change in control prior to Mr. Nefkens’ last day of active employment, and if he experiences an
involuntary termination (other than for cause) within two years after the change in control, then he will be entitled
to a lump sum payment equal to twenty-four months of base pay plus two times his target annual incentive award.
The terms of Mr. Nefkens’ separation agreement were determined by the Compensation Committee in
consideration of Mr. Nefkens’ significant contributions toward the Spin-Off and to facilitate a smooth transition of
his responsibilities to a successor CEO, as described in more detail below:
(cid:129) Severance benefits. The Compensation Committee determined that Mr. Nefkens was entitled to severance
benefits under the Company’s Severance Plan in connection with the Board’s decision that a different skill set
was needed to lead the next stage of the Company’s evolution, which contributed to the mutual agreement of
Mr. Nefkens and the Board to hire a new CEO.
46 | 2020 PROXY STATEMENT
(cid:129) Continued vesting of founder’s grant. Upon his appointment as CEO, Mr. Nefkens did not receive a
signing bonus or new hire equity grant. The award of a signing bonus and/or a special equity award often
occurs when hiring a CEO to lead an organization. Mr. Nefkens’ October 29, 2018 founders grant was
awarded in lieu of a signing bonus and new hire equity award. Therefore, the Compensation Committee
determined that Mr. Nefkens should be entitled to continued vesting in this award to recognize the substantial
efforts and work completed as part of
the Company’s Spin-Off and launch as an independent public
company, subject to the terms of his separation agreement.
(cid:129) Eligibility for 2020 pro-rated target annual incentive award. It is expected that Mr. Nefkens will remain in
the role as CEO until a new CEO has been identified and hired, which is expected to occur sometime in
incentive award will
2020. Mr. Nefkens’ continued eligibility for a pro-rata payout of his target annual
recognize his continuing service as CEO and his efforts to facilitate a smooth transition of his responsibilities.
(cid:129)
2020 equity incentive award with monthly vesting. Mr. Nefkens’ 2020 equity incentive award is intended
to keep Mr. Nefkens’ interests aligned with the interests of shareholders during the transition period and keep
him engaged and focused on both the immediate and long-term objectives of Resideo.
(cid:129) Post severance consulting agreement. The Board determined it was advisable to retain access to
Mr. Nefkens over the medium-term beyond his employment given his deep knowledge of our business and
legal matters related to the Spin-Off, particularly in light of multiple executive transitions occurring at the
same time.
Mr. de Masi. In connection with Mr. de Masi’s continued employment as our Chief Innovation Officer following the
Board’s decision to hire a new President of the Products and Solutions business unit, he continued to receive the
same base salary and annual incentive compensation but was not eligible to receive any further equity awards.
Mr. de Masi was terminated on March 13, 2020 and received severance benefits under our Severance Pay Plan
for Designated Executive Employees (the “Executive Severance Plan”) with enhanced salary continuation
payments of 18 months, in recognition of the benefit for which he had previously been eligible under the Officer
Severance Plan. Under the terms of his separation agreement, Mr. de Masi is eligible for continued vesting of his
November 18, 2018 restricted stock unit award that he received upon his election as a director and before he
became an executive officer. In addition, Mr. de Masi will receive a payment equal to his 2020 target annual
incentive award, which is equal to 125% of his base salary (with his base salary remaining unchanged from 2019),
pro-rated for the portion of 2020 during which Mr. de Masi remained employed, which amount would only include
one-half of the amount tied to the individual performance component. All the severance benefits are subject to the
conditions in the Executive Severance Plan, and the additional benefits are also subject to Mr. de Masi’s
compliance with other covenants governing his separation, which include one-year non-competition and two-year
non-solicitation restrictions.
the letter agreement providing for Mr. de Masi’s continued employment,
In designing the terms of
the
Compensation Committee considered the need to affect a smooth transition of Mr. de Masi’s responsibilities to
Mr. Sankpal and ensure that Mr. de Masi’s interests remained aligned with the Company’s as he continued in his
non-executive position as Chief Innovation Officer. The Compensation Committee particularly considered the
need for steady leadership during this time of significant change within Resideo. Accordingly, the Compensation
Committee agreed to the additional severance benefits in the event
that Mr. de Masi’s employment was
terminated without cause within the following twelve months. The Company later decided to terminate Mr. de
Masi’s employment effective March 13, 2020, thereby entitling him to the severance benefits provided in his letter
agreement.
Mr. Ragan. As provided in Mr. Ragan’s separation and release agreement, if he adheres to the terms and
conditions of the separation agreement and complies with certain restrictive covenants, he is entitled to receive
severance benefits under the Severance Plan. In addition, subject to the conditions of the Severance Plan and
other conditions set forth in his separation agreement, Mr. Ragan received a pro-rated payout of his fiscal 2019
annual incentive award based on the Company’s actual performance against the performance goals and one-half
of the amount tied to individual performance, and is entitled to receive (i) continued vesting of a pro-rated portion
of his restricted stock units that were granted to him on October 29, 2018 and (ii) reimbursement of the cost of
real estate commission fees on the sale of his home and shipment of household goods if Mr. Ragan relocates to
the metropolitan area where he resided prior to his move to Austin, TX in the six-month period following the
termination of his employment. The restrictive covenants applicable to Mr. Ragan include a one-year
non-competition and a two-year non-solicitation restriction.
2020 PROXY STATEMENT | 47
Mr. Ragan was entitled to severance benefits under the Severance Plan as the Board terminated his employment
in connection with a search for a new chief financial officer with a different skill set. The Compensation Committee
approved the additional severance benefits for Mr. Ragan in consideration of his significant efforts in connection
with the Spin-Off and launch of Resideo as an independent public company. Based on these factors,
the
Compensation Committee provided Mr. Ragan with a pro-rated payout of his fiscal 2019 annual incentive award
(based on actual performance) and continued vesting of a pro-rated portion of the founder’s grant he received on
October 29, 2018, which was granted at Spin-Off and in lieu of any other sign-on compensation when he joined
the Company.
Engagement Letter
Mr. Ryder. On October 22, 2019, the Board appointed Mr. Ryder as Interim Chief Financial Officer effective
November 7, 2019. The terms of Mr. Ryder’s service to Resideo are set forth in an engagement letter with
Horsepower Advisors, LLC (“Horsepower”), a consulting firm through which we obtained his services. Mr. Ryder
currently serves as the President of Horsepower. Pursuant
letter, Resideo will pay
Horsepower a bi-weekly fee of $115,000 as compensation for Mr. Ryder’s services, as well as reimbursement of
Mr. Ryder’s reasonable and authorized travel expenses related to performance of the services. Mr. Ryder shall
not be eligible for an annual incentive award or any long-term incentive awards. The engagement will continue in
effect for six months unless terminated earlier by either party upon 30 day’s written notice.
to the engagement
Other Components of Our Compensation Program
Severance
In November 2018, the Compensation Committee adopted the Resideo Technologies, Inc. Severance Plan for
Designated Officers (the “Severance Plan”), which includes each of our NEOs, other than Mr. de Masi. The terms
of the Severance Plan were established following a review of the severance practices among companies in our
approved compensation peer group.
The Severance Plan addresses severance for our NEOs upon a termination following a change in control (“CIC”),
considered a “double trigger”, and is intended to ensure the continued attention of our NEOs to their roles and
responsibilities without the distraction that may arise from the possibility of a job loss concurrent with a CIC of
Resideo.
In addition, the Severance Plan provides for severance payments and benefits that become payable if the
employment of one of our NEOs is terminated by us without “cause” (as defined in the Severance Plan) subject to
such individual signing and not revoking a release of claims agreement.
The Compensation Committee has adopted the Severance Plan to provide competitive post-employment
compensation arrangements that promote the continued attention, dedication and continuity of the members of
our senior management team, including our NEOs, and enable us to continue to recruit talented senior executive
officers. The Compensation Committee intends to periodically review the severance available to our NEOs under
the Severance Plan to ensure ongoing competitiveness and alignment with our overall compensation philosophy.
The severance benefits provided to our NEOs are outlined in the Potential Payments Upon Termination or
Change in Control Table found later in this Proxy Statement.
Nonqualified Deferred Compensation Plan
Executive officers (including the NEOs) may choose to participate in the Resideo Supplemental Savings Plan, a
nonqualified deferred compensation plan that permits additional tax-deferred retirement savings options. The
Resideo Supplemental Savings Plan has two components,
the Deferred Incentive Program (DIP) and the
Supplemental Savings Program (SSP). Executive officers can elect to defer up to 100% of their annual incentive
award under the DIP component. In addition, under the SSP component, executive officers may also elect to
defer eligible compensation that cannot be contributed to the Company’s 401(k) plan due to IRS limitations. The
amounts contributed to the Supplemental Savings Plan are eligible for company matching credits, not to exceed
87.5% of the first 8% contributed combined between the SSP and the Company’s 401(k) plan. The participant
account balances in the Supplemental Savings Plan are subject to gains and losses, based on the returns of the
Fidelity® U.S. Bond Index Fund.
48 | 2020 PROXY STATEMENT
Benefits and Perquisites
Our NEOs are eligible to receive the same benefits as our salaried employees in the United States. Resideo and
the Compensation Committee believe this approach is reasonable and consistent with the overall compensation
objectives to attract and retain employees. These benefits include medical, dental, vision, disability insurance,
a 401(k) plan and other plans and programs made available to other eligible employees in the United States.
Employee benefits and perquisites are reviewed periodically to ensure that benefit levels remain competitive.
In connection with the Spin-Off,
in June 2019 we moved into our new headquarters in Austin, Texas, a
state-of-the-art office building that houses our executive leadership team as well as a software development
center. In connection with the relocation from Golden Valley, Minnesota to Texas, we provided certain relocation
benefits to executives, officers and NEOs to ease the transition for relocating employees and their families while
ensuring our team remained focused on achieving the Company’s goals.
Executive Annual Physical Program
Effective with the 2019 calendar year, the Compensation Committee approved that all officers are required to
have an annual executive physical and are eligible to participate in an executive annual physical program paid for
by the Company. These physicals provide a more in-depth review of the health of those employees reporting to
the President of the Company. Each of our NEOs participated in the annual physical exam program in 2019.
Executive Stock Ownership Guidelines
The Compensation Committee believes that the interests of our executives, including our NEOs, will be more
aligned with those of our shareholders, and our NEOs will more effectively pursue strategies that promote our
in
shareholders’
November 2018, our Compensation Committee adopted minimum stock ownership guidelines for all executive
officers, including our NEOs.
if our executives hold substantial amounts of our stock. Accordingly,
long-term interests,
Under these guidelines, our executive officers must hold shares of Resideo common stock equal in value to the
following multiples of their current base salary:
CEO
6x Base Salary
Other Executive Officers
3x Base Salary
Our executive officers have five years from the date they become subject to the guidelines to meet the ownership
requirement. Shares owned outright, unvested RSU awards and earned performance share awards are counted
toward the ownership requirement. Shares may be sold during the accumulation period if satisfactory progress
towards meeting the minimum requirement is demonstrated. As of December 31, 2019, Mr. Kelly and Mr. Aarnes
have met the minimum stock ownership requirement under the policy.
Incentive Recoupment Policy (“Clawback”)
In the event of a material restatement of our financial results (a “Restatement”), the Board will review all incentive
compensation paid to senior executives on the basis of having met or exceeded specific performance targets for
performance periods during the Restatement period. To the extent permitted by applicable law, the Board will
seek to recoup incentive compensation, in all appropriate cases (taking into account all relevant factors, including
whether the assertion of a recoupment claim may prejudice the interests of
the Company in any related
proceeding or investigation), paid to, or credited to a deferred compensation account of, any senior executive, if
and to the extent that:
(i)
(ii)
(iii)
the amount of incentive compensation was calculated based upon the achievement of certain financial
results that were subsequently reduced due to a Restatement;
the senior executive engaged in misconduct that caused the need for the Restatement; and
the amount of incentive compensation that would have been awarded to the senior executive had the
financial results been properly reported would have been lower than the amount actually awarded.
2020 PROXY STATEMENT | 49
Hedging and Pledging Policy
It is our policy that all of our directors, officers and employees are prohibited from engaging in short sales of
Resideo securities and selling or purchasing puts or calls or otherwise trading in or writing options on Resideo
securities and using certain financial
instruments (including forward sale contracts, equity swaps, collars and
exchange funds), holding securities in margin accounts or pledging Resideo securities as collateral, in each case,
that are designed to hedge or offset any decrease in the market value of Resideo securities.
Tax Deductibility of Executive Compensation
Prior to 2018, Section 162(m) of the Internal Revenue Code generally limited the tax deductibility of compensation
paid to the CEO and each of the next three most highly compensated executive officers (excluding the CFO) that
exceeded $1 million in any taxable year unless the compensation over $1 million qualified as “performance-
based” within the meaning of Section 162(m).
The ability to rely on the “performance-based” compensation exception under Section 162(m) was eliminated in
2017 and the $1 million limitation on deductibility generally was expanded to include all NEOs (including the
CFO). Thus, we generally will not be able to take a deduction for any compensation paid to our NEOs in excess of
$1 million unless the compensation qualifies for transition relief applicable to certain arrangements in place on
November 2, 2017. The rules and regulations promulgated under Section 162(m) are complicated, and may
change from time to time, and the scope of the transition relief under the legislation repealing Section 162(m)’s
performance-based exemption from the deduction limit is uncertain. The Compensation Committee will continue
to monitor the effect of tax reform on our executive compensation program.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Company’s Compensation
Discussion and Analysis included in this Proxy Statement. Based on this review and discussion,
the
the Compensation Discussion and Analysis be
Compensation Committee recommended to the Board that
included in this Proxy Statement and the Company’s Form 10-K for the year ended December 31, 2019.
This report is provided by the following independent members of the Board, who comprise the Compensation
Committee:
Sharon Wienbar (Chair)
Nina Richardson
Andrew Teich
50 | 2020 PROXY STATEMENT
Summary Compensation Table
The following table sets forth information concerning the compensation awarded to, earned by or paid to our
NEOs during 2019.
Officer Name
Position
Year
Base
Salary
($)
Bonus
($)(1)
Stock
Awards ($)(2)
Option
Awards ($)(3)
Non-Equity
Incentive Plan
Compensation
($)(4)
Changes in
Pension
Values and
Non Qual.
Deferred
Comp
Earnings
($)(5)
All Other
Compensation
($)(6)
Total
Compensation
($)
Michael Nefkens President & Chief
Executive Officer
2019 895,068
— 2,866,654 1,433,333
655,200
— 502,910
6,353,165
2018 135,385 193,227 4,104,724
— 998,977
—
1,645
5,433,958
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de
Masi
Joseph Ragan
Interim Chief
Financial Officer(7)
President, ADI
Global Distribution
EVP, Chief
Human Resources
Officer
Former Chief
Innovation
Officer(8)
Former EVP,
Chief Financial
Officer(9)
2019
—
—
—
—
—
— 391,000
391,000
2019 437,671
— 933,308
466,661
490,500
40,977
19,145
2,388,262
2018 60,135 44,987
885,007
— 138,905
9,996
4,440
1,143,470
2019 430,000
— 515,995
257,999
279,328
140,014
713,972
2,337,308
2018 65,346 67,898 1,041,057
— 178,415
8,163
9,111
1,369,991
2019 589,931
— 1,807,938
903,980
345,938
— 363,149
4,010,936
2019 492,885
— 733,310
366,662
—
— 365,444
1,958,301
2018 84,615 44,090 1,050,108
— 156,237
—
2,051
1,337,101
(1) For 2018, our NEOs received a discretionary bonus payment for their significant contributions to our successful Spin-Off from Honeywell.
(2) Stock awards in 2019 consisted of restricted stock unit (RSU) awards and performance stock unit (PSU) awards. The amounts reported in
this column represent the aggregate grant date fair value of the RSU awards for fiscal years 2019 and 2018 and of the target level of the
PSU awards for fiscal years 2019. We calculated these amounts in accordance with the provisions of FASB ASC Topic 718 utilizing the
assumptions discussed in Note 18 to our financial statements for the fiscal years ended December 31, 2019 and December 31, 2018. The
grant date fair value of the 2019 RSUs and the grant date fair value of the 2019 PSUs if target performance and maximum performance is
achieved are as follows:
Name
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
PSUs
RSUs ($)
Target ($) Maximum ($)
1,433,327
1,433,327
2,866,654
—
—
—
466,654
466,654
933,308
257,997
257,997
515,995
903,969
903,969
1,807,938
366,655
366,655
733,310
(3) The amounts reported in this column represent the aggregate grant date fair value of the option awards for fiscal year 2019. No options
were issued in 2018. We calculated these amounts in accordance with the provisions of FASB ASC Topic 718 utilizing the assumptions
discussed in Note 18 to our financial statements for the fiscal year ended December 31, 2019.
(4) The amounts in this column represent the total 2019 annual incentive payments made to the NEOs as described in more detail above in
the “Compensation Discussion & Analysis – Elements of Compensation” section of this Proxy Statement. The amount shown was paid
shortly after the end of the fiscal year.
(5) The amounts in this column represent the aggregate change in the present value of each NEO’s accumulated benefit under the
Company’s pension plans (as disclosed in the Pension Benefits table on page 57).
(6) The amounts reported in this column for 2019 include costs for company contributions under the 401(k) and deferred compensation plan,
relocation benefits in connection with the Spin-Off, the imputed value of company-provided life insurance, costs for executive healthcare
2020 PROXY STATEMENT | 51
services and in the case of Mr. Ragan only, severance benefits. The amount for Mr. Ryder includes the payments made to Horsepower,
which are described in more detail below in footnote 7.
Name
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
401k Company
Contributions ($)
Deferred
Compensation
Plan Company
Contributions ($)
Relocation
Expenses ($)(a)
Relocation-
Related Tax
Gross-Up ($)(b)
All
Other ($)(c)
9,800
—
16,625
16,625
—
—
—
—
—
13,475
—
—
429,270
58,300
—
—
533,953
332,625
43,733
—
—
144,379
28,084
20,938
5,540
—
2,520
5,540
2,440
365,444
(a) The amounts shown relate to relocating our NEOs to Austin, Texas in connection with the relocation of our corporate headquarters
following the Spin-Off. Eligible relocation expenses included: moving of household goods, travel expense reimbursement for home-
finding trips and final journey to the destination, expense allowance, home sale assistance (including, potential payment of certain
closing costs and reimbursement for certain losses on home sales), potential payment of certain closing costs in connection with a
new home purchase temporary housing, reimbursement of lease cancellation expenses.
(b) The amounts shown are for taxes related to the reimbursement of relocation expenses.
(c)
Includes costs for executive healthcare services and excess liability insurance premiums paid by the Company. In the case of
Mr. Ragan only,
includes severance benefits consisting of $78,269 of salary continuation following his termination date of
November 6, 2019 through December 31, 2019 and $218,614 representing a pro-rated payout of his fiscal 2019 annual incentive
award provided pursuant to the terms of his separation agreement.
(7) Mr. Ryder was appointed as Interim Chief Financial Officer effective November 7, 2019. Mr. Ryder is the President of Horsepower, a
consulting firm through which his services have been retained under an engagement letter dated October 22, 2019. Pursuant to that
engagement letter, the Company pays Horsepower a bi-weekly fee of $115,000 for Mr. Ryder’s services, as well as reimbursement of
reasonable and authorized travel expenses related to performance of the services. Mr. Ryder does not receive any equity compensation
per the terms of the engagement letter.
(8) Mr. de Masi served as President, Products & Solutions and Chief Innovation Officer, from February 13, 2019 through January 6, 2020.
Mr. de Masi continued serving as Chief Innovation Officer, which was not an executive officer position, until his employment terminated on
March 13, 2020.
(9) Mr. Ragan’s employment terminated effective November 6, 2019.
52 | 2020 PROXY STATEMENT
Grants of Plan-Based Awards - Fiscal Year 2019
The following table summarizes the grants of plan-based awards made to our NEOs during the fiscal year ended
December 31, 2019.
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Estimated Future Payouts
Under Equity
Incentive Plan Awards
Officer Name
Award Type
Grant Date
Threshold
($)(A)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Michael Nefkens Annual Incentive Plan(1)
01/01/2019
191,520 1,260,000 2,520,000
Stock Options (2)
RSU(3)
PSU(4)
Robert Ryder
—
02/11/2019
02/11/2019
02/11/2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 11,753
58,767 117,534
Robert Aarnes
Annual Incentive Plan(1)
68,400
450,000
900,000
Stock Options (2)
RSU(3)
PSU(4)
02/11/2019
02/11/2019
02/11/2019
—
—
—
—
—
—
—
—
—
Stephen Kelly
Annual Incentive Plan(1)
01/01/2019
52,288
344,000
688,000
Stock Options (2)
RSU(3)
PSU(4)
02/11/2019
02/11/2019
02/11/2019
—
—
—
—
—
—
—
—
—
Niccolo de Masi Annual Incentive Plan(1)
01/01/2019
128,250
843,750 1,687,500
Stock Options (2)
RSU(3)
PSU(4)
02/13/2019
02/13/2019
02/13/2019
—
—
—
—
—
—
—
—
—
Joseph Ragan(5) Annual Incentive Plan(1)
01/01/2019
75,240
495,000
990,000
Stock Options (2)
RSU(3)
PSU(4)
02/11/2019
02/11/2019
02/11/2019
—
—
—
—
—
—
—
—
—
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
—
—
58,767
—
—
—
—
19,133
—
—
—
10,578
—
—
—
36,101
—
—
—
15,033
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/sh.)
Closing
Price on
Date of
Grant of
Option
Awards
($/sh.)
Grant Date
Fair Value
of Stock
and Option
Awards
($)
—
—
—
—
211,406
24.39
24.70
1,433,333
—
—
—
—
—
—
—
—
—
—
—
—
1,433,327
1,433,327
—
—
68,829
24.39
24.39
466,660
—
—
—
—
—
—
—
—
—
466,654
466,654
—
38,053
24.39
24.70
257,999
—
—
—
—
—
—
—
—
—
257,997
257,997
—
132,743
25.04
25.17
903,980
—
—
—
—
—
—
—
—
—
903,969
903,969
—
54,080
24.39
24.39
366,662
—
—
—
—
—
—
366,655
366,655
—
—
—
—
—
—
—
—
—
—
—
—
3,827
19,133
38,266
—
—
—
—
—
—
—
—
—
2,116
10,578
21,156
—
—
—
—
—
—
—
—
—
7,220
36,101
72,202
—
—
—
—
—
—
—
—
—
3,007
15,033
30,066
—
(A) Represents the payment that would be received for the minimum level of performance required to achieve a payout under the plan for
2019. The amounts reflected are based on revenue achievement of 92% of target, adjusted EBITDA achievement of 84% of target, and
operating cash flow achievement of 82% of target, with no payment under the individual performance component of the plan.
(1) Annual Incentive Compensation awarded under the Resideo Bonus Plan for the 2019 performance year. Amounts reflected are for the
annual bonus payable in 2020, for the 2019 performance year. The amounts actually paid with respect to these awards are reflected in
the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column. See “Compensation Discussion and
Analysis – Elements of Compensation- 2019 Annual Incentive Plan” for more information about our annual incentive compensation plan.
The target award for each executive reflects adjustments for changes in salary and bonus targets during the Plan year.
(2) Non-qualified stock options granted under the 2018 Stock Incentive Plan. The options will vest ratably on February 11, 2020, 2021 and
2022, except for those granted to Mr. de Masi, which will vest ratably on February 13, 2020, 2021 and 2022. The grant date fair value of
stock options was calculated in accordance with FASB ASC Topic 718 using the Black-Scholes option valuation model as of the date of
grant based on the assumptions reflected in Note 18 of the Company’s Form 10-K for the period ended December 31, 2019.
(3) Restricted stock units granted under the 2018 Stock Incentive Plan. The restricted stock units will vest ratably on February 11, 2020, 2021
and 2022 except for those granted to Mr. de Masi, which will vest ratably on February 13, 2020, 2021 and 2022. The grant date fair value
of the RSUs reflected in the final column is equal to the average of the high and low price for Resideo on the date of grant.
(4) The amounts in the Target column represents the number of shares earned at target (100%) level of performance. The amounts in the
column labeled Threshold represent the total number of shares that would be earned at the minimum level of performance achievement
for each the revenue and adjusted EBITDA goals for each of the three-years during the performance period. Actual awards may range
from 0% to 200% of target. The grant date fair value reflected in the final column is equal to the average of the high and low price for
Resideo on the date of grant.
(5) Pursuant to the terms of the awards granted on February 11, 2019, upon his termination on November 6, 2019, Mr. Ragan (i) received (a)
a pro-rata distribution of his RSU grant, and (b) pro-rated vesting of his stock option grant which vested options shall remain exercisable
for one year after his termination of service and (ii) is entitled to receive a pro-rata number of the PSUs earned as of the end of the
performance period, if any, based on Company’s actual achievement against the revenue and adjusted EBITDA goals set for 2019, which
shall be paid out at the same time as the other 2019 PSUs. Pursuant to the terms of Mr. Ragan’s separation agreement, he was also
2020 PROXY STATEMENT | 53
entitled to receive a pro-rated payout of his 2019 annual
performance goals and one-half of the amount tied to individual performance.
incentive award based on the Company’s actual performance against the
Description of Grants of Plan Based Awards
The amounts shown in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns in the
table above represent each NEO’s opportunity under the Company’s Annual Incentive Compensation Plan for
2019. The target award is based on the individual’s base salary throughout the period of employment during the
performance period, as well as changes in the individual’s bonus target that may have occurred.
The awards shown in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column in the table
above are PSU awards and are earned over three years if the Company achieves certain performance goals over
a three-year performance period (2019 – 2021). The 2019 PSU metrics are the Company’s revenue (50%) and
the Company’s Adjusted EBITDA (50%) results. One-third (1/3) of the total target PSUs will apply to the measures
for each of the three years of the performance period covered by the 2019 PSU award and may be earned
independently of PSUs applicable to the performance goals for the other two years covered by the awards. Once
deemed to be earned, the PSUs for any year under the 2019 PSU award will no longer be subject to the
performance measures for a subsequent year(s).
Dividend equivalents may be earned on the 2019 RSU and PSU awards, however they will be subject to the same
vesting and forfeiture provisions that apply to the underlying award to which they relate.
The 2019 option, RSU and PSU awards are subject to double trigger accelerated vesting and payout upon a
change in control only if the award is (1) assumed, replaced or continued by the successor entity and (2) the
recipient’s employment is terminated without cause or, in the case of certain executives only, if the award
recipient resigns for good reason, in each case, within 24 months after the change in control, or if the surviving
entity in the change-in-control transaction refuses to continue, assume, or replace the awards. In such instance
the 2019 options and RSU awards will vest in full immediately, and assuming the performance period has not
been completed, the 2019 PSU awards will vest based on target performance during the truncated performance
period and on a pro rata basis based on a target number of units for the year following the truncated performance
period.
If an award recipient’s employment ends as a result of his or her death or disability, vesting of the options and
RSU awards will accelerate in full while the 2019 PSU awards will vest on a pro-rata basis, based on actual
performance as measured at the end of the performance period. If an award recipient’s employment ends as a
result of retirement and the participant accepts certain post-employment conditions, the RSU awards and options
will continue to vest in accordance with the original vesting schedule and the 2019 PSU awards will vest in
accordance with the previous sentence.
In the case of executive officers only, if an award recipient’s employment ends as a result of an involuntary
termination without cause by the Company, the options and RSU awards will vest on a pro rata basis immediately
and the 2019 PSU awards will vest on a pro-rata basis, based on actual performance as measured at the end of
the performance period.
If an award recipient’s employment ends for any other reason, unvested options, RSU and PSU awards will be
forfeited. With respect to each of the option, RSU and PSU awards described above, if an award recipient
breaches certain non-competition or non-solicitation obligations, the recipient’s unvested units will be forfeited,
and certain shares issued in settlement of units that have already vested must be returned to Resideo or the
recipient must pay Resideo the amount of the shares’ fair market value as of the date they were issued.
The impact of a termination of employment or change in control of our Company on option, RSU and PSU awards
held by our NEOs is quantified in the “Potential Payments Upon Termination or Change in Control” section below.
All stock awards granted to the NEOs shown in the table above were granted under the 2018 Stock Incentive
Plan and are governed by and subject to the terms and conditions of the plan and the relevant award agreements.
54 | 2020 PROXY STATEMENT
Outstanding Equity Awards at 2019 Fiscal Year-End
The following table summarizes information regarding outstanding equity awards held by our NEOs as of
December 31, 2019.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Exercise
Options (#)
Unexercisable
Option
Exercise
Price
($)
Unexercised
Option
Expiration
Date
Number of
Shares or
Units
of Stock
That
Have Not
Vested
(#)
Market
Value of
Shares or
Units
That Have
Not
Vested*
($)
Equity Incentive Plan
Awards
Market or
Payout
Value of
Unearned
Shares or
Other
Rights
That
Have Not
Vested
($)
Number of
Unearned
Shares or
Other
Rights
That Have
Not
Vested
(#)(18)
Officer Name
Grant Date Notes
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan (19)
10/29/2018
2/11/2019
2/11/2019
2/11/2019
Total
(1)
(2)
(3)
(4)
— —
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(1)
(12)
(2)
(3)
(4)
2/25/2016
9/29/2016
2/28/2017
2/28/2017
2/28/2017
2/27/2018
2/27/2018
10/29/2018
11/15/2018
2/11/2019
2/11/2019
2/11/2019
Total
7/26/2013
2/25/2016
7/29/2016
2/28/2017
2/28/2017
2/28/2017
2/27/2018
2/27/2018
10/29/2018
11/15/2018
2/11/2019
2/11/2019
2/11/2019
Total
11/16/2018
2/13/2019
2/13/2019
2/13/2019
Total
10/29/2018
2/11/2019
2/11/2019
Total
(13)
(5)
(14)
(7)
(8)
(9)
(10)
(11)
(1)
(12)
(2)
(3)
(4)
(15)
(16)
(17)
(4)
(1)
(2)
(4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,222
—
13,222
—
24.39
—
—
—
—
—
—
—
—
—
—
—
—
24.39
—
—
—
211,406
—
—
211,406
—
—
—
—
—
—
—
—
—
—
68,829
—
—
68,829
—
—
—
—
—
—
—
—
—
—
38,053
—
—
38,053
—
132,743
—
—
132,743
—
—
— 24.39
—
—
—
—
—
—
—
—
—
—
—
—
24.39
—
—
—
25.04
—
—
—
—
—
—
—
—
—
—
—
—
2/10/2026
—
—
—
—
—
—
—
—
—
—
—
—
2/10/2026
—
—
—
2/12/2026
—
—
—
11/5/2020
—
— 154,400 1,841,992
—
—
58,767
701,090
—
2/10/2026
—
—
— 11,753
11,753
—
213,167 2,543,082
—
19,219
88,879
51,454
26,735
57,383
52,420
43,318
342,749
66,307
—
228,257
—
1,611
7,450
4,313
2,241
4,810
4,394
3,631
28,730
5,558
—
19,133
—
81,871
10,094
4,833
13,096
8,626
4,480
10,596
6,533
5,415
32,320
8,337
—
10,578
—
— 3,827
3,827
976,721
120,421
57,658
156,235
102,908
53,446
126,410
77,939
64,601
385,578
99,460
—
126,196
— 2,115
2,115
125,468 1,497,048
133,103
11,157
36,101
—
47,258
11,763
—
—
11,763
430,685
— 7,220
7,220
563,788
140,333
—
— 2,542
2,542
140,333
140,213
140,213
—
45,656
45,656
25,232(5)
25,232(5)
86,135
86,135
30,326
30,326
2020 PROXY STATEMENT | 55
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Based on the closing stock price for Resideo stock on December 31, 2019 ($11.93). All awards with grant dates prior to October 29,
2018, the date of the Spin-Off, were equity awards (stock options, RSUs and PSUs) issued by Honeywell that were converted to Resideo
RSUs on October 29, 2018.
These Founder’s Grant RSU Awards granted on October 29, 2018 will vest in equal amounts on October 29, 2021 and October 29,
2022.
These non-qualified stock options will vest in equal annual
February 11, 2022.
installments on each of February 11, 2020, February 11, 2021 and
These RSUs will vest in equal annual installments on each of February 11, 2020, February 11, 2021 and February 11, 2022.
The PSUs reported in this column represent 2019 PSU awards will vest at the end of the three-year performance period ending
December 31, 2021. The number of PSUs that the NEO will receive is dependent upon the achievement of certain financial metrics
approved by the Compensation Committee measuring revenue and Adjusted EBITDA. For each NEO other than Mr. Ragan, the amount
of PSUs shown is the threshold number of units that could be earned and paid out in shares. The amount of PSUs shown for Mr. Ragan
reflects the pro-rata number of the PSUs earned as of the end of the performance period, based on our actual achievement against the
revenue and adjusted EBITDA goals set for 2019, which shall be paid out at the same time as the other 2019 PSUs.
The remaining unvested units under this converted Honeywell award will vest in full on February 25, 2020.
The remaining unvested units under this converted Honeywell award will vest in the amount of 3,662 shares on September 29, 2021 and
3,788 shares on September 29, 2023.
The remaining unvested units under this converted Honeywell award will vest in equal amounts on February 28, 2020 and February 28,
2021.
The remaining unvested units under this converted Honeywell award will vest on February 28, 2020.
The remaining unvested units under this converted Honeywell award will vest on March 15, 2020.
(10) The remaining unvested units under this converted Honeywell award will vest in equal annual installments on each on February 27,
2020, February 27, 2021 and February 27, 2022.
(11) The remaining unvested units under this converted Honeywell award will vest on February 27, 2021.
(12) The remaining unvested units under this converted Honeywell award will vest on March 15, 2021.
(13) The remaining unvested units under this converted Honeywell award will vest on July 26, 2020.
(14) The remaining unvested units under this converted Honeywell award will vest with respect to 6,446 shares on July 29, 2021 and 6,650
shares on July 29, 2023.
(15) These RSUs were granted to Mr. de Masi while he was an independent director on our board prior to his service as an executive officer
of the Company. The award will vest in equal amounts on November 16, 2021 and November 16, 2022.
(16) These non-qualified stock options will vest in equal annual
installments on each of February 13, 2020, February 13, 2021 and
February 13, 2022.
(17) These RSUs will vest in equal annual installments on each of February 13, 2020, February 13, 2021 and February 13, 2022.
(18) The PSUs reported in this column represent 2019 PSU awards that will vest at the end of the three-year performance period. The
the NEO will receive is dependent upon the achievement of certain financial metrics approved by the
number of PSUs that
Compensation Committee measuring revenue and Adjusted EBITDA. The amount of PSU units shown is the threshold number of units
that could be earned and paid out in shares.
(19) Per the terms of his separation agreement, a pro rata portion of Mr. Ragan’s October 29, 2018 RSU grant will continue to vest in
accordance with the original vesting schedule. Pursuant to the terms of the awards granted on February 11, 2019, upon his termination
on November 6, 2019, Mr. Ragan (i) received: (a) a pro-rata distribution of his RSU grant and (b) pro-rated vesting of his stock option
grant which vested options shall remain exercisable for one year after his termination of service and (ii) is entitled to receive a pro-rata
number of the PSUs earned as of the end of the performance period, if any, based on our actual achievement against the revenue and
adjusted EBITDA goals set for 2019, which shall be paid out at the same time as the other 2019 PSUs. The remainder of Mr. Ragan’s
2019 equity grants were forfeited upon his termination.
56 | 2020 PROXY STATEMENT
Option Exercises and Stock Vested-Fiscal Year 2019
The following table summarizes information regarding stock options exercised by the NEOs during the fiscal year
ended December 31, 2019 and RSU awards held by the NEOs that vested during that same period.
Officer Name
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Option Awards
Stock Awards
# of Shares
Acquired on
Exercise
(#)
—
—
—
—
—
—
Value Realized
on Exercise
($)
Number of Shares
Acquired on
Vesting (#)(1)
Value Realized
on Vesting
($) (2)
—
—
—
—
—
—
—
—
12,977
30,607
5,578
3,675
—
—
293,435
749,729
56,366
37,228
(1) Represents the total number of RSUs that vested during 2019 before share withholding for taxes and transaction costs.
(2) Represents the total value of RSUs at the vesting date calculated at the average of the high and low share price of one share of Common
Stock on the day of vesting multiplied by the total number of RSUs that vested. The individual totals may include multiple vesting
transactions during the year.
Pension Benefits
The following table provides summary information and related disclosures provide information regarding benefits
under the Resideo Technologies Inc. Pension Plan (“RPP”) and the Resideo Supplemental Pension Plan (“SPP”),
a nonqualified plan, for the executive officers named in the Summary Compensation Table above who are
participating in such plans.
The RPP and SPP benefits depend on the length of each NEO’s employment with the Company and certain
predecessor companies. This information is provided in the table below under the column entitled “Number of
Years of Credited Service.” A participant’s credited service is generally equal to his or her period of employment
with the Company or an affiliate (or, for periods prior to October 29, 2018, Honeywell International Inc. or a
Honeywell affiliate), excluding periods of employment when the participant was not eligible to participate in the
RPP or a predecessor Honeywell plan. The column in the table below entitled “Present Value of Accumulated
Benefits” represents a financial calculation that estimates the cash value today of the full pension benefit that has
been earned by each NEO. It is based on various assumptions, including assumptions about how long each NEO
will live and future interest rates. Additional details about the pension benefits for each NEO follow the table.
Officer Name
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Plan Names
—
—
Resideo Technologies Inc. Pension Plan
(Qualified component)
Resideo Supplemental Pension Plan
(Non-Qualified component)
Total
Resideo Technologies Inc. Pension Plan
(Qualified component)
Resideo Supplemental Pension Plan
(Non-Qualified component)
Total
Niccolo de Masi
Joseph Ragan
—
—
Number of
Years of
Credited
Service
(#)
Present
Value of
Accumulated
Benefits ($)
Payments
During
Last
Fiscal
Year ($)
Early
Retirement
Eligible?
N/A
N/A
No
No
N/A
N/A
—
—
7.0
7.0
11.4
11.4
—
—
—
—
73,879
32,827
106,706
238,046
230,304
468,350
—
—
—
—
—
—
—
—
—
—
—
—
2020 PROXY STATEMENT | 57
Summary Information
(cid:129) The RPP is a tax-qualified pension plan in which a significant portion of our U.S. employees participate.
(cid:129) The RPP complies with tax requirements applicable to broad-based pension plans, which impose dollar limits
on the compensation that can be used to calculate benefits and on the amount of benefits that can be
provided. As a result, the pensions that can be paid under the RPP for higher-paid employees represent a
much smaller fraction of current income than the pensions that can be paid to less highly paid employees.
We make up for this difference, in part, by providing supplemental pensions through the SPP.
Pension Benefit Calculation Formulas
Within the RPP and the SPP, a variety of formulas are used to determine pension benefits. Different benefit
formulas apply for different groups of employees for historical reasons (e.g., past acquisitions by a predecessor
company) and the differences in the benefit formulas for our NEOs reflect this history. The Retirement Earnings
Plan (“REP”) Formula is used to determine the amount of pension benefits for each of our NEOs under the RPP
and the SPP. Under this Formula, benefits are paid as a lump sum equal to (1) 3% or 6% of final average
compensation (the average of a participant’s annual compensation for the five calendar years out of the previous
ten calendar years that produces highest average) times (2) credited service.
For each pension benefit calculation formula, compensation includes base pay, short-term incentive
compensation, payroll-based rewards and recognition and lump sum incentives. The amount of compensation
taken into account under the RPP is limited by tax rules. The amount of compensation taken into account under
the SPP is not.
The table below describes which formulas are applicable to each of our participating NEOs.
NAME/FORMULA
DESCRIPTION OF TOTAL PENSION BENEFITS
Mr. Aarnes
REP formula 3%
Mr. Kelly
REP formula 6%
(cid:129) Mr. Aarnes’ pension benefits under the RPP and the SPP are determined under the REP
formula.
(cid:129) Mr. Kelly’s pension benefits under the RPP and the SPP are determined under the REP
formula.
None of our NEOs are currently eligible for early retirement. At early retirement, the monthly pension is computed
on the same basis as at normal retirement, but the pension is reduced 6.67% per year for each of the first five
years and 3.33% for each of the next five years by which commencement precedes normal retirement date.
Nonqualified Deferred Compensation
Officer Name
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Executive
Contributions
in 2019
($)(1)
Registrant
Contributions
in 2019
($)(2)
Aggregate
Earnings
in 2019
($)(3)
Aggregate
Withdrawals and
Distributions in 2019
($)
Aggregate Balance
at the End of
Fiscal Year 2019
($)
—
—
—
—
—
—
—
—
—
17,200
13,475
3,852
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
157,574(4)
—
—
All deferred compensation amounts are unfunded and unsecured obligations of the Company and are subject to the same risks as any of the
Company’s general obligations.
(1) The amounts in this column were contributed by the NEO into his account under the deferred compensation plan, which includes amounts
reflected in the “Base Salary” column of the Summary Compensation Table.
(2) Amounts in this column are contributions made to the NEOs account in 2020 for the 2019 calendar year.
58 | 2020 PROXY STATEMENT
(3) The amounts in this column represent interest and dividends earned on balances held in the NEO’s account during 2019.
(4) Amount includes (i) $5,228 reported as Salary and $550 reported as All Other Compensation in the Summary Compensation table for
2018, and (ii) $17,200 reported as Salary and $13,475 reported as All Other Compensation in the Summary Compensation Table for
2019.
Resideo Supplemental Savings Plan
The Resideo Supplemental Savings Program (“RSSP”) is a nonqualified deferred compensation plan that allows
eligible Resideo employees, including the NEOs, to save additional amounts in excess of what is allowed under
the Company’s tax-qualified 401(k) plan due to the annual deferral and compensation limits imposed by the
Internal Revenue Code. The RSSP has two components,
the Deferred Incentive Program (DIP) and the
Supplemental Savings Program (SSP). Executive officers can elect to defer up to 100% of their annual bonus
awards under the DIP component. In addition, executive officers may also participate in the SSP component to
defer eligible compensation that cannot be contributed to the Company’s 401(k) savings plan due to IRS
limitations. The amounts contributed to the SSP component are eligible for matching contributions not to exceed
87.5% of the first 8% contributed combined between the SSP and the 401(k) plan. Matching contributions are
always vested.
Interest Rate. Participant account balances were moved from the Honeywell plans to the RSSP on October 29,
2018. All funds are invested in the Fidelity U.S. Bond Index Fund and participant accounts are credited with
interest based on the fund’s performance. Matching contributions are also treated as invested in Fidelity U.S.
Bond Index Fund.
Distribution. Amounts transferred from the Honeywell Supplemental Savings Plan or Honeywell Deferred
Incentive Plan to the RSSP will follow the same distribution options as applied under the Honeywell plan. For
deferrals to the RSSP starting in 2019 or later years, payments will commence at the earlier of the participant’s
separation from service, death or the in-service distribution date elected by the participant. Amounts will be paid
to participants in a lump sum or installment payments, for payments triggered by separation from service or an
in-service distribution at the election of the participant. Participant RSSP accounts are distributed in cash only.
Participants can make different payment elections under the SSP and the DIP components of the RSSP.
Potential Payments Upon Termination or Change in Control
Overview
This section describes the benefits payable to our NEOs in two circumstances:
(cid:129) Termination of employment
(cid:129) Change in Control (“CIC”)
Officer Severance Plan
These benefits are determined primarily under our Resideo Technologies, Inc. Severance Plan for Designated
Officers, or Severance Plan, which our Compensation Committee approved in November 2018 and reflects their
assessment of external market data on benefits commonly offered to senior executives in such circumstances.
The Committee strongly believes that our severance benefits are generally in line with current market practices
and are particularly important as we do not maintain employment agreements with our NEOs. Benefits provided
under the Severance Plan are conditioned on the executive executing a full release of claims and compliance with
certain non-competition and non-solicitation covenants in favor of the Company. The right to continued severance
benefits under the plan ceases in the event of a violation of such covenants. In addition, we would seek to recover
certain severance benefits already paid to any executive who violates such restrictive covenants.
In addition to the Severance Plan, several of our other benefits plans, such as our Annual
Incentive
Compensation Plan, also have provisions that impact these benefits. These benefits ensure that our executives
are motivated primarily by the needs of the businesses for which they are responsible, rather than circumstances
that are outside the ordinary course of business, i.e., circumstances that might lead to the termination of an
executive’s employment or that might lead to a CIC of the Company. Generally, this is achieved by assuring our
NEOs that they will receive a level of continued compensation if their employment is adversely affected in these
circumstances, subject to certain conditions. We believe that these benefits help ensure that affected executives
2020 PROXY STATEMENT | 59
act in the best interests of our shareholders, even if such actions are otherwise contrary to their personal
interests. This is critical because these are circumstances in which the actions of our NEOs may have a material
impact upon our shareholders. Accordingly, we set the level and terms of these benefits in a way that we believe
is necessary to obtain the desired results. The level of benefit and the rights to benefits are determined by the
type of termination event, as described below.
In the case of a CIC, severance benefits under the Severance Plan are payable only in the event that both parts
of the “double trigger” are satisfied. That is, (i) there must be a CIC of our Company, and (ii)(A) the NEO must be
involuntarily terminated other than for cause, or (B) the NEO must initiate the termination of his own employment
for good reason. Similarly, our 2018 Stock Incentive Plan does not offer single-trigger vesting of equity awards
that are assumed or replaced by an acquirer upon a CIC.
Equity Awards
Death and Disability – In the case of a recipient’s death or disability, vesting of options and restricted stock units
accelerates in full and a pro rata portion of the PSUs will vest and settle if, and to the extent of, Resideo’s actual
achievement of the performance measures during the performance period. The options remain exercisable until
the earlier of three years after termination or the original expiration date.
Involuntary Termination Without Cause – If an executive officer is subject to an involuntary termination without
cause by Resideo, a pro rata portion of his or her options and restricted stock units will vest immediately upon
termination, and a pro rata portion of the PSUs will vest and settle if, and to the extent of, Resideo’s actual
achievement of the performance measures during the performance period. The options will remain exercisable
until the earlier of one year after termination or the original expiration date.
Voluntary Resignation – If a recipient resigns voluntarily from the Company, he or she will forfeit any unvested
options, restricted stock units and PSUs, and will have 30 days to exercise any then-vested options.
Retirement – With respect to equity awards granted prior to February 2019, non-vested awards are generally
forfeited upon any retirement. Equity awards granted in or after February 2019 generally provide that an award
recipient is retirement eligible if he or she is age 55 years or older, has at least 10 years of service to Resideo and
also has provided Resideo with at least 6 months’ prior notice that he or she is considering retirement. If an NEO
is retirement eligible, his or her employment with Resideo ends as a result of retirement and he or she accepts
certain post-employment conditions, the RSU awards and options granted in or after February 2019 will continue
to vest in accordance with the original vesting schedule (and options shall remain exercisable until the earlier of
their original expiration date and three (3) years after retirement) and the PSU awards granted in or after February
2019 will vest on a pro-rata basis, based on actual performance as measured at the end of the performance
period. None of our NEOs is currently retirement eligible.
Pension and Non-Qualified Deferred Compensation
Pension and non-qualified deferred compensation benefits, which are described elsewhere in this Proxy
Statement, are not included in the table below in accordance with the applicable proxy statement disclosure
requirements, even though they may become payable at the times specified in the table. If an officer who
participates in the RSSP terminates employment with Resideo, the balance of that executive’s SSP or DIP
account will be paid to the executive in June of the year following his or her termination. Similarly, if an officer who
is a participant in the RPP or the SPP described above terminates employment, the executive’s balance in the
pension plan will be paid to the executive one hundred and five days after his or her termination date.
60 | 2020 PROXY STATEMENT
The following table summarizes estimated payments and benefits to which our NEOs would be entitled upon the
hypothetical occurrence of various termination scenarios or a CIC. The information in the table below is based on
the assumption, in each case, that the termination of employment occurred on December 31, 2019. None of these
termination benefits are payable to NEOs who voluntarily resign (other than voluntary resignations for good
reason as specified or certain qualifying retirements) or whose employment is terminated by us for cause.
Termination
by the
Company
Without
Cause ($)
Named Executive
Officer
Michael Nefkens
1,800,000
Payments and Benefits
Cash Severance
(Base Salary) (1)
Death
($)
Disability
($)
Change-in-Control–
No Termination
of Employment ($)
Change-in-Control–
Termination of
Employment by
Company, Without
Cause, by NEO for
Good Reason or
Due to Disability
($)
Annual Incentive–
Compensation (2)–
Year of Termination
Outstanding Equity
Awards (3)
Benefits (4)
All Other–Payments/
Benefits
Total
Robert Ryder(5)
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(6)
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(6)
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(6)
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(6)
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan
Michael Nefkens
Robert Ryder
Robert Aarnes
Stephen Kelly
Niccolo de Masi
Joseph Ragan(6)
—
675,000
645,000
1,012,500
825,000
—
—
—
—
—
218,614
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 3,244,173
3,244,173
—
—
—
— 1,204,978
1,204,978
— 1,497,048
1,497,048
—
994,473
994,473
140,333
14,676
—
9,748
8,114
8,492
9,480
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,814,676
3,244,173
3,244,173
—
—
—
684,748
1,204,978
1,204,978
653,114
1,497,048
1,497,048
1,020,992
994,473
994,473
1,193,426
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,800,000
—
900,000
860,000
1,350,000
—
2,520,000
—
900,000
688,000
1,687,500
—
3,244,173
—
1,204,978
1,497,048
994,473
—
14,676
—
12,997
10,819
11,323
—
—
—
—
—
—
—
7,578,849
—
3,017,975
3,055,867
4,043,296
—
2020 PROXY STATEMENT | 61
The amounts reflected in the first column related to involuntary termination unrelated to a CIC, as well as the final two columns specific to
circumstances following a CIC are based on the provisions of the Severance Plan, and the provisions of the 2018 Stock Incentive Plan.
(1) Severance amounts in the event of involuntary termination not related to CIC represent a cash payment equal to 24 months of annual
base salary for Mr. Nefkens and 18 months of annual base salary for the other NEOs. Severance amounts related to an involuntary
termination or termination for good reason related to a CIC represent a cash payment equal to 24 months of annual base salary as well as
two times the NEO’s target annual incentive compensation.
(2)
In addition to the amounts reflected in the final column, if an NEO is terminated without cause in situations following a CIC, the executive
will also be entitled to a pro-rated Annual Incentive Award for the period of employment during the year of termination.
(3) Amounts represent the intrinsic value of RSUs, and PSUs as of December 31, 2019 for which the vesting would be accelerated. RSUs will
be vested in full upon a termination due to death, disability or an involuntary termination or termination for good reason within 24 months
of a CIC. With respect to the February 11, 2019 RSU grants only, a pro rata portion of the award would accelerate upon an involuntary
termination not related to a CIC. With respect to the PSUs, upon termination due to death, disability or involuntary termination not related
to a CIC, a pro rata portion of the PSUs are eligible to vest at actual performance levels at the end of the performance period. In the case
of an involuntary termination or termination for good reason within 24 months of a CIC, a pro rata portion of the PSUs will vest at target or
at the level of substantially achieved performance, as determined by the Committee prior to the CIC. The value included for RSUs and
PSUs is the product of the number of units for which vesting would be accelerated and $11.93, the closing price of Resideo common
stock on December 31, 2019. None of the February 11, 2019 stock option grants are included in the table because they were not “in the
money” as of December 31, 2019.
(4) The amounts reflected represent the Company’s cost for continuation of benefits, such as medical, dental, vision and life insurance, for
the Salary Continuation Period as defined under the Severance Plan.
(5) Mr. Ryder is not eligible to participate in the Severance Plan and has not received any equity awards. His compensation is governed
solely by the engagement letter between the Company and Horsepower dated October 22, 2019.
(6) Mr. Ragan’s employment terminated effective November 6, 2019. The amounts reported for Mr. Ragan reflect amounts he is entitled to
receive under the terms of his separation agreement.
Mr. de Masi resigned from our board of directors effective January 6, 2020 and ceased serving as our President, Products & Solutions as of
the same date. He continued serving as our Chief Innovation Officer, which was not an executive officer position, until his employment
terminated on March 13, 2020. In connection with the termination of Mr. de Masi’s employment, he is eligible for severance under the
Severance Plan, with eligibility for 18 months of salary continuation payments ($1,012,500). Mr. de Masi also will be eligible for a pro rata
payout of his fiscal 2020 target annual incentive award based on the period during which he was employed, which amount, including one-half
of the amount tied to the individual performance component (for a payout of $151,457) and continued vesting of his November 18, 2018 RSU
award. All of the severance benefits are subject to the conditions in the Severance Plan, and the additional benefits are also subject to Mr. de
Masi’s compliance with other covenants governing his continued employment and compliance with his other agreements with Resideo, which
include one-year non-competition and two-year non-solicitation restrictions.
CEO Pay Ratio
As required by Section 953(b) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, and
Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total
compensation of the individual identified as our median paid employee and the annual total compensation of
Mr. Michael Nefkens, our President and Chief Executive Officer (the CEO):
For 2019, our last completed fiscal year:
(cid:129)
(cid:129)
the annual total compensation of our median employee was $25,569; and
the annual total compensation of our CEO as reported in the Summary Compensation Table of this proxy
statement was $6,353,165.
Based on this information, for 2019, the ratio of the annual total compensation of Mr. Nefkens, our CEO, to the
annual total compensation of the median employee was estimated to be 248 to 1. This pay ratio is a reasonable
estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the
methodology described below.
To identify our median employee for 2019, we considered our global population as of October 1, 2019 (the
“Measurement Date”). As of the Measurement Date, our total global employee population (excluding our CEO)
consisted of approximately 13,121 individuals.
Total U.S. Employees
Total Non-U.S. Employees
Total Global Workforce
2,906
10,215
13,121
(no exemptions utilized)
62 | 2020 PROXY STATEMENT
To identify the “median employee” from our total global employee population (excluding our CEO), we aggregated
annual total base salary and actual incentive awards paid during 2019, including bonuses and commissions. We
also annualized the compensation of all newly hired permanent employees who were employed on the
measurement date, for the 12-month period ending December 31, 2019, as permitted under SEC rules. All
non-US pay components were converted to US dollars using the same currency exchange rates in effect in our
financial records at October 1, 2019.
Once we identified the median employee, we determined the median employee’s total compensation by applying
the same rules required to report NEO compensation on the Summary Compensation Table.
The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that
employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As
such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other
companies may have different employment and compensation practices and may utilize different methodologies,
exclusions, estimates and assumptions in calculating their own pay ratios.
2020 PROXY STATEMENT | 63
Proposal 3:
Ratification of the Appointment of
Independent Registered Public Accounting
Firm
Under its written charter, the Audit Committee of the Board has sole authority and is directly responsible for the
appointment, compensation, retention, oversight, evaluation and termination of the independent registered public
accounting firm retained to audit the Company’s financial statements.
The Audit Committee evaluated the qualifications, performance and independence of the Company’s independent
auditors and based on its evaluation, has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s
independent registered public accounting firm for 2020. Deloitte served as the independent auditor of Resideo
during 2019. The Audit Committee and the Board believe that the retention of Deloitte to serve as the Company’s
independent registered public accounting firm is in the best interests of the Company and its shareholders.
The Audit Committee is responsible for the approval of the engagement fees and terms associated with the
retention of Deloitte. In addition to assuring the regular rotation of the lead audit partner as required by law, the
Audit Committee will be involved in the selection and evaluation of the lead audit partner and considers whether,
in order to assure continuing auditor independence, there should be a regular rotation of the independent
registered public accounting firm.
Although the By-Laws do not require that we seek shareholder ratification of the appointment of Deloitte as our
independent registered public accounting firm, we are doing so as a matter of good corporate governance. If the
shareholders do not ratify the appointment, the Audit Committee will reconsider whether or not to retain Deloitte.
Representatives of Deloitte are expected to be present at the annual meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to appropriate questions by shareholders.
The Board of Directors unanimously recommends a vote “FOR” Proposal 3, to ratify
the appointment of Deloitte & Touche LLP as the Company’ s
independent registered public accounting firm for 2020.
Report of the Audit Committee
The Audit Committee consists of the three directors named below. Each member of the Audit Committee is an
independent director as defined by applicable SEC and NYSE listing standards. In addition, the Board has
determined that Mr. Lazar and Mr. Deninger are “audit committee financial experts” as defined by applicable SEC
rules and satisfy the “accounting or related financial management expertise” criteria established by the NYSE.
In accordance with its written charter, the Audit Committee of the Board is responsible for assisting the Board to
fulfill its oversight of:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the integrity of the Company’s financial statements and internal controls;
the Company’s compliance with legal and regulatory requirements;
the independent auditors’ qualifications and independence; and
the performance of the Company’s internal audit function and independent auditors.
It is the responsibility of Resideo’s management to prepare the Company’s financial statements and to develop
and maintain adequate systems of internal accounting and financial controls. The Company’s internal auditors are
64 | 2020 PROXY STATEMENT
responsible for conducting internal audits intended to evaluate the adequacy and effectiveness of the Company’s
financial and operating internal control systems.
Deloitte, the Company’s independent registered public accounting firm for 2020 (the “independent auditor”), is
responsible for performing an independent audit of the Company’s consolidated financial statements and issuing
an opinion on the conformity of those audited financial statements with accounting principles generally accepted
in the United States of America (“GAAP”). The independent auditor also review the Company’s interim financial
statements in accordance with applicable auditing standards.
In evaluating the independence of Deloitte, the Audit Committee has (i) received the written disclosures and the
letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board
(“PCAOB”) regarding the audit
firm’s communications with the Audit Committee concerning independence,
(ii) discussed with Deloitte the firm’s independence from the Company and management and (iii) considered
whether Deloitte’s provision of non-audit services to the Company is compatible with the auditors’ independence.
In addition, the Audit Committee assures that the lead audit partner is rotated at least every five years in
accordance with SEC and PCAOB requirements, and considered whether there should be a regular rotation of
the audit firm itself in order to assure the continuing independence of the outside auditors. The Audit Committee
has concluded that Deloitte is independent from the Company and its management.
The Audit Committee has reviewed with the independent auditor and the Company’s internal auditors the overall
scope and specific plans for their respective audits, and the Audit Committee is monitoring the progress of both in
assessing the Company’s preparedness for future compliance with Section 404 of the Sarbanes-Oxley Act.
At every regular meeting, the Audit Committee meets separately, and without management present, with the
independent auditor and the Company’s Vice President, Internal Audit to review the results of their examinations,
their evaluations of the Company’s internal controls and the overall quality of the Company’s accounting and
financial reporting. The Audit Committee also meets separately at its regular meetings with the Chief Financial
Officer, the Controller, the General Counsel and the Chief Ethics and Compliance Officer.
The Audit Committee has met and discussed with management and the independent auditor the fair and
complete presentation of the Company’s financial statements. The Audit Committee has also discussed and
reviewed with the independent auditor all matters required to be discussed by applicable requirements of the
Public Company Accounting Oversight Board and the SEC. The Audit Committee has discussed significant
accounting policies applied in the financial statements, as well as alternative treatments. Management has
represented that the consolidated financial statements have been prepared in accordance with GAAP, and the
Audit Committee has reviewed and discussed the audited consolidated financial statements with both
management and the independent auditor.
Relying on the foregoing reviews and discussions, the Audit Committee recommended to the Board, and the
Board approved, inclusion of the audited consolidated financial statements in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019, for filing with the SEC. In addition, the Audit Committee has
approved, subject
the selection of Deloitte & Touche LLP as the Company’s
independent registered public accounting firm for 2020.
to shareholder ratification,
The Audit Committee
Jack Lazar (Chair)
Paul Deninger
Sharon Wienbar
2020 PROXY STATEMENT | 65
Audit Committee Pre-Approval Policy
The Audit Committee has adopted policies and procedures for pre-approval of audit, audit-related, tax and other
services, and for pre-approval of related fee estimates or fee arrangements. These procedures require that the
terms and fees for the annual audit service engagement be approved by the Audit Committee. The Audit
Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in
order to assure that the provision of such services does not impair the auditor’s independence. Unless a type of
service to be provided by the independent auditor has received general pre-approval under this policy, it will
require specific pre-approval by the Audit Committee before the service is provided. In the event the invoice in
respect of any covered service that is the subject of general pre-approval is materially in excess of the estimated
amount or range, the Audit Committee must approve such excess amount prior to payment of the invoice.
Predictable and recurring covered services and their related fee estimates or fee arrangements may be
considered for general pre-approval by the full Audit Committee on an annual basis at or about the start of each
fiscal year. Specific pre-approval of such services that have not received general pre-approval may be given or
effective up to one year prior to commencement of the services. Under the policy, the Audit Committee has
delegated to the Chair the authority to pre-approve audit-related and non-audit services and associated fees, that
are not otherwise prohibited by law, to be performed by the Company’s independent registered public accounting
firm in an amount of up to $100,000 for any one service; the Chair is required to report any pre-approval decisions
to the Audit Committee at its next scheduled meeting. All services set forth in the following table below were
approved by the Audit Committee before being rendered.
Audit and Non-Audit Fees
The following table shows fees for professional services rendered by Deloitte for the fiscal years ended
December 31, 2019 and 2018.
2019 ($)
2018 ($)
Description of Services
Audit Fees
5,327,000 4,998,000 Fees pertaining to the audit of the Company’s annual consolidated
financial statements, audits of statutory financial statements of our
subsidiaries and fees pertaining to the review of SEC filings.
Audit-Related Fees
Tax Fees
All Other Fees
Total
0
0
0
0
0
0
5,327,000 4,998,000
66 | 2020 PROXY STATEMENT
Proposal 4:
Approval of the Resideo Employee Stock
Purchase Plan
We are asking our shareholders to approve the Resideo Employee Stock Purchase Plan (the “Plan”), which is
intended to be a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code (the
“Code”). The Plan was approved by our Board on September 4, 2019 and, if approved by shareholders at the
annual meeting, will become effective upon such shareholder approval.
The purpose of the Plan is to provide our employees with a convenient means of purchasing shares of our
common stock at a discount to market prices through the use of payroll deductions. The full text of the Plan is
contained in Appendix A to this proxy statement, and the material features of the Plan are summarized below.
Administration
The Compensation Committee of our Board (the “Committee”) is authorized to administer the Plan. The
Committee has full authority to adopt rules and procedures to administer the Plan, interpret the provisions of the
Plan, determine the terms and conditions of offerings under the Plan, designate which of our subsidiaries may
participate in the Plan, and adopt rules, procedures and sub-plans to permit employees of foreign subsidiaries to
participate in the Plan on a basis intended to achieve tax, securities law or other compliance objectives in
locations outside of the United States. All costs and expenses incurred for Plan administration are paid by us.
Securities Subject to the Plan
Up to 3,000,000 shares of our common stock may be purchased by participants under the Plan. Any shares
issued under the Plan will reduce, on a one-for-one basis, the number of shares available for subsequent
issuance under the Plan. In the event of any change to our outstanding common stock, such as a recapitalization,
stock dividend, stock split or similar event, appropriate adjustments will be made to the number and class of
shares available under the Plan, the limit on the number of shares that a participant may purchase during any
purchase period, and the number, class and purchase price of shares subject to purchase under any pending
offering.
Eligibility and Participation
With one exception, any individual employed by our company or any participating subsidiary corporation is eligible
to participate in the Plan. However, no employee who owns stock possessing 5% or more of the total combined
voting power or value of all classes of our stock or the stock of any of our subsidiaries may participate in the Plan.
The Committee may, consistent with the requirements of Section 423, impose additional eligibility requirements
for individual offerings under the Plan. As of April 15, 2020, we estimate that approximately 3,000 employees,
including six of our seven executive officers, were eligible to participate in the Plan.
Eligible employees may enroll in the Plan during an enrollment period prior to the purchase period determined by
the Committee and will begin participating at the start of the purchase period.
Purchase Periods and Purchase Dates
Shares of common stock will be offered under the Plan through a series of offerings, each of which consists of a
single purchase period of six months, or such other duration (up to 27 months) as the Committee may prescribe.
If our shareholders approve this proposal, we expect that our shares will be offered under the Plan through a
2020 PROXY STATEMENT | 67
series of successive six-month purchase periods that are expected to commence on August 15, 2020 and on
February 15 and August 15 of each calendar year thereafter. Purchases under the Plan are expected to occur on
August 14 and February 14, or the last trading day of each purchase period.
Purchase Price
Unless a different purchase price is established by the Committee, the purchase price of each share of our
common stock sold pursuant to the Plan will be the lesser of (i) 90% of the fair market value of a share of our
common stock on the offering date of the applicable purchase period, or (ii) 90% of the fair market value of a
share of our common stock on the purchase date of the applicable purchase period. In no event will the purchase
price be less than the lesser of (i) 85% of the fair market value of a share of our common stock on the offering
date of the applicable purchase period, or (ii) 85% of the fair market value of a share of our common stock on the
applicable purchase date.
The fair market value of a share of our common stock on any relevant date under the Plan will be deemed to be
equal to the closing sale price per share on the New York Stock Exchange on the last preceding day on which any
sale shall have been made. The closing sale price of our common stock on the New York Stock Exchange on
April 15, 2020 was $5.04 per share.
Payroll Deductions and Stock Purchases
Each participant may elect to have a percentage of eligible compensation between 1% and 10% withheld as a
payroll deduction per pay period. The accumulated deductions will automatically be applied on each purchase
date (the last trading day of a purchase period) to the purchase of shares of our common stock at the purchase
price in effect for that purchase date. In connection with specific offerings under the Plan, the Committee may
permit participants to make additional contributions other than by payroll deductions during the applicable
purchase period. For purposes of the Plan, eligible compensation generally includes cash compensation including
wages, salary, commissions and overtime earnings, and excludes bonuses, company 401(k) contributions,
amounts deferred to a non-qualified deferred compensation plan, expense reimbursements and allowances, and
income with respect to equity-based awards.
Special Limitations
The Plan imposes certain limitations upon a participant’s right to purchase our common stock under the Plan,
including the following:
(cid:129) A participant may not be granted rights to purchase more than $25,000 worth of our common stock (valued at
is granted) for each calendar year in which such purchase rights are
the time each purchase right
outstanding.
(cid:129) No participant may purchase more than 5,000 shares of our common stock (or such other number of shares
as the Committee may designate for a specific offering) on any one purchase date.
Changing Contribution Amounts; Withdrawal from Plan
A participant may, by written notice during an enrollment period, increase the amount of his or her payroll
deduction contributions effective as of the first day of the next purchase period. A participant may also suspend
the amount of his or her payroll deduction contributions during a purchase period by submitting written notice that
complies with the rules set by the Committee. A participant may withdraw from the Plan at any time by complying
with the rules set by the Committee, and his or her accumulated (but not yet invested) contributions to the Plan
will be refunded.
Termination of Employment
A participant’s purchase right will
immediately terminate upon his or her termination of employment for any
reason. Any payroll deductions that the participant may have made for the purchase period in which such
termination of employment occurs will be refunded and will not be applied to the purchase of common stock.
68 | 2020 PROXY STATEMENT
Shareholder Rights
No participant will have any shareholder rights with respect to the shares covered by his or her purchase rights
under the Plan until the shares are actually purchased on the participant’s behalf through the Plan and issued and
delivered.
Transferability of Purchase Rights
No purchase rights under the Plan will be assignable or transferable by the participant, except by will or the laws
of inheritance following a participant’s death.
Withdrawal of Shares
A participant may direct the agent selected by Resideo to sell any or all of the participant’s shares of our common
stock credited to the participant’s share subaccount and distribute the net proceeds of such sale to the participant.
Except for such sales, a participant may not withdraw shares or otherwise transfer shares from the participant’s
share subaccount.
Corporate Transactions
If Resideo is acquired by merger, consolidation or other reorganization, or sells all or substantially all its assets,
each right to acquire shares on any purchase date scheduled to occur after the date of the consummation of the
transaction shall be continued or assumed or an equivalent right shall be substituted by the surviving or successor
corporation or its parent or subsidiary. If those rights are not continued, assumed or substituted, then our Board
may terminate the Plan or shorten the purchase period then in progress by setting a new purchase date to occur
prior to the transaction.
Share Proration
Should the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on
any particular purchase date exceed the number of shares remaining available for issuance under the Plan at that
time, the Committee shall make to each participant a pro rata allocation in a uniform and nondiscriminatory
manner of the available shares, and the payroll deductions of each participant not used to purchase shares will be
refunded.
Amendment and Termination
The Plan may be terminated at any time by our Board, and will terminate upon the date on which all shares
remaining available for issuance under the Plan are sold pursuant to exercised purchase rights.
The Committee may at any time amend or suspend the Plan. However,
the Committee may not, without
shareholder approval, amend the Plan to (i) increase the number of shares issuable under the Plan or (ii) effect
any other change in the Plan that would require shareholder approval under applicable law, New York Stock
Exchange rules or to maintain compliance with Code Section 423.
U.S. Federal Income Tax Consequences
The following is a summary of the principal United States federal income tax consequences to the Company and
to participants subject to U.S. taxation with respect to participation in the Plan. This summary assumes the Plan
qualifies as an “employee stock purchase plan” within the meaning of Code Section 423, is not intended to be
exhaustive and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant
may reside.
Under a qualified Code Section 423 arrangement, no taxable income will be recognized by a participant, and no
deductions will be allowed to the company, upon either the grant or the exercise of purchase rights under the
2020 PROXY STATEMENT | 69
Plan. Taxable income will not be recognized until either there is a sale or other disposition of the shares acquired
under the Plan or in the event the participant should die while still owning the purchased shares.
If a participant sells or otherwise disposes of the purchased shares within two years after the first day of the
purchase period in which such shares were acquired, or within one year after the actual purchase date of those
shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount
by which the closing market price of the shares on the purchase date exceeded the purchase price paid for those
shares, and the company will be entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess. The participant also will recognize a capital gain to the extent
the amount realized upon the sale of the shares exceeds the sum of the aggregate purchase price for those
shares and the ordinary income recognized in connection with their acquisition.
If a participant sells or otherwise disposes of the purchased shares more than two years after the first day of the
purchase period in which the shares were acquired and more than one year after the actual purchase date of
those shares, the participant will recognize ordinary income in the year of sale or disposition equal to the lower of
(i) the amount by which the selling price of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) 10% of the closing market price of the shares on the first day of the purchase period in
which the shares were acquired (or such purchase price discount provided by the Committee for the purchase
period, not to exceed 15%). Any additional gain upon the disposition will be taxed as a long-term capital gain.
Resideo will not be entitled to an income tax deduction with respect to such disposition.
If a participant still owns the purchased shares at the time of death, his or her estate will recognize ordinary
income in the year of death equal to the lower of (i) the amount by which the closing market price of the shares on
the date of death exceeds the purchase price or (ii) 10% of the closing market price of the shares on the first day
of the purchase period in which those shares were acquired (or such purchase price discount provided by the
Committee for the purchase period, not to exceed 15%).
Plan Benefits
The benefits to be received by our officers and employees under the Plan are not determinable because the
amounts of future purchases by participants are based on elective participant contributions.
The Board of Directors unanimously recommends a vote “FOR” Proposal 4
to approve the Employee Stock Purchase Plan.
70 | 2020 PROXY STATEMENT
Questions and Answers
About the Annual Meeting and Voting
1. Who is entitled to vote and how many votes do I have?
If you were a holder of record of Resideo common stock at the close of business on the record date, April 15,
2020, you are eligible to vote at the annual meeting. For each matter presented for vote, you have one vote
for each share you own.
2. What is the difference between holding shares as a shareholder of record, a registered shareholder
and a beneficial owner of shares?
Shareholder of Record or Registered Shareholder. If your shares of common stock are registered directly
in your name with our transfer agent, EQ Shareowner Services, you are considered a “shareholder of record”
or a “registered shareholder” of those shares.
Beneficial Owner of Shares. If your shares are held in an account at a bank, brokerage firm or other similar
organization, then you are a beneficial owner of shares held in “street name.” In that case, you will have
received these proxy materials from the bank, brokerage firm or other similar organization holding your
account and, as a beneficial owner, you have the right to direct your bank, brokerage firm or similar
organization as to how to vote the shares held in your account.
3. How do I vote if I am a shareholder of record?
By Internet. You may vote your shares by internet at www.proxyvote.com.
By Telephone. All shareholders of record can vote by touchtone telephone within the U.S., U.S. territories
and Canada by calling 1-800-690-6903. The telephone voting procedures are designed to authenticate
shareholders’ identities, to allow shareholders to vote their shares and to confirm that their instructions have
been recorded properly.
By Written Proxy. All shareholders of record can also vote by written proxy card. If you are a shareholder of
record and receive a Notice of Internet Availability of Proxy Materials (“Notice”) received or requested from
us, you may request a written proxy card by following the instructions included in the Notice. If you sign and
return your proxy card but do not mark any selections giving specific voting instructions, your shares
represented by that proxy will be voted as recommended by the Board.
Via the Virtual Meeting Website. You may vote your shares live at the virtual annual meeting. Even if you
plan to attend and participate in our virtual annual meeting via www.virtualshareholdermeeting.com/
REZI2020, we encourage you to vote by internet at www.proxyvote.com or by calling 1-800-690-6903, or by
returning a proxy card. This will ensure that your vote will be counted if you are unable to, or later decide not
to, participate in the virtual annual meeting. Whether you are a shareholder of record or hold your shares in
street name, you may vote online at the virtual annual meeting. You will need to enter the 16-digit control
number provided in your proxy materials to vote your shares at the virtual annual meeting. See Question 5 for
further details on accessing and voting at the virtual annual meeting.
Unless you vote live at the virtual annual meeting, we must receive your vote by 11:59 p.m., Eastern Daylight
Time, on June 7, 2020, the day before the virtual annual meeting, for your vote by proxy to be counted.
Whether or not you plan to attend the virtual annual meeting, we encourage you to vote by proxy as
soon as possible. Your shares will be voted in accordance with your instructions.
4. How do I vote if I am a beneficial owner of shares?
As a beneficial owner, you have the right to direct your broker, bank or other similar organization on how to
vote via the internet or by telephone if the broker, bank or other similar organization offers these options or by
2020 PROXY STATEMENT | 71
signing and returning a voting instruction form. Your broker, bank or other similar organization will send you
instructions for voting your shares.
Your broker is not permitted to vote on your behalf on “non-routine” matters unless you provide specific
instructions by completing and returning the voting instruction form from your broker, bank or other similar
organization or by following the instructions provided to you for voting your shares via telephone or the
internet. A “broker non-vote” occurs when a broker submits a proxy for the meeting with respect to a “routine”
matter but does not have the authority to vote on non-routine matters because the beneficial owner did not
provide voting instructions on those matters. Under NYSE rules, the proposal to ratify the appointment of
independent auditors (Proposal 3) is considered a routine item. This means that brokerage firms may vote in
their discretion on behalf of clients (beneficial owners) who have not furnished voting instructions at least 15
days before the date of the annual meeting. In contrast, all of the other proposals set forth in this Proxy
Statement are “non-routine” items. Brokerage firms that have not received voting instructions from their
clients on these matters may not vote on these proposals.
5. How do I attend the virtual annual meeting?
The annual meeting will be completely virtual and shareholders will be able to access the meeting live by
visiting www.virtualshareholdermeeting.com/REZI2020. We are utilizing the virtual meeting format to enhance
shareholder access and encourage participation and communication with our management.
We believe a virtual-only meeting provides expanded access, improved communication and cost savings for
our shareholders. A virtual meeting will enable increased attendance because shareholders around the world
will be able to attend and listen to the annual meeting live, submit questions and vote their shares
electronically, at no cost.
Participating in the Virtual Annual Meeting.
(cid:129)
the
how
Instructions
www.virtualshareholdermeeting.com/REZI2020.
attend
on
to
virtual
annual
meeting
are
posted
at
(cid:129) Shareholders will need to use the 16-digit control number provided in their proxy materials to attend the
virtual annual meeting and listen live at www.virtualshareholdermeeting.com/REZI2020.
(cid:129) Shareholders of record and beneficial owners as of the record date may vote their shares electronically
live during the virtual annual meeting.
(cid:129) Shareholders with questions regarding how to attend and participate in the virtual meeting may
call 800-586-1548 (US) or 303-562-9288 (International) on the date of the annual meeting.
(cid:129) Shareholders encountering any difficulties accessing the virtual meeting during the check-in or meeting
time can call 800-586-1548 (US) or 303-562-9288 (International).
Additional Information about the Virtual Annual Meeting.
(cid:129) Shareholders may submit questions during the live meeting at www.virtualshareholdermeeting.com/
REZI2020 or in advance of the meeting at www.proxyvote.com.
(cid:129) Management will answer questions on any matters on the agenda before voting is closed.
(cid:129) During the live Q&A session of the meeting, management will answer questions as they come in and
address those asked in advance, as time permits.
(cid:129)
(cid:129)
In order to allow us to answer questions from as many shareholders as possible, we limit each
shareholder to one question.
If there are matters of individual concern to a shareholder and not of general concern to all shareholders,
or if a question posed was not otherwise answered, shareholders can contact Investor Relations after
the meeting at InvestorRelations@resideo.com.
(cid:129) The Q&A session will be posted to our Investor Relations website investor.resideo.com as soon as
practicable following the conclusion of the virtual annual meeting.
72 | 2020 PROXY STATEMENT
(cid:129) Although the live virtual meeting is available only to shareholders at the time of the meeting, a replay of
the meeting will be made publicly available on our Investor Relations website investor.resideo.com after
the meeting concludes.
6. What constitutes a “quorum” for the meeting?
A quorum is a majority of the outstanding shares that are entitled to vote as of the record date present at the
meeting or represented by proxy. A quorum is necessary to conduct business at the annual meeting. Your
shares will be counted as present at the annual meeting if you have properly voted by proxy. Abstentions and
broker non-votes count as present at the meeting for purposes of determining a quorum. If you vote to
abstain on one or more proposals, your shares will be counted as present for purposes of determining the
presence of a quorum.
7. What is the voting requirement to approve each of the proposals, and how are votes counted?
At the close of business on April 15, 2020, the record date for the meeting, Resideo had 123,140,863
outstanding shares of common stock. Each share of common stock outstanding on the record date is entitled
to one vote for each director nominee and one vote for each of the other proposals to be voted on.
Resideo is incorporated in the State of Delaware. As a result, the Delaware General Corporation Law (the
“DGCL”) and the NYSE listing standards govern the voting standards applicable to actions taken by our
shareholders. Under our By-Laws, when a quorum is present, in all matters other than the election of
directors and frequency of future advisory votes approving the compensation of our NEOs, the affirmative
vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote
on the matter shall be the act of the Company’s shareholders. Under the DGCL and our By-Laws, shares that
abstain constitute shares that are present and entitled to vote. Shares abstaining have the practical effect of
being voted “against” the matter, other than in the election of directors.
With respect to the election of directors, Proposal 1, in order to be elected, each nominee must receive the
affirmative vote of a majority of the votes cast at the meeting in respect of his or her election. Broker
non-votes and abstentions will have no impact, as they are not counted as votes cast for this purpose.
2020 PROXY STATEMENT | 73
A description of the voting requirements and related effect of abstentions and broker non-votes on each item
for shareholder proposal is as follows:
VOTING OPTIONS
BOARD
RECOMMENDATION
Proposal 1—Election of
Class II Directors
Proposal 2—Advisory Vote to
Approve Executive Compensation
Proposal 3—Ratification of
Appointment of Independent
Registered Public Accounting Firm
Proposal 4—Approval of Resideo
Employee Stock Purchase Plan
For,
Against
or
Abstain
on each
nominee
For,
Against
or
Abstain
For,
Against
or
Abstain
For,
Against
or
Abstain
FOR
each
nominee
FOR
FOR
FOR
EFFECT OF
ABSTENTIONS AND
BROKER
NON-VOTES
None.
VOTE REQUIRED
TO ADOPT THE
PROPOSAL
Majority of
votes cast for
such nominee
Majority of
shares
represented at
the annual
meeting and
entitled to vote
Majority of
shares
represented at
the annual
meeting and
entitled to vote
Majority of
shares
represented at
the annual
meeting and
entitled to vote
Abstentions
are treated
as votes
against.
Broker
non-votes
have no
effect.
Abstentions
are treated
as votes
against.
Brokers have
discretion to
vote on this
item.
Abstentions
are treated
as votes
against.
Broker
non-votes
have no
effect.
8. Can I change my vote?
There are several ways in which you may revoke your proxy or change your voting instructions before the
time of voting at the meeting (please note that, in order to be counted, the revocation or change must be
received by 11:59 p.m. EDT on June 7, 2020):
(cid:129) Vote again by telephone or at www.proxyvote.com;
(cid:129) Transmit a revised proxy card or voting instruction form that is dated later than the prior one;
(cid:129) Shareholders of record and beneficial owners may vote electronically at the virtual annual meeting; or
(cid:129) Shareholders of record may notify Resideo’s Corporate Secretary in writing that a prior proxy is revoked.
timely, properly completed proxy that you submit, whether by mail, telephone or the
The latest-dated,
internet, will count as your vote. If a vote has been recorded for your shares and you subsequently submit a
proxy card that is not properly signed and dated, then the previously recorded vote will stand.
9.
Is my vote confidential?
Yes. Proxy cards, ballots and voting tabulations that identify shareholders are kept confidential except:
(cid:129) As necessary to meet applicable legal requirements and to assert or defend claims for or against the
Company;
74 | 2020 PROXY STATEMENT
(cid:129)
(cid:129)
In the case of a contested proxy solicitation;
If a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote
to management; or
(cid:129) To allow the independent judge of election to certify the results of the vote.
Broadridge, the independent proxy tabulator used by Resideo, counts the votes and acts as the inspector of
elections for the meeting.
10. How will the voting results be disclosed?
We will announce preliminary voting results at the virtual annual meeting and publish them on our website
www.resideo.com. Voting results will also be disclosed on a Form 8-K filed with the SEC within four business
days after the annual meeting, which will be available on our website.
11. What does it mean if I receive more than one Notice?
If you are a shareholder of record, you will receive one Notice (or if you are an employee with a Resideo
email address, an email proxy form) for all shares of common stock held in or credited to your accounts as of
the record date, if the account names are exactly the same. If your shares are registered differently and are
in more than one account, you will receive more than one Notice or email proxy form, and in that case, you
can and are urged to vote all of your shares, which will require you to vote more than once.
12. What is “householding”?
Shareholders of record who have the same last name and address and who request paper copies of the
proxy materials will receive only one copy unless one or more of them notifies us that they wish to receive
individual copies. This method of delivery, known as “householding,” will help ensure that shareholder
households do not receive multiple copies of the same document, helping to reduce our printing and postage
costs, as well as saving natural resources.
We will deliver promptly upon written or oral request a separate copy of the 2019 Annual Report and Proxy
Statement or Notice of Internet Availability of Proxy Materials, as applicable, to a security holder at a shared
address to which a single copy of the document was delivered. Please go to www.proxyvote.com to request a
copy.
Shareholders of record may request to begin or to discontinue householding in the future by contacting
Broadridge, either by calling (866) 540-7095, or by writing to Broadridge, Householding Department, 51
Mercedes Way, Edgewood, New York 11717. Shareholders owning their shares through a bank, brokerage
firm or other similar organization may request to begin or to discontinue householding by contacting their
bank, brokerage firm or other similar organization.
13. Who pays for the solicitation of proxies?
Resideo is making this solicitation and will pay the cost of soliciting proxies. Proxies will be solicited on behalf
of the Board of Directors by mail, telephone other electronic means. We have retained Innisfree M&A Inc.,
501 Madison Avenue, New York, NY 10022, to assist with the solicitation for an estimated fee of $10,000,
plus expenses. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses for sending proxy materials to shareholders and obtaining their votes.
Our employees may also solicit proxies for no additional compensation.
14. How do I comment on Company business?
You will have the opportunity to comment when you vote using the internet or you may write any comments
on the proxy card if you vote by mailing a proxy card. You may also send your comments to us at Resideo
Technologies, Inc., 901 E. 6th Street, Austin, TX 78702, Attention: Investor Relations. Although it is not
possible to respond to each shareholder, your comments are appreciated and help us to understand your
concerns.
2020 PROXY STATEMENT | 75
15. When are the 2021 shareholder proposals due?
To be considered for inclusion in the Company’s 2021 Proxy Statement, shareholder proposals submitted in
accordance with SEC Rule 14a-8 must be received in writing at our principal executive offices no later than
December 25, 2020. Address all shareholder proposals to Resideo Technologies, Inc., 901 E. 6th Street,
Austin, TX 78702, Attention: Corporate Secretary. For any proposal that is not submitted for inclusion in next
year’s Proxy Statement, but is instead sought to be presented directly at the 2021 annual meeting, notice of
intention to present the proposal, including all
information required to be provided by the shareholder in
accordance with the Company’s By-Laws, must be received in writing at our principal executive offices by
March 10, 2021, and no earlier than February 8, 2021. Address all notices of intention to present proposals at
the 2021 annual meeting to Resideo Technologies, Inc., 901 E. 6th Street, Austin, TX 78702, Attention:
Corporate Secretary. For information on nominating directors for the 2021 annual meeting, please see the
information above under “Advance Notice Director Nominations” and “Proxy Access Director Nominations” on
page 23.
16. How may I obtain a copy of Resideo’s 2019 Annual Report on Form 10-K and proxy materials?
If you would like to receive paper or e-mail copies of our 2019 Annual Report and the Proxy Statement, free
of charge, you may request them by internet at www.proxyvote.com, by telephone at 1-800-579-1639 or by
e-mail at sendmaterial@proxyvote.com. You will need your 16-digit control number provided in your proxy
materials to request paper copies. Requests for materials relating to the 2020 annual meeting may be made
by calling 1-800-579-1639, and must be made by May 25, 2020 to facilitate timely delivery. Our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments
to those reports, are available free of charge on our Investor Relations website at investor.resideo.com.
17. How do I contact the Company or the Board of Directors?
Our Investor Relations department is the primary point of contact for shareholder interaction with Resideo.
Shareholders can contact our Investor Relations department by email at InvestorRelations@resideo.com, by
phone at 512-726-3500, or by writing to Resideo Technologies, Inc., 901 E. 6th Street, Austin, TX 78702,
Attention: Investor Relations.
Shareholders, as well as other interested parties, may communicate directly with the Lead Independent
Director, the non-employee directors as a group, or individual directors by writing to Resideo Technologies,
Inc., 901 E. 6th Street, Austin, TX 78702, Attention: Corporate Secretary. Our Corporate Secretary reviews
and promptly forwards communications to the directors as appropriate. Communication involving substantive
accounting or auditing matters are forwarded to the Chair of the Audit Committee. Certain items that are
unrelated to the duties and responsibilities of the Board will not be forwarded such as junk mail and mass
mailings; product complaints and product inquiries; new product or technology suggestions; job inquiries and
resumes; advertisements or solicitations; surveys; spam and overly hostile, threatening, potentially illegal or
similarly unsuitable communications.
18. Can other business in addition to the items listed on the agenda be transacted at the meeting?
The Company knows of no other business to be presented for consideration at the meeting. If other matters
are properly presented at the meeting, the persons designated as authorized proxies on your proxy card may
vote on such matters at their discretion.
By Order of the Board of Directors,
Jeannine Lane
Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer
April 24, 2020
76 | 2020 PROXY STATEMENT
RESIDEO EMPLOYEE STOCK
PURCHASE PLAN
APPENDIX A
1. Purpose of the Plan. The purpose of this Resideo Employee Stock Purchase Plan (the “Plan”) is to provide
the employees of Resideo Technologies, Inc. (“Resideo”) and its participating subsidiaries with a convenient
means of purchasing shares of Resideo common stock from time to time at a discount to market prices through
the use of payroll deductions. Resideo intends that the Plan shall qualify as an “employee stock purchase plan”
under Code § 423. Accordingly, the Plan will be construed so as to extend and limit Plan participation in any
Offering subject to Code § 423 in a uniform and nondiscriminatory basis consistent with the requirements of Code
§ 423.
2. Definitions. The terms defined in this section are used (and capitalized) elsewhere in this Plan.
2.1.
“Affiliate” means each domestic or
foreign entity that
is a “parent corporation” or
“subsidiary
corporation” of Resideo, as defined in Code §§ 424(e) and 424(f) or any successor provisions.
2.2.
“Board” means the Board of Directors of Resideo.
2.3.
“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time. For
purposes of the Plan, references to sections of the Code shall be deemed to include any applicable regulations
thereunder and any successor or similar statutory provisions.
2.4.
“Committee” means the Compensation Committee of
the Board (or such successor committee
responsible for executive compensation matters).
2.5.
“Common Stock” means the common stock, par value $0.001 per share, of Resideo.
2.6.
“Corporate Transaction” means (i) a merger, consolidation or other reorganization of Resideo with or
into another corporation, or (ii) the sale of all or substantially all of the assets of Resideo.
2.7.
“Designated Affiliate” means any Affiliate which has been expressly designated by the Committee as a
corporation whose Eligible Employees may participate in the Plan.
2.8.
“Eligible Compensation” shall be defined from time to time by the Committee in its sole discretion with
respect to any Offering and Purchase Period. Except as otherwise defined by the Committee from time to time in
its sole discretion,
(i) Eligible Compensation means the cash compensation (including wages, salary,
commissions, and overtime earnings) paid by Resideo or any Designated Affiliate to a Participant in accordance
with the Participant’s terms of employment, (ii) Eligible Compensation includes contributions made by the
forms part of a plan
Participant by payroll deduction to any qualified cash or deferred arrangement
maintained by Resideo or an Affiliate (while it is an Affiliate), or to a cafeteria plan maintained by Resideo or an
is an Affiliate), or under any qualified transportation fringe benefit plan, and (iii) Eligible
Affiliate (while it
Compensation shall not
include any bonuses, employer contributions to a 401(k) or other retirement plan,
amounts deferred to a non-qualified deferred compensation plan, any expense reimbursements or allowances,
vacation pay in lieu of time off, coverage provided or amounts paid under any welfare benefit plan (unless
provided above), amounts paid by an insurance company, amounts paid in a form other than cash and other
fringe benefits, or any income (whether paid in Shares or cash) realized by the Participant as a result of
participation in any equity-based compensation plan of Resideo or an Affiliate.
that
2.9.
for any
“Eligible Employee” means any employee of Resideo or a Designated Affiliate, except
employee who, immediately after a right to purchase is granted under the Plan, would be deemed, for purposes of
Code § 423(b)(3), to own stock possessing 5% or more of the total combined voting power or value of all classes
2020 PROXY STATEMENT | A-1
of stock of Resideo or any Affiliate. Notwithstanding the foregoing, with respect to any Offering, the Committee
may provide for the exclusion of certain employees within the limitations described in Treasury Regulations
§1.423-2(e)(1), (2) and (3).
2.10.
“Enrollment Period” means the period of
time prior to a Purchase Period during which Eligible
Employees may elect to participate in the Plan as determined by the Committee for an Offering.
2.11.
“Fair Market Value” of a Share of Common Stock as of any date means the closing sale price for a
Share on the principal securities market on which the Shares trade on the last preceding day on which any sale
shall have been made.
2.12.
“Offering” means the right provided to Participants to purchase Shares under the Plan with respect to
a Purchase Period.
2.13.
“Offering Date” means the first Trading Day of a Purchase Period.
2.14.
“Participant” means an Eligible Employee who has elected to participate in the Plan in the manner set
forth in Section 4 and whose participation has not ended pursuant to Section 8.1 or Section 9.
2.15.
“Plan” means this Resideo Employee Stock Purchase Plan, as it may be amended from time to time.
2.16.
“Purchase Date” means the last Trading Day of a Purchase Period.
2.17.
“Purchase Period” means a period of time during which offers to purchase Common Stock are
outstanding under the Plan. The Committee shall determine the length of each Purchase Period, which need not
be uniform; provided that no Purchase Period shall exceed twenty-seven (27) months in length. A Purchase
Period shall commence on such date as may be established by the Committee. Unless the Committee determines
otherwise, the Purchase Period will be a period of six months beginning either (i) on February 15 of each calendar
year and ending on the next August 14, or (ii) on August 15 in each calendar year and ending on the next
February 14.
2.18.
“Recordkeeping Account” means the account maintained in the books and records of Resideo (or its
agent) recording the amount contributed to the Plan by each Participant through payroll deductions.
2.19.
“Resideo” means Resideo Technologies, Inc., a Delaware corporation, or any successor corporation.
2.20.
“Shares” means shares of Common Stock.
2.21.
“Trading Day” means a day on which the national stock exchanges in the United States are open for
trading.
3. Shares Available. Subject to adjustment as provided in Section 14.1, the maximum number of Shares that
may be sold by Resideo to Eligible Employees under the Plan shall be 3,000,000 Shares. If the purchases by all
Participants in an Offering would otherwise cause the aggregate number of Shares to be sold under the Plan to
exceed the number specified in this Section 3, Resideo shall make to each Participant in that Offering a pro rata
allocation in a uniform and nondiscriminatory manner of the remaining number of Shares which may be sold
under the Plan.
4. Eligibility and Participation. To be eligible to participate in the Plan for a given Purchase Period, an
employee must be an Eligible Employee on the first day of such Purchase Period. An Eligible Employee may elect
to participate in the Plan by filing an election form with Resideo (or its agent) before the Offering Date for a
Purchase Period that authorizes regular payroll deductions from Eligible Compensation beginning with the first
payday in such Purchase Period and continuing until the Plan is terminated or the Eligible Employee withdraws
from the Plan, modifies his or her authorization, or ceases to be an Eligible Employee, as hereinafter provided.
5. Amount of Common Stock Each Eligible Employee May Purchase.
5.1. Purchase Amounts and Limitations. Subject to the provisions of this Plan, each Participant shall be
offered the right to purchase on the Purchase Date the maximum number of whole Shares that can be purchased
A-2 | 2020 PROXY STATEMENT
with the balance in the Participant’s Recordkeeping Account at the per Share price specified in Section 5.2.
Notwithstanding the foregoing, no Participant shall be entitled to:
(a)
the right to purchase Shares under this Plan and all other employee stock purchase plans (within
the meaning of Code § 423(b)), if any, of Resideo and its Affiliates that accrues at a rate which in the aggregate
exceeds $25,000 of Fair Market Value (determined on the Offering Date of a Purchase Period when the right is
granted) for each calendar year in which such right is outstanding at any time; or
(b) purchase Shares in excess of 5,000 Shares per Offering (or such other maximum Share limit as
established by the Committee in its sole discretion), with such limit subject to adjustment from time to time as
provided in Section 14.1.
5.2. Purchase Price. Unless a different purchase price is established by the Committee for an Offering prior
to the commencement of the applicable Purchase Period, the purchase price of each Share sold pursuant to this
Plan will be the lesser of (i) 90% of the Fair Market Value of such Share on the Offering Date of the applicable
Purchase Period, or (ii) 90% of the Fair Market Value of such Share on the Purchase Date. In no event shall the
purchase price be less than the lesser of (i) 85% of the Fair Market Value of such Share on the Offering Date of
the applicable Purchase Period, or (ii) 85% of the Fair Market Value of such Share on the Purchase Date.
6. Method of Participation.
6.1. Notice and Date of Grant. Resideo shall give notice to each Eligible Employee of the opportunity to
purchase Shares pursuant to this Plan and the terms and conditions of such Offering. Resideo contemplates that
for tax purposes the Offering Date for a Purchase Period will be considered the date of the grant of the right to
purchase such Shares.
6.2. Contribution Elections. Each Eligible Employee who desires to participate in the Plan for a Purchase
Period shall signify his or her election to do so by completing an election with Resideo (or its agent) in a manner
approved by the Committee. An Eligible Employee may elect to have any whole percent of Eligible Compensation
(that is, 1%, 2%, 3%, etc.) withheld as a payroll deduction, but not exceeding 10% per pay period (or such other
maximum percentage as the Committee may establish from time to time prior to the commencement of an
Offering). An election to participate in the Plan and to authorize payroll deductions as described herein must be
made prior to the Offering Date of a Purchase Period in accordance with the rules set by the Committee for the
Purchase Period, and shall be effective beginning with the first payday in the Purchase Period immediately
following the filing of such election. Any election submitted shall remain in effect until the Plan is terminated or
such Participant withdraws from the Plan, modifies his or her authorization, or ceases to be an Eligible Employee,
as hereinafter provided.
6.3 Additional Contributions.
If specifically provided by the Committee in connection with an Offering
(including for purposes of complying with applicable local law), in addition to or instead of making contributions by
payroll deductions, a Participant may make additional contributions to his or her Recordkeeping Account through
the payment by cash or check prior to a Purchase Date. A Participant may make such additional contributions into
his or her Recordkeeping Account only if the Participant has not already had the maximum permitted amount
withheld during the Offering through payroll deductions, subject to the limitations set forth in Section 5.1.
6.4. Offering Terms and Conditions. Each Offering shall consist of a single Purchase Period and shall be in
such form and shall contain such terms and conditions as the Committee shall deem appropriate, consistent with
the terms of the Plan. The Committee may provide for separate Offerings for different Designated Affiliates, and
the terms and conditions of the separate Offerings, including the applicable Purchase Period, need not be
consistent. Any Offering shall comply with the requirement of Code § 423 that all Participants shall have the same
rights and privileges for such Offering. The terms and conditions of any Offering shall be incorporated by
reference into the Plan and treated as part of the Plan.
7. Recordkeeping Accounts.
7.1. Crediting Payroll Deduction Contributions. Resideo (or its agent) shall maintain a Recordkeeping
Account for each Participant. Payroll deductions pursuant to Section 6 will be credited to such Recordkeeping
Accounts on or within a reasonable amount of time following each payday.
2020 PROXY STATEMENT | A-3
7.2. No Interest Payable. No interest will be credited to a Participant’s Recordkeeping Account (unless
required under local law).
7.3. No Segregation of Accounts. The Recordkeeping Account
is established solely for accounting
purposes, and all amounts credited to the Recordkeeping Account will remain part of the general assets of
Resideo and need not be segregated from other corporate funds (unless required under local law).
7.4. Additional Contributions. A Participant may not make any separate cash payment into a Recordkeeping
Account, except as may be permitted in accordance with Section 6.3, and any such additional contributions will be
credited to the Recordkeeping Accounts within a reasonable amount of time following receipt by Resideo.
8. Right to Adjust Participation; Withdrawals from Recordkeeping Account.
8.1. Withdrawal from Plan. A Participant may at any time withdraw from the Plan by complying with the
rules set by the Committee. If a Participant withdraws from the Plan, Resideo will pay to the Participant in cash
the entire balance in such Participant’s Recordkeeping Account and no further deductions will be made from the
Participant’s Eligible Compensation during such Purchase Period. A Participant who withdraws from the Plan will
not be eligible to reenter the Plan until the next succeeding Purchase Period, and any such reentry shall be
through the enrollment process described in Section 6.2.
8.2. Adjusting Level of Participation. A Participant may adjust his or her rate of payroll deduction
contributions to the Plan as follows:
(a) A Participant may, by written notice during an Enrollment Period, direct Resideo to increase or
decrease his or her rate of payroll deduction contributions, with such change to be effective as of the first day of
the next Purchase Period.
(b) A Participant may, by written notice that complies with the rules set by the Committee, direct
Resideo to decrease his or her rate of payroll deduction contributions during a Purchase Period to 0%, which shall
be considered a suspension of contributions and shall become effective as soon as reasonably practicable. Any
Participant who has decreased his or her rate of payroll deductions to 0% and does not increase such rate of
payroll deductions from 0% to at least 1% in accordance with Section 8.2(a) during the next Enrollment Period will
be withdrawn from the Plan effective as of the first day of that next Purchase Period.
8.3. Submission of Notices. Notification of a Participant’s election to withdraw from the Plan as provided in
Section 8.1 or to change his or her rate of payroll deductions as provided in Section 8.2 shall be made by
completing an updated election or notice with Resideo (or its agent) in a manner approved by the Committee. The
Committee may promulgate rules regarding the time and manner for submitting any such updated election or
notice, which may include a requirement that the election or notice be on file for a reasonable period before it will
be effective.
8.4. Adjustments by Resideo. To the extent necessary to comply with Code § 423(b)(8) or Section 5.1, a
Participant’s payroll deduction contributions to the Plan may be decreased by Resideo to 0% at any time during a
Purchase Period.
9. Termination of Employment.
9.1. Refund of Recordkeeping Account. If the employment of a Participant is terminated for any reason,
including death, disability, or retirement, the entire balance in the Participant’s Recordkeeping Account will be
refunded in cash to the Participant within 30 days after the date of termination of employment. For purposes of the
Plan, a Participant will not be deemed to have terminated employment while the Participant is on sick leave,
military leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days
and the Participant’s right to reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the ninety-first day of such leave. Unless determined
otherwise by the Committee in a manner that is permitted by, and in compliance with Code § 423, a Participant
whose employment transfers between entities through a termination with an immediate rehire (with no break in
service) by Resideo or a Designated Affiliate shall not be treated as a termination under the Plan.
A-4 | 2020 PROXY STATEMENT
9.2. Designation of Beneficiary.
If permitted by the Committee, a Participant may file a beneficiary
designation for who is to receive the Participant’s Recordkeeping Account or Share subaccount, if any, following
the death of a Participant. If no beneficiary is named, the beneficiary shall be the Participant’s spouse, or if none,
the Participant’s estate. All beneficiary designations will be in such form and manner as the Committee may
designate from time to time.
10. Purchase of Shares.
10.1. Number of Shares Purchased. As of each Purchase Date,
the balance in each Participant’s
Recordkeeping Account will be used to purchase the maximum number of whole Shares (subject to the limitations
of Section 5.1) at the purchase price determined in accordance with Section 5.2, unless the Participant has filed
an appropriate form with Resideo in advance of
that date to withdraw from the Plan in accordance with
Section 8.1. Any amount remaining in a Participant’s Recordkeeping Account that represents the purchase price
for any fractional share will be carried over in the Participant’s Recordkeeping Account to the next Purchase
Period. Any amount remaining in a Participant’s Recordkeeping Account that represents the purchase price for
any whole Shares that could not be purchased by reason of
the limitations of Section 5.1 or under the
circumstances described in Section 3 will be refunded to the Participant.
10.2. Conversion of Foreign Currency. In circumstances where payroll deductions have been taken from a
Participant’s Eligible Compensation in a currency other than United States dollars, Shares shall be purchased by
converting the balance in the Participant’s Recordkeeping Account to United States dollars at the exchange rate
in effect for payroll purposes for the month in which the Purchase Date occurs as determined by Resideo’s
finance department or at such other exchange rate determined by the Committee or its delegate for this purpose,
and such dollar amount shall be used to purchase Shares as of the Purchase Date.
10.3. Crediting of Shares. Promptly after the end of each Purchase Period,
the number of Shares
purchased by all Participants as of the applicable Purchase Date shall be issued and delivered to an agent
selected by Resideo. Delivery of the shares to the agent shall be effected by an appropriate book-entry in the
stock register maintained by Resideo’s transfer agent or delivery of a certificate. The agent will hold the Shares
for the benefit of all Participants who have purchased Shares and will maintain a Share subaccount for each
Participant reflecting the number of Shares credited to each Participant. Each Participant will be entitled to direct
the voting by the agent of all Shares credited to such Participant’s Share subaccount, and the agent may reinvest
any dividends paid on Shares credited to a Participant’s Share subaccount in additional Shares in accordance
with such rules as the Committee may prescribe. Each Participant may also direct the agent to sell any or all of
the Shares credited to the Participant’s Share subaccount and distribute the net proceeds of such sale to the
Participant.
10.4 Withdrawal of Shares From Share Subaccount. Except for sales through the agent as provided in
Section 10.3, a Participant may not withdraw Shares or otherwise transfer Shares from the Participant’s Share
subaccount.
11. Rights as a Shareholder. A Participant shall not be entitled to any of
the rights or privileges of a
shareholder of Resideo with respect to Shares offered for purchase under the Plan, including the right to vote or
direct the voting or to receive any dividends that may be declared by Resideo, until (i) the Participant actually has
paid the purchase price for such Shares and (ii) such Shares have been issued and delivered, as provided in
Section 10.3.
12. Rights Not Transferable. A Participant’s rights under this Plan are exercisable only by the Participant
during his or her lifetime, and may not be sold, pledged, assigned, transferred or disposed of in any manner other
than by will or the laws of descent and distribution. Any attempt to sell, pledge, assign, transfer or dispose of the
same shall be void and without effect. The amounts credited to a Recordkeeping Account may not be sold,
pledged, assigned, transferred or disposed of in any way, and any attempted sale, pledge, assignment, transfer or
other disposition of such amounts will be void and without effect.
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13. Administration of the Plan.
13.1. Authority of the Committee. This Plan shall be administered by the Committee. Subject to the express
provisions of the Plan and applicable law, and in addition to other express powers and authorizations conferred on
the Committee by the Plan, the Committee shall have full power and authority to:
(a) Determine when each Purchase Period under this Plan shall occur, and the terms and conditions of
each related Offering (which need not be identical);
(b) Designate from time to time which Affiliates of Resideo shall be eligible to participate in the Plan;
(c) Construe and interpret the Plan and establish, amend and revoke rules, regulations and procedures
for the administration of the Plan. The Committee may, in the exercise of this power, correct any defect, omission
or inconsistency in the Plan, in such manner and to the extent it may deem necessary, desirable or appropriate to
make the Plan fully effective;
(d) Exercise such powers and perform such acts as the Committee may deem necessary, desirable or
appropriate to promote the best interests of Resideo and its Designated Affiliates and to carry out the intent that
the Offerings made under the Plan are treated as qualifying under Code § 423(b);
(e) As more fully described in Section 18, to adopt such rules, procedures and sub-plans as may be
necessary, desirable or appropriate to permit participation in the Plan by employees who are foreign nationals or
employed outside the United States by a non-U.S. Designated Affiliate, and to achieve tax, securities law and
other compliance objectives in particular locations outside the United States; and
(f) Adopt and amend, as the Committee deems appropriate, a Plan rule specifying that Shares
purchased by a Participant during a Purchase Period may not be sold by the Participant for a specified period of
time after the Purchase Date on which the Shares were purchased by the Participant, and establish such
procedures as the Committee may deem necessary to implement such rule.
13.2.
Interpretations and Decisions by the Committee. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the Plan shall be within
the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all
persons, including Resideo, any Affiliate, any Participant and any Eligible Employee.
13.3. Delegation by the Committee. Subject to the terms of the Plan and applicable law, the Committee may
delegate ministerial duties associated with the administration of the Plan to such of Resideo’s officers, employees
or agents as the Committee may determine.
13.4.
Indemnification. No member of
the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan. In addition to such other rights of indemnification as
they may have as members of the Board or officers or employees of Resideo or a Designated Affiliate, members
of the Board and Committee and any officers or employees of the Resideo or Designated Affiliate to whom
authority to act for the Committee is delegated shall be indemnified by Resideo from and against any and all
liabilities, costs and expenses incurred by such persons as a result of any act or omission to act in connection
with the performance of such person’s duties, responsibilities and obligations under the Plan if such person has
acted in good faith and in a manner that he or she reasonably believes to be in, or not opposed to, the best
interests of Resideo.
14. Changes in Capitalization and Corporate Transactions.
14.1. Adjustments. In the event of any change in the Common Stock of Resideo by reason of a stock
recapitalization, merger, consolidation,
dividend, stock split,
combination, exchange of shares and the like, the Committee shall make such equitable adjustments as it deems
appropriate in the aggregate number and class of Shares or other securities available under this Plan, the Share
limitation referred to in Section 5.1(b) of the Plan, and the number, class and purchase price of Shares or other
securities subject to purchase under any pending Offering.
reverse stock split, corporate separation,
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14.2. Corporate Transactions. In the event of a Corporate Transaction, each right to acquire Shares on any
Purchase Date that is scheduled to occur after the date of the consummation of the Corporate Transaction may
be continued or assumed or an equivalent right may be substituted by the surviving or successor corporation or a
parent or subsidiary of such corporation. If such surviving or successor corporation or parent or subsidiary thereof
refuses to continue, assume or substitute for such outstanding rights, then the Board may, in its discretion, either
terminate the Plan or shorten the Purchase Period then in progress by setting a new Purchase Date for a
specified date before the date of the consummation of the Corporate Transaction. Each Participant shall be
notified in writing, prior to any new Purchase Date, that the Purchase Date for the existing Offering has been
changed to the new Purchase Date and that
to acquire Shares will be exercised
automatically on the new Purchase Date unless prior to such date the Participant’s employment has been
terminated or the Participant has withdrawn from the Plan. In the event of a dissolution or liquidation of Resideo,
any Offering and Purchase Period then in progress will terminate immediately prior to the consummation of such
action, unless otherwise provided by the Board.
the Participant’s right
15. Amendment or Suspension of Plan. The Committee, in its sole discretion, may at any time suspend this
Plan or amend it in any respect, but no such amendment may, without shareholder approval, increase the number
of shares reserved under this Plan, or effect any other change in the Plan that would require shareholder approval
under applicable law or regulations or the rules of any securities exchange on which the Shares may then be
listed, or to maintain compliance with Code § 423. No such amendment or suspension shall adversely affect the
rights of Participants pursuant to Shares previously acquired under the Plan. During any suspension of the Plan,
no new Offering or Purchase Period shall begin and no Eligible Employee shall be offered any new right to
purchase Shares under the Plan or any opportunity to elect to participate in the Plan, and any existing payroll
deduction authorizations shall be suspended, but any such right to purchase Shares previously granted for a
Purchase Period that began prior to the Plan suspension shall remain subject to the other provisions of this Plan
and the discretion of the Board and the Committee with respect thereto.
16. Effective Date and Term of Plan. The Plan will become effective on the date it is approved by the
shareholders of Resideo, which approval must be within 12 months of the date the Plan is adopted by the Board.
The Plan and all rights of Participants hereunder shall terminate (i) at any time, at the discretion of the Committee,
or (ii) upon the completion of any Offering under which the limitation on the total number of Shares to be issued
during the entire term of the Plan, as determined in accordance with Section 3, has been reached. Except as
otherwise determined by the Board, upon termination of this Plan, Resideo shall pay to each Participant cash in
an amount equal to the entire remaining balance in such Participant’s Recordkeeping Account.
17. Governmental Regulations and Listing. All rights granted or to be granted to Eligible Employees under
this Plan are expressly subject to all applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale or transfer of the Shares reserved for this
Plan, including, without limitation, there being a current registration statement of Resideo under the Securities Act
of 1933, as amended, covering the Shares purchasable on the Purchase Date applicable to such Shares. If
applicable, all such rights hereunder are also similarly subject to effectiveness of an appropriate listing application
to a national securities exchange covering the Shares issuable under the Plan upon official notice of issuance.
18. Rules for Foreign Jurisdictions. The Committee may adopt rules, procedures or subplans relating to the
operation and administration of the Plan to accommodate the specific requirements of local laws and procedures.
Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and
procedures regarding handling of payroll deductions, payment of interest, conversion of local currency, payroll
tax, the definition of Eligible Compensation, withholding procedures and handling of stock certificates that vary
with local requirements.
19. Miscellaneous.
19.1. Effect on Employment Status. This Plan shall not be deemed to constitute a contract of employment
between Resideo or any Designated Affiliate and any Participant, nor shall it interfere with the right of Resideo (or
any Affiliate) to terminate the employment of any Participant and treat him or her without regard to the effect that
such treatment might have upon him or her under this Plan.
19.2. Governing Law. This Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
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19.3. Electronic Documentation and Signatures. Any reference in the Plan to election or enrollment forms,
notices, authorizations or any other document to be provided in writing shall include the provision of any such
form, notice, authorization or document by electronic means,
including through Resideo’s intranet or with
Resideo’s agent, and any reference in the Plan to the signing of any document shall include the authentication of
any such document provided in electronic form, in each case in accordance with procedures established by the
Committee.
19.4. Book-Entry and Electronic Transfer of Shares. Any reference in this Plan to the issuance or transfer of
a stock certificate evidencing Shares shall be deemed to include, in the Committee’s discretion, the issuance or
transfer of such Shares in book-entry or electronic form. Uncertificated Shares shall be deemed delivered for all
purposes of this Plan when Resideo or its agent shall have provided to the recipient of the Shares a notice of
issuance or transfer by electronic mail (with proof of receipt) or by United States mail, and have recorded the
issuance or transfer in its records.
19.5. Registration of Share Accounts and Certificates. Any Share account contemplated by Section 10.3
and certificate to be issued to a Participant shall be registered in the name of the Participant, or jointly in the name
of the Participant and another person, as the Participant may direct on an appropriate form filed with Resideo or
the agent.
19.6. Code § 409A. The Plan is exempt from the application of Code § 409A and any ambiguities herein will
be interpreted to so be exempt from Code § 409A. In furtherance of the foregoing and notwithstanding any
provision in the Plan to the contrary, if the Committee determines that an option granted under the Plan may be
subject to Code § 409A or that any provision in the Plan would cause an option under the Plan to be subject to
Code § 409A, the Committee may amend the terms of the Plan and/or of an outstanding Offering under the Plan,
or take such other action as the Committee determines is necessary or appropriate, in each case, without the
Participant’s consent, to exempt any outstanding option or future option that may be granted under the Plan from
or to allow any such options to comply with Code § 409A, but only to the extent any such amendments or actions
by the Committee would not violate Code § 409A. Notwithstanding the foregoing, Resideo and the Committee
shall have no liability to a Participant or any other party if the option to purchase Shares under the Plan that is
intended to be exempt from or compliant with Code § 409A is not exempt or compliant or for any action taken by
the Committee with respect thereto. Resideo makes no representations that the option to purchase Shares under
the Plan is compliant with Code § 409A.
19.7. Severability.
illegal, or
unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity,
illegality or
unenforceability shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as
to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
the Plan is or becomes or is deemed to be invalid,
If any provision of
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