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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.01pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.16pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.18pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
litigation+2
delays+2
delay+2
expose+2
disruptions+2
Positive rising
achieve+1
profitability+1
successful+1
benefit+1
greater+1
Risk Factors (Item 1A)
11,969 words
Item 1A. Risk Factors.
You should carefully consider all of the information in this Form 10-K and each of the risks described below, which we believe are the material risks that we face.
Any of these risks could materially and adversely affect our business, financial condition, results of operations, and cash flows and the actual outcome of matters as to which forward-looking statements are made in this Form 10-K.
The following risk factors are not necessarily presented in order of relative importance and should not be considered to represent a complete set of all potential risks that could affect us.
Risks Relating to Our Business
We operate in highly competitive markets that are rapidly changing.
We operate in a highly competitive, rapidly changing environment in each of our Products and Solutions and ADI Global Distribution segments, and we compete directly with global, national, regional, and local providers of our products, services, and solutions, including manufacturers, distributors, service and software providers, retailers, and online commerce providers. The most significant competitive factors we face are product and service innovation, reputation of our Company and brands, sales and marketing programs, customer relationships, product performance, reliability and warranty, quality and breadth of product training and events, product availability, speed and accuracy of delivery, service and price, customer and technical support, and furnishing of customer credit, with the relative importance of these factors varying among our segments and their respective products and services.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+7
termination+5
restructuring+3
impairment+2
terminate+2
Positive rising
favorable+8
leading+1
gains+1
greater+1
MD&A (Item 7)
5,910 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(In millions, except per share amounts)
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help readers understand the results of our operations and financial condition for the three years ended December 31, 2025, and should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-K.
Current Period Highlights
• Net revenue of $7.47 billion in 2025, up 10.5% from $6.76 billion in 2024
• Gross profit margin of 29.4%, compared to 28.1% in the prior year comparable period
• Income from operations of $607 million , or 8.1% of revenue, compared to $520 million , or 7.7% of revenue in 2024
• Fully diluted earnings (loss) per common share of $(3.77), compared to $0.61 per common share in the same period last year
Overview and Business Trends
We are a global manufacturer, developer, and distributor of technology-driven sensing and controls products and solutions that help homeowners and businesses stay connected and in control of their comfort, security, energy use, and smart living. We are a leading player in key product markets including home heating, ventilation, and air conditioning controls; smoke and carbon monoxide detection home safety and fire suppression; and security. Our global footprint serves residential and commercial end-markets. Our solutions and services can be found in over 150 million residential and commercial spaces globally, with tens of millions of new devices sold annually.
In addition to current competitive factors, there have been, and in the future there may be, new market entrants with nontraditional businesses, new business, distribution and customer service models or disruptive technologies and products, resulting in increased competition and changing business dynamics. In addition, aggressive pricing actions by competitors may affect our ability to achievedesired revenue growth and profitability levels. To the extent that we do not meet changing customer preferences or demands or other market changes, or if one or more of our competitors introduces new technologies, products or services, becomes more successful with private label products, online offerings or establishes
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exclusive supply relationships, our ability to attract and retain customers could be adversely affected, which could adversely affect our business, financial condition, results of operations and cash flows.
To remain competitive, we will need to invest continually in product and services development, marketing, custom installer service and support, manufacturing, and our distribution networks. We may not have sufficient resources to continue to make such investments and we may be unable to maintain our competitive position including due to the fact that our competitors and potential competitors may have greater brand recognition, resources, access to capital, including greater research and development or sales and marketing funds, more customers, lower costs, and more advanced technology platforms. It is possible that competitive pressures resulting from customer or competitor consolidations, including customers taking manufacturing or distribution in house, or purchasing directly from a manufacturer instead of from ADI Global Distribution, could affect our growth and profit margins.
Some of our competitors, including technology companies, 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 online content, which they could use as a competitive advantage. Technology companies could exert pricing pressure in the connected/smart home solutions space, resulting in a shift in customer preferences toward the services of these companies and a reduction in our market share. In addition, in order to successfully compete, our products often need to integrate with the platforms of our competitors, which may be able to focus more on their own solutions versus ours, which may make it difficult to compete for the consumer market. A portion of our net sales derives from subscription-based solutions. If we are unable to successfully develop new subscription solutions or to enhance existing such solutions to meet customer requirements in a timely manner, our net sales may not grow as expected or may decline.
Our Products and Solutions business offerings are primarily delivered through networks of professional contractors, installers and integrators, distributors, and original equipment manufacturers (“OEM”), as well as major retailers and online merchants. Our ADI Global Distribution offerings are primarily distributed and delivered through our omni-channel platform to a network of professional contractors, installers, and integrators, as well as select online merchants. Growth of the retail markets, adoption of simple do-it-yourself solutions rather than adopting professionally installed do-it-for-me solutions, and greater electronic retail distribution alternatives relative to the professional installation markets may negatively impact our sales and margins, which could have an adverse effect on our business, financial condition and results of operations and cash flows.
With respect to our ADI Global Distribution business, if retail outlets, including online commerce platforms, increase their presence in wholesale distribution markets, or if customers increasingly purchase our products through these channels rather than through us, our ADI Global Distribution business may be unable to compete effectively, which could adversely affect our business, financial condition, results of operations and cash flows.
Technology, industry standards, and consumer preferences in our markets are changing rapidly. Our future results and growth are largely dependent upon our ability to: identify consumer preferences and industry standards; develop and protect intellectual property related thereto; and successfully market new technologies and products and services to consumers.
Technology in our markets changes constantly as new technologies and enhancements to existing technologies continue to be introduced, both in our traditional and connected product markets, and industry standards continuously evolve. Our future results will depend upon a number of factors, including our ability to (i) identify consumer and installer preferences, emerging technological and broader trends, (ii) develop and maintain competitive, innovative products that differentiate our products from those of our competitors as well as protect our products through the use of intellectual property protections, (iii) grow our market share, (iv) develop, manufacture, and bring compelling new products to market quickly and cost-effectively, (v) source and manage independent contract manufacturers, (vi) effectively partner with connected device manufacturers and (vii) attract, develop, and retain individuals with the requisite technical expertise and understanding of customers’ needs to develop new technologies and introduce new products. Our inability to predict the growth of and respond in a timely way to customer preferences and other developments could have an adverse effect on our business, financial condition, results of operations and cash flows.
We rely on a combination of patents, copyrights, trademarks, trade names, trade secrets, and other proprietary rights, as well as contractual arrangements, including licenses, to establish, maintain, and protect our intellectual property rights. Our intellectual property rights may not be sufficient to permit us to take advantage of some business opportunities. As a result, we may be required to change our plans or acquire necessary intellectual property rights, which could be costly. Furthermore, our ability to enforce our intellectual property rights in emerging markets may be limited by legal or practical
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considerations that have not historically affected our business in markets with more established intellectual property protection systems.
Our industry experiences significant intellectual property litigation and we have in the past and could in the future become involved in costly and lengthy litigation involving patents or other intellectual property rights which could adversely affect our business. We have received allegations of patent infringement from third parties, including both operating companies and non-practicing entity patent holders, as well as communications from customers requesting indemnification for allegations brought by third parties. These allegations have resulted in patent litigation relating to certain of our products and may continue to result in new litigation. These proceedings have in the past and could in the future result in financial liability, harm our ability to compete, and divert our management’s time and attention. Often, we receive offers to license patents for our use. We believe that we will be able to access any necessary rights through licensing, cross-licensing, or other mutually beneficial arrangements, although to the extent we are required but unable to enter into such arrangements on acceptable economic terms, it could adversely impact us, requiring us to take specific actions including ceasing using, selling or manufacturing certain products, services or processes or incurring significant costs and time delays to develop alternative technologies or re-design products.
Our operations depend in part upon third-party technologies, software, and intellectual property. Failure to renew contracts with existing providers or licensors of technology, software, intellectual property, or connectivity solutions, or to contract with other providers or licensors on commercially acceptable terms or at all, as well as any failure by such third-party provider to provide such technology solutions may adversely impact our business, financial condition, results of operations and cash flows. We could also be subjected to claims of infringement regardless of our lack of involvement in the development of the licensed technology. Although a third-party technology provider is typically obligated to indemnify us if the provided technology infringes on another party’s intellectual property rights, such indemnification is often limited in amount and may be worthless if the provider becomes insolvent.
We rely on certain suppliers of products, materials, and components and are otherwise subject to raw material supply variability with our suppliers which may impact our ability to meet commitments to customers and cause us to incur significant liabilities.
Each of our business segments depends on third parties for the supply of product components, production equipment, and replacement parts for products we manufacture and those manufactured on our behalf, or sold through our ADI Global Distribution business, some of which are supplied by single or limited source suppliers/manufacturers. Our business, results of operations, financial condition and cash flows have in the past been and could in the future continue to be adversely affected by the impact of disruptions in our supply chain from third-party suppliers and manufacturers, including our inability to obtain necessary raw materials and product components, production equipment, or replacement parts, whether due to work stoppages, cyberattacks, component failures, natural disasters, pandemics, economic, political, financial or labor concerns, weather conditions affecting products or shipments or transportation disruptions or other reasons, or if suppliers lack sufficient quality control or if there are significant changes in their financial or business condition or otherwise. If we are required to find alternative sources of supply, qualification of alternative suppliers and the establishment of reliable supplies could result in delays and possible loss of sales, which may have a material adverse effect on our business, results of operations, cash flows, and financial condition.
Our ability to manage inventory and meet delivery requirements have in the past and could in the future 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 our contractual obligations.
With respect to our ADI Global Distribution segment, terminations of supply or services agreements or a change in terms or conditions of sale from one or more of our key manufacturers have in the past and could in the future negatively affect that segment’s operating income and margins, net revenue, or the level of capital required to fund operations. Manufacturers who currently distribute their products through our ADI Global Distribution business have in the past and could in the future decide to shift to or substantially increase their existing distribution with other distributors, their own dealer networks, or directly to resellers or end-users. This could result in more intense competition, which could have an adverse impact on our ADI Global Distribution business, financial condition, results of operations, and cash flows. In addition, our ADI Global Distribution business may not be able to acquire from manufacturers or additional supply chains certain product lines that we are interested in adding to our distribution business, and if even we are able to add products, they may not result in sales as expected and may not be profitable to the overall business.
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We may from time to time pursue acquisitions. Our business may be adversely affected if we cannot consummate acquisitions on satisfactory terms, or if we cannot effectively integrate acquired companies or assets.
We have in the past and may from time to time in the future continue to pursue and consummate acquisitions of companies or assets. Our ability to consummate any future acquisitions will be partially dependent upon the availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions. We may not be able to find suitable acquisition candidates to purchase or may be unable to acquire on economically acceptable terms or to receive necessary regulatory approvals or support.
The consummation of any particular acquisition may depend, in part, on our ability to raise the capital necessary to fund such acquisition which may not be available to us at all or on economically advantageous terms. In addition, if we consummate an acquisition, our capitalization and results of operations may change significantly. Future acquisitions could result in gross and/or operating income dilution, the incurring of additional debt or equity issuances and contingent liabilities, and an increase in interest and amortization expenses or periodic impairment expenses related to goodwill and other intangible assets and significant charges relating to integration costs.
We may not be successful in effectively identifying all risks of an acquired business, integrating the acquired business or technology into our existing business, or realizing the benefits expected at acquisition. Our due diligence may fail to identify all of the liabilities or challenges of an acquired business, product, software, service, or technology, including issues related to intellectual property, product quality or product or software architecture, regulatory compliance practices, revenue recognition, or other accounting practices or employee, customer, or supplier issues. We may not be able to achieve expected operational synergies or savings, or any growth targets identified in acquisition diligence. The successful integration of future acquisitions may also require substantial attention from our senior management and the management of the acquired business, which could decrease the time that they have to manage our existing portfolio, attract customers, and develop new products and services or attend to other acquisition opportunities.
Uncertainty in the development, deployment, and use of artificial intelligence (“AI”) in our products and services, as well as our business more broadly, could adversely affect our business and reputation.
Resideo uses AI both in the operation of our business and in the products and solutions we develop. The use of AI involves various risks and challenges that could adversely affect our business, financial condition or results of operations. Within our operations, employees leverage AI, including generative AI, to accelerate the creation of new features and reduce overall development time. While these technologies can enhanceefficiency, they also present potential intellectual property and privacy risks. Confidential information or trade secrets may inadvertently be disclosed through generative AI interactions, and there is a risk that third-party intellectual property could be inadvertently embedded in AI-generated results. There is also a risk of incorrect, biased or unethical outputs, which can harm Resideo’s reputation and competitive position and result in regulatory scrutiny or legal liability.
Our products utilize AI to offer richer insights and more relevant notifications to our customers. For example, our video solutions use AI to identify people, animals, packages, and other objects. We believe it is necessary to support these capabilities to remain competitive in the smart home marketplace. Customers may reject AI-powered solutions over fears that their personal data, video footage, or usage patterns could be misused or inadequately protected. Our competitors or other third parties may incorporate AI into their products more quickly or successfully than us, which could impair our ability to compete effectively and adversely affect our results and operations. Additionally, there is no guarantee that AI-based features will succeed commercially or even prove technically feasible in all scenarios. Additionally, AI may generate false alerts or fail to detect real events, undermining customer trust, and potentially damaging our reputation.
AI functionality in smart homes typically requires extensive data collection that can raise privacy concerns. Mismanagement of this collected data can lead to unauthorized access and misuse. AI may generate inaccurate demand models and recommendations for inventory management that may lead to overstocking or lack of inventory availability, which can affect supply chain efficiency and customer satisfaction.
In addition, AI technologies are subject to increasing regulation. New and evolving privacy and AI regulations worldwide have increased our compliance obligations, costs, and exposure to potential legal action. It can be technically challenging to keep AI algorithms fully compliant with these standards. In some instances, these constraints may limit our ability to deploy AI-driven features or delay product launches.
AI may also be used by bad actors for sophisticated phishing emails or malicious code that can bypass traditional security measures, increasing the likelihood of successful data breaches, cyber threats, and system compromises. AI usage in smart
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home devices can be targeted by bad actors for unauthorized access of devices or corruption of the devices and/or connected system. Unauthorized access can lead to sophisticated attacks, compromising user safety and privacy. Additionally, AI can be used to generate harmful code that exploits software vulnerabilities, leading to data breaches and system downtime.
Failure to effectively manage these AI-related risks could adversely affect our competitive standing, financial results, and brand reputation. Even with robust oversight and legal review, the pace of AI innovation and regulatory changes can outstrip existing safeguards, creating further uncertainty and potential liability.
Weakness in the economy, market trends and other conditions affecting the profitability and financial stability of our customers, our supply chain and our logistics network could negatively impact our sales growth, costs and results of operations.
Economic, political and industry trends affect our business environment. In particular, our business is affected by the performance of the global new construction and the repair and remodel construction industry. Similarly, the slowing of the housing market may result in reduced demand for the products we manufacture and distribute. These and other industries and markets we serve have demand that is sensitive to the production activity, capital spending and demand for products and services of our customers. Many of these customers operate in markets that are subject to fluctuations resulting from market uncertainty, trade and tariff policies, costs of goods sold, supply shortages or reduced availability of raw materials, components and finished goods; capacity constraints or delays at suppliers, third-party contract manufacturers, component vendors and other suppliers, ports and logistics hubs, currency exchange rates, interest rate fluctuations, government spending and government shutdowns, economic downturns, recessions, foreign competition, offshoring of production, oil and natural gas prices, information system outages or cyber incidents, geopolitical developments, labor shortages, work stoppages, natural or human induced disasters, extreme weather, disruptions to transportation infrastructure and networks, outbreaks of pandemic disease, inflation, deflation and a variety of other factors beyond our control. Certain of these factors have in the past, could in the future, cause customers to idle, delay purchases, reduce production levels or experience reductions in the demand for their own products or services. Similarly, certain of these factors have in the past, and could in the future, impact our supply chain and logistics network and could cause shipment delays, backlogs, longer lead times and higher transportation, import and export costs.
Any of these events could also reduce the volume of products and services these customers purchase from us or impair the ability of our customers to make full and timely payments and could cause increased pressure on our pricing and terms of sale. Accordingly, a significant or prolongedslowdown in economic activity in the U.S. or any other major world economy, or a segment of any such economy, could negatively impact our sales and results of operations.
Failure to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact our results.
Product and service quality issues could result in a negative impact on customer confidence in our Company, our products and our brand image. If our offerings do not meet applicable legal and safety standards or our customers’ expectations regarding safety or quality, or if our products are improperly designed, manufactured, packaged, or labeled, or are otherwise alleged to cause harm or injury, we may need to recall those items, experience increased warranty costs or lost sales, and increased costs and exposure to legal, financial, and reputational risks including litigation and government enforcement action, as well as product liability claims. Such actions may damage our relationship with our customers which may result in a loss of market share. Additionally, the financial expenses related to such events may not be covered by our insurance or may be subject to deductibles. We have had instances in the past and may in the future be unable to obtain indemnity or reimbursement from our suppliers or other third parties for the warranty costs or liabilities associated with our products and there can be no assurance that we will have adequate reserves to cover any recalls and repair and replacement costs. We have in the past experienced, and may in the future experience, product recalls and litigation related to our products or services, none of which have been material to date. A significant product recall, warranty claim, or product liability case, especially with respect to our security and life safety-related products or services, could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our products and services. We rely on qualified installers and integrators to sell and install many of our products and solutions for end-users and if our solutions are not properly installed they may fail to operate as intended which could adversely impact our reputation and consumer confidence in our products and solutions and otherwise expose us to financial liability and adversely affect our business, results of operations, and financial condition.
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We may not be able to retain or expand relationships with certain significant customers.
A number of our customers contribute significantly to our net revenue and operating income. Consolidation, change of control, or termination of the contractual relationships with any of these customers, particularly among our OEM customers (and in certain instances, their authorized dealers), or a decision by any one or more of our customers to outsource all or most manufacturing work to a single equipment manufacturer, or to partner with third parties has in the past and may in the future continue to concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a smaller number of customers. We generally have to qualify, and are required to maintain our status, as a supplier for each of our OEM customers. A significant failure or an inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements could result in cancelled orders, increased costs, loss of sales, market share shift, loss of customers or potential breaches of contracts, which have had and could in the future have an adverse effect on our profitability and results of operations. By virtue of certain customers’ size and the significant portion of revenue that we derive from them, they can exert significant influence in the negotiation of our commercial agreements and the conduct of our business with them which could adversely affect our profitability. If consolidation among our retailers, distributors, or other channel partners who purchase our products becomes more prevalent, our business, results of operations and financial conditions could be adversely affected.
Failure to increase productivity through sustainable operational improvements, as well as an inability to successfully execute transformation programs or to effectively manage our workforce, may reduce our profitability or adversely impact our businesses.
Our profitability and margin growth are dependent upon our ability to drive sustainable improvements. We seek productivity and cost savings benefits through our ongoing transformation, restructuring, and other programs, such as consolidation and outsourcing of manufacturing operations or facilities, reductions in manufacturing shifts, transitions to cost-competitive regions, workforce optimizations, product line rationalizations and divestitures, and other cost-saving initiatives. Risks associated with these actions that we have in the past or may in the future experience include delays in execution of the planned initiatives, additional unexpected costs, asset impairments, realization of fewer than estimated productivity improvements, reduced ability to manage supply chain anomalies, employment claims, and adverse effects on employee morale leading to reduced production and unanticipated departures. We may not realize the full operational or financial benefits we expect, the recognition of these benefits may be delayed, and these actions may potentially disrupt our operations. In addition, organizational changes, attrition, labor relations difficulties, or work stoppages could have an adverse effect on our business, reputation, financial condition, results of operations, and cash flows.
We are subject to the economic, political, regulatory, foreign exchange, and other risks of international operations.
Our international revenue represented approximately 22% of our net revenue for the year ended December 31, 2025. Our international geographic footprint subjects us to many risks including but not limited to: exchange control regulations; wage and price controls; antitrust/competition and environmental regulations; employment regulations; foreign investment laws; monetary and fiscal policies and protectionist measures that may prohibit acquisitions or joint ventures, establish local content requirements, or impact trade volumes; import, export and other trade restrictions (such as embargoes); tariffs; violations by our employees of anti-corruption laws (despite our efforts to mitigate these risks); changes in regulations regarding transactions with state-owned enterprises; nationalization of private enterprises; natural and man- made disasters, hazards and losses; backlash from foreign labor organizations related to our restructuring actions; violence; civil and labor unrest; acts of terrorism; global conflicts; and our ability to hire and maintain qualified staff and maintain the safety of our employees in these regions.
Additionally, certain of the markets in which we operate have adopted increasingly strict requirements concerning personal and non-personal data, privacy, artificial intelligence and cybersecurity. These requirements may negatively affect our ability to maintain, develop, sell and advertise our products and our services, may limit our ability to derive revenue from data, may require us to disclose product and services data to our competitors, may cause us to incur additional expense in obtaining mandatory or quasi-mandatory certifications, and may restrict our ability to transfer data internationally.
With respect to our Products and Solutions segment, we operate six manufacturing facilities in northern Mexico, a country that periodically experiences heightened civil unrest or may experience trade disputes with the U.S., both of which could cause a disruption of the supply of products to or from these facilities. Some of our Mexican facilities are authorized to operate as Maquiladoras by the Ministry of Economy of Mexico. Maquiladora status allows us to temporarily import raw materials into Mexico, provided that such items, after processing, are exported from Mexico within a stipulated time frame. Maquiladora status is subject to various restrictions and requirements, including compliance with the terms of the
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Maquiladora program and other local regulations, which have become stricter in recent years. In addition, if the Mexican government adopts additional adverse changes to the program, including nationalization, our manufacturing costs in Mexico would increase.
Current global conflicts, have created substantial uncertainty in the global economy, including sanctions and penalties imposed on certain countries from several governments. We are unable to predict the impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these financial statements.
We operate in many diverse regions that require modifications to our products based on local building codes, regulations, standards, certifications, and other factors, which may impact our cost to serve and profitability as we continue our penetration into these regions.
We rely on a dependable information technology (“IT”) infrastructure and network operations that have adequate cybersecurity functionality.
The efficient operation of our business requires substantial investment in technology infrastructure systems, including enterprise resource planning systems, information systems, supply chain management systems, digital commerce systems, and connected solutions platforms and network operations and systems. The failure to acquire, implement, maintain, and upgrade these systems may impact our ability to respond effectively to changing customer expectations, manage our business, scale our solutions effectively, or impact our customer service levels, which may put us at a competitive disadvantage and negatively impact our business, results of operations, financial condition, and cash flows. In connection with our acquisition of the Snap One business, we are in the process of consolidating and integrating our ADI Global Distribution business and Snap One enterprise applications. We have experienced delays in certain aspects of the implementation of certain ADI Global Distribution enterprise systems; while we have resolved concerns to date related to the system implementation, we may not be able to successfully implement or consolidate all systems without additional challenges with the critical implementation process. While we have in the past experienced interruptions of service in our enterprise systems, none of these have been material to date. Repeated or prolongedinterruptions of service, due to cyber threats or problems with our systems or third-party technologies could have a significant negative impact on our reputation and our ability to sell products and services. Our business, results of operations, financial condition, and cash flows may be adversely affected if our information systems fail, become unavailable for prolonged periods of time, are corrupted or do not allow us to transmit accurate information. Failure to properly or adequately address these issues, including the failure to fund backups, upgrades, and improvements to our systems, could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, results of operations, financial condition, and cash flows. Our ability to keep our business operating is highly dependent on the proper and efficient operation of our own and our third-party data centers, networks, and data backup systems. In addition, a significant portion of our employees are engaged in remote or hybrid work from their homes, which further exposes our IT systems to potential cyber interference and disruption of work activities based on availability and performance of internet access in the regions in which our employees reside.
Our IT and engineering systems contain sensitive information, including personal data, trade secrets, and other proprietary information. In addition, our connected products potentially expose our business and customers to cybersecurity threats. As a result, we have experienced and may in the future be subject to systems interruption, data corruption, data loss, and service and product failures, not only resulting from the failures of our products or services but also from the failures of third-party service providers, natural disasters, power shortages or terrorist attacks, and cyber or other security threats. There is no assurance that the comprehensive security measures we have put in place to protect our IT and engineering systems, services, and products againstunauthorized access and disclosure of personal data or confidential or trade secret information will be effective in every case.
We have experienced, and expect to continue to experience, cybersecurity threats and incidents, none of which, to our knowledge, have been material to date. The potential consequences to any of our connected solutions platforms, data centers, or network operations and systems resulting from a material cyber or other security incident such as a successful ransomware attack or malicious publication of confidential information, trade secrets, or personal data include financial loss, reputational and brand impact, negative media coverage, loss of stockholder value, loss of customers, litigation with third parties, including class-action litigation, regulatory investigations, audits, or other enforcement actions, theft of intellectual property, fines, regulatory reporting for data breaches, and increased cyber and other security protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness, business, financial condition, results of operations, and cash flows. In addition, damages, fines and claims
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arising from such incidents may not be covered by, or may exceed the amount of any insurance available or may not be insurable.
Enhanced tariff, import/export restrictions, or other trade barriers may continue to impact global economic conditions.
We are subject to certain laws and regulations affecting our international operations which, among other things, provide certain preferential duties and tariffs for qualifying imports subject to compliance with the applicable rules of origin and other requirements. Various modifications to global tariffs, sanctions, and other trade measures have introduced uncertainty in global markets that could adversely affect the business of our customers and suppliers, which could in turn negatively impact our net revenue, cash flows, and results of operations.
In addition, the U.S. federal government, and certain states, as well as other foreign governments including the United Kingdom and European Union, have imposed certain restrictions on the licensing, use and import, and export of certain surveillance, networking, telecommunications, and other equipment manufactured by certain of our suppliers based in China for our ADI Global Distribution business, which may require us to find additional sources of end-user products and result in higher costs. We have in the past had inquiries and claims from the U.S. federal government and a U.S. state court regarding sales of certain Chinese made products in the U.S., which inquiries and litigation could impact our business reputation.
On February 20, 2026, the U.S. Supreme Court issued its opinion that the tariffs imposed by the U.S. government under the International Emergency Economic Powers Act (“IEEPA”) were unauthorized. The opinion did not direct refunds or remedies, leaving the decision on that to the lower courts, and it is anticipated that there will be litigation on any remedies set by the lower courts. On a go-forward basis, the U.S. government directed agencies to take measures to cease collection of tariffs, but did not address how or when the tariff collection would stop or whether any refunds should be issued. Further, by a presidential proclamation a new tariff surcharge of not less than 10% was directed under the balance of payments statute ( 19 USC 2132 ) on all imports with certain exceptions for certain commodities (e.g., electronics, critical minerals) and United States-Mexico-Canada Agreement (“USMCA”) qualified products. The tariffs under this statute are intended to take effect on February 24, 2026, and will remain in effect for 150 days (the maximum under the statute). Tariffs have not been previously imposed under this statutory provision. We are currently evaluating the impacts of these actions on our business.
Further, we cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes, or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The continuing adoption or expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, operating results, and financial condition.
Regulations and societal actions to respond to global climate change could negatively affect our business.
Responses to climate change may cause a shift away from fossil fuels to alternative power sources such as electricity or alternative fuels such as natural gas/hydrogen mixtures. Many of our thermal solutions are designed for application with oil and gas systems. A shift away from fossil fuels could affect our OEM customers’ business and result in a loss of business for them and for us. If we fail to adapt our solutions to alternative power sources, it could have an adverse effect on our business, financial condition, results of operations, and cash flows. Similarly, regulations to drive higher fuel efficiency and requirements to support varying fuel mix could shift business away from us if we fail to adapt our solutions to address these needs in a timely manner.
Addressing stakeholder expectations and regulatory requirements relating to corporate responsibility (“CR”) matters requires an investment of time, money, and other resources. We have periodically communicated our strategies, commitments, and targets related to CR matters through the issuance of a CR report. Although we are committed to these strategies and targets, we may be unable to achieve them due to impacts on resources, operational costs, regulatory changes, and technological advancements. Furthermore, investor and other stakeholder expectations relating to CR matters have changed over time. Any failure or perceived failure by us to achieve our strategies or targets or otherwise respond to stakeholder expectations could adversely impact our business and reputation.
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Our business is subject to the risks of earthquakes, hurricanes, tornadoes, fires, power outages, floods, pandemics, epidemics, natural disasters, and other catastrophic events or other public health emergencies.
A significant natural disaster, such as an earthquake, hurricane, tornado, fire, flood, or a public health pandemic, or a significant power outage could harm our business, financial condition, cash flows, and results of operations. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity and frequency, sea-level rise, and temperature extremes in areas where we conduct our business. Extreme weather, natural disasters, power outages, global health crises, or other unexpectedcatastrophic events have in the past and could in the future disrupt our operations by impacting the availability and cost of materials needed for manufacturing, causing physical damage and partial or complete closure of our manufacturing sites or distribution centers, loss of human capital, and disruption in the manufacturing and supply of products and services to customers.
With respect to our Products and Solutions segment, we operate six manufacturing facilities in Mexico and rely on third-party manufacturing partners with manufacturing capabilities in Mexico. A significant portion of our finished products are manufactured in Mexican sites, several of which operate in water stressed environments. A significant natural disaster or other event affecting the region could have a material and disproportionate impact on our ability to manufacture our products. Further, if a natural disaster or other event occurs in a region from which we derive a significant portion of our revenue, consumers in that region may delay or forego purchases of our products and solutions in the region, which may harm our results of operations for a particular period. These risks may be increased if the disaster recovery plans for us and our suppliers prove to be inadequate. To the extent that any of the above results in delays or cancellations of orders, or delays in the manufacture, deployment or shipment of our products and solutions, our business, financial condition, cash flows, and results of operations would be harmed, and if such event adversely affects our business and financial results, they may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Risks Associated with the Proposed ADI Spin-Off
The proposed ADI Spin-Off is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.
Resideo’s proposed separation into two independent, publicly traded companies is complex in nature, and unanticipated developments or changes, including changes in the law, the macroeconomic environment, competitive conditions of Resideo’s markets, regulatory approvals or clearances, the uncertainty of the financial markets and challenges in executing the ADI Spin-Off, could delay or prevent the completion of the transaction or cause the transaction to occur on terms or conditions that are different or less favorable than expected. We expect to complete the ADI Spin-Off in the second half of 2026, subject to satisfaction of customary conditions, including among others, final approval from the Resideo Board of Directors, filing and effectiveness of a registration statement on Form 10 with the SEC, receipt of a tax opinion from our advisors and/or private letter ruling from the Internal Revenue Service, satisfactory completion of financing, and receipt of necessary consents and regulatory approvals. There can be no assurance that the conditions to the completion of the ADI Spin-Off will be satisfied or with respect to the ultimate timing of the intended transaction or that it will be completed at all.
The process of completing the proposed ADI Spin-Off has been and is expected to continue to be time-consuming and involves significant costs and expenses. The ADI Spin-Off costs may be significantly higher than what we currently anticipate and may not yield a discernible benefit if the ADI Spin-Off is not completed or is not well executed, or if the expected benefits of the ADI Spin-Off are not realized. Executing the proposed ADI Spin-Off will also require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business. Further, while it is intended that the transaction will be tax-free to the Company’s stockholders for U.S. federal income tax purposes, there is no assurance that the transaction will qualify for this treatment. If the ADI Spin-Off is ultimately determined to be taxable, either the Company, the spun-off entity and/or the Company’s stockholders could incur income tax liabilities that could be significant.
The ADI Spin-Off may not achieve the anticipated benefits and may expose us to additional risks.
We may not realize the anticipated strategic, financial, operational or other benefits of the ADI Spin-Off. Whether or not the spin-off is completed, we may face material challenges in connection with the intended separation, including but not limited to, attracting, retaining and motivating employees during the pendency of the ADI Spin-Off and following its completion; addressing disruptions to our supply chain, manufacturing, sales and distribution and other operations resulting from separating the Company into two independent companies; separating the Company’s information systems; and the impact of having to operate under the terms of any agreements we enter into in connection with the ADI Spin-Off.
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Additionally, there is no assurance that following the ADI Spin-Off each separate company will be successful and we cannot predict whether the market value of our common stock after the intended separation will be, in the aggregate with the shares of the spun-off entity, less than, equal to or greater than the market value of our common stock prior to the separation. The trading price of our common stock may be more volatile prior to, around the time of or following the intended separation.
A spin-off of ADI Global Distribution business could adversely affect our earnings and cash flows.
ADI Global Distribution business contributed 64% of our revenue and 35% of our operating income during the twelve months ended December 31, 2025. If the ADI Spin-Off is completed, it may adversely affect our earnings and cash flows, which in turn may result in our failure to maintain our current credit ratings from independent rating agencies that could adversely affect our cost of capital and our liquidity and access to the capital markets. If our access to capital were to become constrained significantly, or if costs of capital increased significantly, that could have a material adverse impact on our business and results of operations.
Risks Relating to Legal and Regulatory Matters
Failure to comply with the broad range of standards, laws, and regulations in the jurisdictions in which we operate may result in exposure to substantial disruptions, costs, and liabilities.
Applicable laws and regulations impose complex, stringent, and costly compliance activities, including but not limited to environmental, health, and safety protection standards and permitting, labeling and other requirements regarding, among other things, electronic and wireless communications, air emissions, wastewater discharges, the use, handling, and disposal of hazardous or toxic materials, remediation of environmental contamination, anti-money-laundering and anti-corruption, antitrust and competition law concerns, data security, data protection and data privacy, consumer protection and working conditions, and benefits for and compensation of our employees. We may also be affected by future standards, laws, or regulations, including those imposed in response to cybersecurity, energy, decarbonization, climate change, product functionality, geopolitical, corporate social responsibility, data privacy, artificial intelligence, new types of online advertising, or similar concerns. We expect that the growth of our business may depend on our development of new technologies in response to such regulations and laws. These standards, laws, or regulations may further impact our costs of operation, the sourcing of raw materials, and the manufacture, design, redesign, and distribution of our products and place restrictions and other requirements on the products and solutions we can sell. 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, as well as changes in trade agreements, tariffs, and environmental and energy efficiency standards. We have in the past been subject to and in the future may be subject to various claims, including legal and regulatory claims arising in the normal course of business. Such claims may include without limitation employment and benefits claims, product recall, personal injury, network security, breaches of or other non-compliance with cybersecurity, data protection, data privacy, or advertising and marketing regulations, or property damageclaims resulting from the use of our products, services, or solutions, as well as exposure to hazardous materials, contract disputes, or intellectual property disputes. The actual costs of resolving legal claims may be substantially higher or lower than the level of insurance coverage we hold and/or the amounts accrued for such claims or may be excluded from coverage. In the event of unexpected future developments, it is possible that the ultimate resolutions of such matters could be unfavorable.
Various laws and regulations as well as contracts we have entered into with third parties apply to the collection, processing, transfer, disposal, disclosure, and security of personal data and other types of regulated data, including obligations concerning clear, accurate, and transparent data use practices and advertising that is not misleading.
The interpretation and application of many privacy and data protection laws and regulations around the world may be inconsistent with our existing data use, management, and retention practices, public descriptions thereof or the features of our products and services. Any such new laws or regulations, any changes to existing laws and regulations, and any such interpretation may affect demand for our products and services, impact our ability to effectively transfer data across borders or advertise our products and services in support of our business operations, or increase the cost of providing our products and services. Additionally, any actual or perceived breach of such laws or regulations may subject us to claims and may lead to administrative, civil, or criminal liability, as well as fines and reputational harm. We could also be required to fundamentally change our business activities and practices, or modify or re-design our products and services, which could have an adverse effect on our business, financial condition, results of operations, and cash flows. Claims or lawsuits related to cybersecurity, advertising, marketing, data protection or data privacy initiated by governmental bodies, customers, or other third parties, whether meritorious or not, could be time consuming, result in costly regulatory proceedings, litigation, fines and other liabilities, or require us to change our business practices, sometimes in expensive ways. Unfavorable
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publicity regarding our privacy practices could injure our reputation, harm our ability to keep existing customers or attract new customers, or otherwise adversely affect our business, assets, revenue, brands, and reputation.
Changes in laws, regulations, or government enforcement of policies concerning the environment, the discovery of previously unknown contamination or new technology or information related to individual contaminated sites owned or operated by Resideo, the establishment of stricter state or federal toxicity standards with respect to certain contaminants, or the imposition of new clean-up requirements or remedial techniques, could require us to incur additional currently unanticipated costs in the future that would have a negative effect on our business, financial condition, results of operations, and cash flows.
We are currently subject to laws and regulations regarding labor, employment and benefits matters, including consultation requirements, and may be subject in the future to government investigations and/or claims, allegations and/or work stoppages in these areas that may have a negative effect on our business operations and/or financial results.
We cannot predict with certainty the outcome of litigation matters, government proceedings, and other contingencies and uncertainties.
In the ordinary course of business, we may make certain commitments, including representations, warranties, and indemnities relating to current and past operations, and issue guarantees of third-party obligations. We have in the past and may in the future be subject to various lawsuits, investigations, or disputes arising out of the conduct of our business, including matters relating to public disclosure and reporting, commercial transactions, government contracts, product liability, prior acquisitions and divestitures, compliance with laws, labor and employment matters, employee benefit plans, intellectual property, and environmental, health and safety matters.
We have incurred, and may continue to incur, significant costs in connection with some or all of these matters.
While we maintain or may otherwise have access to insurance for certain risks, certain risks may be excluded, and the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims, legal fees, costs, and liabilities, and we may have to satisfy high insurance retentions. The incurrence of significant liabilities for which there is no or insufficient insurance coverage (or where there is available insurance but high retention levels) could adversely affect our liquidity and financial condition, results of operations, and cash flows.
As described in Note 15. Commitments and Contingencies of the Notes to Consolidated Financial Statements, we are subject to potentially material liabilities related to the investigation and cleanup of environmental hazards and to claims of personal injuries or property damages that may arise from hazardous substance releases and exposures. These liabilities arise out of our current and past operations and the operations and properties of predecessor companies (including off-site waste disposal). We are also subject to potentially material liabilities related to compliance of Resideo owned 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. 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.
Risks related to the Honeywell Spin-Off, our agreements and our relationships with Honeywell
In connection with the Honeywell Spin-Off, we entered into the Tax Matters Agreement with Honeywell, pursuant to which we are responsible and will indemnify Honeywell for certain taxes, including certain income taxes, sales taxes, VAT, and payroll taxes, relating to the business for all periods, including periods prior to the consummation of the Honeywell Spin-Off (“Tax Matters Agreement”). Refer to Note 15. Commitments and Contingencies of the Notes to Consolidated Financial Statements.
The Honeywell Spin-Off was generally intended by Honeywell to be a tax-free transaction for our stockholders, but any failure to comply with the relevant tax requirements could result in certain of our stockholders incurring substantial tax liabilities. In addition, we may have material payment obligations to Honeywell under the Tax Matters Agreement, including upon the resolution of pending or future disputes with Honeywell regarding the appropriate allocation of tax liabilities incurred in connection with the Honeywell Spin-Off.
We may have disputes with Honeywell regarding the allocation of tax related liabilities between us and Honeywell under the Tax Matters Agreement. While we maintain reserves for potential liabilities arising under the Tax Matters Agreement,
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to the extent we are obligated to indemnify Honeywell for tax related liabilities in respect of matters that are not reserved or in excess of reserved amounts, including upon resolution of any dispute with Honeywell, such payments could have a material adverse effect on our business, financial condition, and cash flows.
In addition, conflicts of interest have arisen in the past and may in the future arise with Honeywell in a number of areas relating to our past and ongoing relationships, including: tax, employee benefit, indemnification, and other matters arising from our separation from Honeywell; intellectual property matters; and interpretations of contractual arrangements.
We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with a party other than our former parent company.
The agreements that we entered into with Honeywell in connection with the Honeywell Spin-Off may impose significant restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests. As described in more detail in Note 15. Commitments and Contingencies of the Notes to Consolidated Financial Statements, the Trademark Agreement is terminable by Honeywell under certain circumstances, including if we fail to comply with all material obligations. 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. Our intention to separate the ADI Global Distribution business through a tax-free spin-off to our shareholders does not impact the terms of the Trademark Agreement.
We and Honeywell also have had and may in the future have disputes under the agreements and related exhibits entered into in connection with the Honeywell Spin-Off. In addition, because of their former positions with Honeywell, certain of our executive officers, own equity interests in Honeywell. Continuing ownership of Honeywell stock and equity awards could appear to create potential conflicts of interest if our Company and Honeywell face decisions that could have implications for both our Company and Honeywell.
The terms of our debt documents may impose restrictions on our business and our operations require substantial capital and we may not be able to obtain additional capital that we need in the future on favorable terms or at all.
The terms of our varied indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and limit our ability to engage in actions that may be in our long-term best interests, including actions such as incurring additional indebtedness, paying dividends, making investments or acquisitions, selling or transferring certain assets, and other corporate actions. If market changes, economic downturns, or other negative events occur, our ability to comply with these covenants may be impaired. A breach of any of these covenants could result in an event of default under the terms of our indebtedness, giving lenders the right to accelerate the repayment of such debt, which could adversely affect our business, financial condition, results of operations, and cash flows. Additionally, we might not have, or be able to obtain, sufficient funds to make these accelerated payments, and lenders could then proceed against any collateral. Any new indebtedness could have similar or greater restrictions. As a result of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to raise additional debt financing to operate during general economic or business downturns, or unable to compete effectively or to take advantage of new business opportunities.
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, fund acquisitions, pay preferred stock dividends to the extent we choose to settle these dividends in cash, and meet general working capital needs. If our access to capital were to become constrained significantly, or if costs of capital increased significantly, due to lowered credit ratings, increased interest rates, prevailing business conditions, financial leverage, the volatility of the capital markets, decreased investor interest, or other factors, our business, financial condition, results of operations, and cash flows could be adversely affected and our ability to fund future development and acquisition activities could be impacted.
We believe that we have adequate capital resources to meet our projected operating needs, capital expenditures, and other cash requirements. However, we may need additional capital resources in the future and if we are unable to obtain
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sufficient resources for our operating needs, capital expenditures, and other cash requirements for any reason, our business, financial condition, and results of operations could be adversely affected.
Risks Relating to Our Common Stock and the Securities Market
Our stock price has been volatile; stockholder’s percentage ownership in our Company may be diluted in the future.
The market price of our common stock has been volatile in the past and may be volatile in the future. The market price of our common stock may be significantly affected by the following factors: actual or anticipated fluctuations in our operating results; changes in financial estimates by securities analysts or our failure to perform in line with such estimates; announcements by us or our competitors of significant technical innovations, acquisitions, divestitures, strategic partnerships, joint ventures, or capital commitments; the potential spin-off of the ADI Global Distribution business; the loss of, or decrease in sales to, one or more key customers; global macroeconomic conditions; and departures of key personnel.
A stockholder’s percentage ownership in our Company may be diluted in the future because of common stock-based equity awards that we have granted and expect to grant in the future in accordance with our 2018 Stock Incentive Plan for the benefit of certain employees and other service providers, as well as our equity plan for our non-employee directors. In addition, we may issue additional equity as necessary to finance our ongoing operations and future acquisitions.
In addition, our Amended and Restated Certificate of Incorporation (“our Certificate”) authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock, which may have preferences over our common stock with respect to dividends and distributions, as our Board may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. Refer to the risk factor “The preferred stock issued in connection with the Snap One transaction has rights, preferences, and privileges that are not held by, and are preferential to, the rights of our common stock and has reduced the relative voting power of the holders of our common stock.” Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of our common stock.
The preferred stock issued in connection with the Snap One transaction has rights, preferences, and privileges that are not held by, and are preferential to, the rights of our common stock and has reduced the relative voting power of the holders of our common stock.
In June 2024, we issued 500,000 shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), to CD&R Channel Holdings, L.P. (the “CD&R Stockholder”), an entity affiliated with the investment firm Clayton, Dubilier & Rice LLC, pursuant to an Investment Agreement dated April 14, 2024. The proceeds of the issuance were used to partially finance the Snap One transaction. The Preferred Stock is convertible perpetual participating preferred stock of Resideo. Refer to Note 16. Stockholders’ Equity of the Notes to Consolidated Financial Statements for a description of the material terms of the Preferred Stock, including with respect to conversion rights, voting rights, dividend rights, anti-dilution adjustments and the Company’s optional redemption rights.
Certain of the preferential rights belonging to the Preferred Stock could result in divergent interests between the holders of the Preferred Stock and our common shareholders. In addition, our obligations to pay regular dividends to the holders of the Preferred Stock (which we may elect to pay in cash or in-kind) or the exercise of any of our optional redemption rights with respect to the outstanding Preferred Stock could, if paid in cash, impact our liquidity and reduce the amount of cash available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes.
The CD&R Stockholder holds a significant equity interest in our business and may exercise influence over us, including through its ability to designate up to two directors to our board of directors, and its interests as a preferred equity holder may diverge from, or even conflict with, the interests of our other holders of our common stock.
The CD&R Stockholder beneficially owns shares of our common stock and Preferred Stock, which, taken together on an as-converted basis, represent approximately 19.9% of our total voting power based on CD&R’s Schedule 13-D filed November 11, 2025 and total shares outstanding as of December 31, 2025. As a result, the CD&R Stockholder may have the indirect ability to influence our policies and operations. In addition, under the Investment Agreement, the CD&R Stockholder is entitled to appoint up to two directors to our board of directors, subject to specified minimum ownership requirements. Both Nathan K. Sleeper and John Stroup, partners at CD&R, currently serve as directors. With such representation on our board of directors, the CD&R Stockholder has influence over the appointment of management and
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any action requiring the vote of our board of directors, including significant corporate action such as mergers and sales of substantially all of our assets. Additionally, for so long as the CD&R Stockholder owns Preferred Stock, certain matters will require the approval of the CD&R Stockholder, including: (1) amendments to our certificate of incorporation, the certificate of designations for the Preferred Stock or our bylaws that would alter or change the terms or the powers, preferences, rights, or privileges of the Preferred Stock as to affect them adversely; (2) authorizing, creating, increasing the authorized amount of, or issuing any class or series of equity securities that rank senior to or on party with the Preferred Stock; (3) increasing or decreasing the authorized number of shares of Preferred Stock; (4) amending certain debt financing documents to include limitations on our ability to accrue dividends on the Preferred Stock that are more restrictive in any material respect than those set forth in our existing debt financing documents; or (5) adopting any plan of liquidation or filing any voluntary petition for bankruptcy, receivership, or any similar proceeding. The CD&R Stockholder and its affiliates are in the business of making or advising on investments in companies, including businesses that may directly or indirectly compete with certain portions of our business. In addition, the CD&R Stockholder may have an interest in pursuing acquisitions, divestitures, financings, or other transactions that, in their judgment, could enhance their overall equity investment and have a negative impact to holders of our common stock as a whole.
Certain provisions in our governing documents may discourage takeovers.
Several provisions of our governing documents and Delaware law may discourage, delay, or prevent a merger or acquisition. These provisions include: our stockholders are not permitted to act by written consent; advance notice requirements for stockholder nominations and proposals; limitations on the persons who may call special meetings of stockholders and limitations on our ability to enter into business combination transactions.
These and other provisions of our governing documents and Delaware law may discourage, delay, or prevent certain types of transactions involving an 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.
General Risk Factors
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could adversely affect our business, financial condition, results of operations, and cash flows.
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 personnel for our operations. Competition for qualified personnel in our markets is intense; many locations in which we operate have seen competition for talent and increases in wages, and we may not be successful in attracting or retaining qualified personnel. The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel could negatively affect our business, financial condition, results of operations and cash flows. With our intent to spin our ADI Global Distribution business, there can be no guarantee that we will be able to recruit and retain critical executive talent who have the necessary skill sets and capabilities required to lead the Company, nor can we guarantee the timeline required for such recruitment.
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 changes to the various statutory tax rates and rules to which we are subject and other factors outside our control. 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 may adversely impact our provision for income taxes.
Currency exchange rate fluctuations and financial counterparty risks may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in currency exchange rates. Refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . Approximately 22% of our 2025 net revenue was derived outside the U.S., and we expect sales to non-U.S. customers to continue to represent a similar portion of our consolidated net revenue. A significant amount of our payment obligations, including pursuant to the Tax Matters Agreement and our debt obligations are denominated in U.S. dollars. Finally, we generate significant amounts
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of cash outside of the U.S. that are invested with foreign financial counterparties. These factors expose us to foreign exchange risk.
Although we may enter into currency exchange contracts to reduce our risk related to currency exchange fluctuations, changes in the relative fair values of currencies occur from time to time and may, in some instances, have a material impact on our operations. We do not currently hedge against our currency exposure and, therefore, our business will continue to be susceptible to currency fluctuations. While we employ comprehensive controls regarding global cash management, a material disruption to the counterparties with whom we transact business could expose us to financial loss.
We also translate assets, liabilities, revenue, and expenses denominated in non-U.S. dollar currencies into U.S. dollars for our Consolidated Financial Statements based on applicable exchange rates. Consequently, fluctuations in the value of the U.S. dollar compared to other currencies may have a material impact on the value of these items in our Consolidated Financial Statements, even if their value has not changed in their original currency.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
The Sarbanes-Oxley Act of 2002 requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. If we are not able to comply with the requirements of Section 404 thereunder in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by SEC or other regulatory authorities, which would require additional financial and management resources.
Even if we were to conclude, and our auditors were to concur, that our internal 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 accounting principles generally accepted in the U.S. (“U.S. GAAP”), because of its inherent limitations, internal control over financial reporting might not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.
If our goodwill, other intangible assets and long-lived assets become impaired, we may be required to record a significant charge to earnings.
We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. We review other intangible assets and long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results. If the assumptions used in our analysis are not realized or if there was an adverse change in facts and circumstances, it is possible that an impairment expense may need to be recorded in the future. If the fair value of our reporting units falls below their carrying amounts because of reduced operating performance, market declines, changes in the discount rate, or other conditions, expenses for impairment may be necessary. Any such expenses may have a material negative impact on our results of operations. There were no material impairment expenses taken during the years ended December 31, 2025, 2024, and 2023.
We may be required to make significant cash contributions to our defined benefit pension plans.
We sponsor defined benefit pension plans under which certain eligible employees will earn pension benefits. We have plans in several countries including the U.S., the terms of which require that such qualified defined benefit pension plans maintain certain capitalization levels. Changes in discount rates and actual asset returns different than our anticipated asset returns can result in significant non-cash actuarial gains or losses. With regard to cash pension contributions, funding requirements for our pension plans are largely dependent upon interest rates, actual investment returns on pension assets, and the impact of legislative or regulatory changes related to pension funding obligations. Our future required pension plan contributions may be material and could adversely impact our financial condition, cash flows, and results of operations. We may need to make pension plan contributions in future periods sufficient to satisfy funding requirements.
We manage our business operations through two business segments, Products and Solutions and ADI Global Distribution.
Our Products and Solutions segment offerings include temperature and humidity control, water and air solutions, smoke and carbon monoxide detection home safety products, residential and small business security products, video cameras, other home-related lifestyle convenience solutions, cloud infrastructure, installation and maintenance tools, and related software. We also sell components to manufacturers of water heaters, heat pumps, and boilers. Our products and solutions for comfort, energy management, safety, and security benefit from trusted, well-established branded offerings such as Braukmann, BRK, First Alert, Honeywell Home, Resideo, and others.
Our ADI Global Distribution segment is a leading, global specialty distributor of professionally installed low-voltage products, including security and AV solutions, serving commercial and residential markets through an omnichannel go-to-market platform. ADI Global Distribution sells primarily to licensed professional installers, dealers, and integrators. We offer an expansive list of products from leading suppliers across key specialty low-voltage categories. ADI complements our third-party supplier products with a suite of exclusive brands and services offerings.
Our financial performance is influenced by macroeconomic factors underlying end user demand such as repair and remodeling activity, residential and commercial construction, new and existing home sales, employment rates, interest rates and bank lending standards, and supply chain dynamics that can be influenced by geopolitics. The ongoing uncertainty and volatility in the global macroeconomic and political environments have affected, and could continue to affect, our visibility toward future performance. Uncertainties remain, including the global tariff environment, geopolitical relations between and among the U.S. and other countries, potential for changes in inflation and interest rates, increased labor costs, reduced consumer spending due to softening labor markets, elevated mortgage rates, shifts in energy policies, and potential market and other disruption from any of the above.
Outlook
For 2026, we anticipate executing our business operations against a highly dynamic global macroeconomic environment. The vast majority of costs associated with the building products that the Products and Solutions segment sells in the U.S. are incurred in Mexico. Most Products and Solutions products manufactured in Mexico, along with a significant portion of the ADI Global Distribution segment products sourced in Mexico, are currently exempt from tariffs under the USMCA or specific commodity exceptions. Tariff impacts related to imported products that are not subject to the USMCA or another exception may be impacted by the new tariff surcharge of at least 10%. We will continue to take actions to address the cost
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impact of any tariffs that affect our business; however, rising prices and other macroeconomics factors may lead to lower purchase levels by our customers. We are monitoring these dynamics closely and will adjust our business operations as appropriate. Also, we anticipate slow growth in the U.S. residential housing market and a moderation of growth in the non-residential construction market. Based on the aforementioned, our 2026 revenue outlook is growth in the mid-single-digits range year-over-year.
Basis of Presentation and Reclassifications
Refer to Note 1. Nature of Operations and Basis of Presentation of the Notes to Consolidated Financial Statements.
Results of Operations
This section of the Form 10-K discusses fiscal 2025 and fiscal 2024 items and year-over-year comparisons of these periods. Discussions of fiscal 2023 items and year-over-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in Part II, Item 7 in our 2024 Annual Report on Form 10-K filed February 20, 2025.
The following table represents results of operations on a consolidated basis for the periods indicated:
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Years Ended December 31,
(in millions, except per share data and percentages)
$ change
% change
Net revenue
Cost of goods sold
Gross profit
Gross Profit %
130 bps
Operating expenses:
Research and development expenses
Selling, general and administrative expenses
Intangible asset amortization
Restructuring, impairment and extinguishment costs
Business separation costs
Total operating expenses
Income from operations
Indemnification Agreement expense (1)
Other expense (income), net
Interest expense, net
Net income (loss) before taxes
Provision for income taxes
Net income (loss)
Less: preferred stock dividends
Less: undistributed income allocated to preferred stockholders
Net income (loss) available to common stockholders
Earnings (loss) per common share
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
(1) In connection with the Honeywell Spin-Off, we entered into an indemnification and reimbursement agreement, pursuant to which we had an obligation to make cash payments associated with Honeywell’s environmental liabilities (the “Indemnification Agreement”) which was terminated in August 2025.
Net Revenue
Net revenue for the year ended December 31, 2025 was $7,472 million, an increase of $711 million, or 10.5%, compared to the same period in 2024. The increase was primarily due to $446 million of revenue from the acquisition of Snap One, $193 million from favorable price and mix, $47 million from higher sales volume, and $32 million from favorable foreign currency exchange rates.
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Gross Profit
The chart below presents the drivers of the gross profit variance from the years ended December 31, 2024 to December 31, 2025.
Gross profit for the year ended December 31, 2025 was $2,196 million, an increase of $295 million, or 15.5%, compared to the same period in 2024, as shown in the above waterfall.
Gross margin rate for the year ended December 31, 2025 was 29.4%, an increase of 130 basis points (“bps”) from the prior year. The increase was primarily driven by favorable price and mix shift of 100 bps, and favorable impacts from the acquisition of Snap One of 50 bps. The increase was partially offset by lower margins on sales volumes of 20 bps.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2025 were $167 million, an increase of $56 million, or 51% compared to the same period in 2024. The increase was primarily driven by $34 million from Products and Solutions related to incremental headcount and third-party services to develop and introduce new products into the market, and $22 million from ADI Global Distribution primarily as a result of the acquisition of Snap One.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2025, were $1,266 million, an increase of $128 million, or 11.2%, compared to the same period in 2024. The increase was driven by $78 million of higher operating costs versus prior year associated with the acquisition and integration of Snap One, $44 million of incremental operating costs including payroll and benefits, rent, and third-party spend, and $6 million of unfavorable foreign currency impacts.
Intangible Asset Amortization
Intangible asset amortization for the year ended December 31, 2025 was $122 million, an increase of $42 million, or 53% compared to the same period in 2024. The increase was primarily due to amortization expense of $36 million associated with the new intangible assets acquired in the Snap One acquisition, and $6 million higher amortization primarily related to an increase in capitalized software development.
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Restructuring, Impairment and Extinguishment Costs
Restructuring, impairment and extinguishment costs for the year ended December 31, 2025 were $16 million, a decrease of $36 million, or 69% compared to the same period in 2024. The decrease was due to $26 million of lower restructuring costs in 2025 due to fewer restructuring actions, $6 million of lower impairment expenses associated with certain equity investments in the prior year, and $4 million of lower debt extinguishment and modification costs.
Business Separation Costs
Business separation costs for the year ended December 31, 2025 were $18 million. These expenditures are one‑time in nature and included third‑party advisory, consulting, legal, and other incremental separation‑related costs incurred in connection with the announced ADI Spin-Off.
Indemnification Agreement Expense
Indemnification Agreement expense for the year ended December 31, 2025 was $972 million, an increase of $761 million compared to the same period in 2024. The increase was driven by additional expense incurred in connection with the termination of the Indemnification Agreement with Honeywell.
Other expense (income), net
Other income, net for the year ended December 31, 2025 was $43 million, a change of $50 million compared to other expenses, net of $7 million in the same period in 2024. The change was primarily driven by a $52 million gain on sale recorded in 2025 in connection with the sale of the Resideo Grid Services business by the Products and Solutions segment, and $11 million from amortization of actuarial gains related to the non-U.S. pension plans, which was partially offset by $17 million of foreign currency impacts.
Interest Expense, Net
Interest expense, net for the year ended December 31, 2025 was $135 million, an increase of $54 million, or 67% compared to the same period in 2024. The increase was primarily due to an approximately $1.2 billion increase in outstanding debt resulting in $34 million of higher interest expense, a decrease of $14 million in interest rate derivative related receipts due to interest rate fluctuations and a lower aggregate notional amount of interest rate swaps due to maturities, and lower interest income of $5 million as a result of lower interest rates and lower cash balances.
Tax Expense
Income tax expense for the year ended December 31, 2025 was $70 million, a decrease of $35 million or 33% compared to the same period in 2024. The decrease was primarily driven by a decrease in income before taxes and an increase in the non-deductible Indemnification Agreement expense, offset by an increase in deductible interest expense.
The effective income tax rate decreased from 47.5% to (15.3)%, compared to the same period in 2024, primarily driven by the mix of earnings across the jurisdictions in which we operate, decreased income before taxes with relatively fixed non-deductible expenses, a large increase in the non-deductible Indemnification Agreement expense offset by an increase in deductible interest expense and U.S. taxation of foreign earnings.
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Segment Results of Operations
Products and Solutions
The chart below presents net revenue and income from operations for the years ended December 31, 2025 and December 31, 2024.
Products and Solutions net revenue for the year ended December 31, 2025 was $2,688 million, an increase of $124 million, or 4.8%, compared to the same period in 2024. The increase is primarily due to an $129 million favorable impact from price and mix, and $14 million from favorable foreign currency exchange rates. The increase was partially offset by $19 million from lower sales volumes.
Income from operations for the year ended December 31, 2025 was $555 million, an increase of $52 million, or 10.3%, compared to the same period in 2024. The increase is primarily due to favorable price and mix shift of $72 million, $11 million reduction in engineering costs within cost of goods sold, lower restructuring costs of $9 million, and lower manufacturing costs of $4 million. The increase was partially offset by $34 million of incremental research and development expenses, reflecting a strategic reallocation of engineering resources to support new product development, and lower sales volumes of $13 million.
ADI Global Distribution
The chart below presents net revenue and income from operations for the years ended December 31, 2025 and December 31, 2024.
ADI Global Distribution net revenue for the year ended December 31, 2025 was $4,784 million, an increase of $587 million, or 14.0%, compared to the same period in 2024. The increase was primarily driven by $446 million of
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revenue from the acquisition of Snap One, $66 million from higher sales volumes, $64 million from favorable price and mix shift, and $18 million from favorable foreign currency exchange rates.
Income from operations for the year ended December 31, 2025 was $212 million, an increase of $17 million, or 8.7%, compared to the same period in 2024. The increase was primarily driven by $162 million in additional gross profit from the acquisition of Snap One, $61 million from net favorable price and mix shift, $11 million lower restructuring expense, and $10 million from higher sales volumes. This increase was partially offset by an increase in selling, general and administrative expenses of $146 million including payroll and benefits, rent, bad debt, and third-party spend. Additionally, amortization increased by $40 million primarily due to intangibles acquired as part of the Snap One acquisition, research and development costs increased by $22 million, freight and duties increased by $10 million primarily due to the one-time impacts from our system implementation, and we had $10 million in unfavorable impacts due to foreign currency exchange rates and other miscellaneous items.
Corporate
Corporate costs for the year ended December 31, 2025 were $160 million, a decrease of $18 million, or 10.1% compared to the same period in 2024. The decrease was primarily driven by $33 million of Snap One acquisition and integration costs incurred in the prior year, and lower restructuring, impairment and extinguishment costs of $16 million. The decrease was partially offset by $18 million of business separation costs related to the announced ADI Spin-Off and incremental operating costs of $11 million including payroll and benefits and third-party spend.
Liquidity and Capital Resources
As of December 31, 2025, total cash and cash equivalents were $661 million, of which 33% were held by foreign subsidiaries. Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed. Additional liquidity may also be provided through access to the capital markets and our senior secured revolving credit facility in an aggregate principal amount of $500 million (the “A&R Revolving Credit Facility”).
In August 2025, we made a pre-tax, one-time cash payment of $1,590 million to Honeywell to terminate the Indemnification Agreement. This was partially financed in the amount of $1,225 million in incremental term loans under our credit agreement with JPMorgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”), which mature in August 2032. The remainder of the payment to Honeywell was financed with our existing cash. Refer to Note 11. Long-Term Debt and Note 15. Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.
Liquidity
Our future capital requirements will depend on many factors, including acquisition or strategic transactions we may enter into such as the announced future ADI Spin-Off, the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies, and the expansion of our sales and marketing activities. While we may elect to seek additional funding at any time, we believe our existing cash, cash equivalents, and availability under our credit facilities are sufficient to meet our capital requirements for the foreseeable future.
We may from time to time take steps to reduce our debt or otherwise improve our financial position. These actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, opportunistic refinancing of debt, raising additional capital, or divesting certain assets. The amount of prepayments or the amount of debt that may be refinanced, repurchased, or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.
A&R Credit Agreement and Senior Notes
As of December 31, 2025, we had $3,231 million of total debt, including $2,331 million outstanding under our A&R Credit Agreement, $300 million 4.000% Senior Notes due 2029, and $600 million 6.500% Senior Notes due 2032. We have $18 million in outstanding debt due in the next twelve months and $46 million of unamortized deferred financing costs. The Senior Notes due 2029 and Senior Notes due 2032 are senior unsecured obligations of Resideo guaranteed by Resideo’s existing and future domestic subsidiaries and rank equally with all of Resideo’s senior unsecured debt.
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We have also entered into certain interest rate swap agreements based on the term secured overnight financing rate (“Term SOFR”). These interest rate swap agreements effectively convert a portion of our variable-rate debt to fixed-rate debt. Additionally, we assumed an interest rate cap in 2024 which effectively capped the interest on a portion of our variable-rate debt with a notional amount of $342 million and a strike rate of 4.79% (the “Interest Rate Cap”). Pursuant to the terms of the Interest Rate Cap, we paid a premium of $7 million at the maturity date of December 31, 2025; therefore, the instrument was fully settled and is no longer outstanding.
In August 2025, we issued $1,225 million of incremental terms loans which mature in August 2032, the net proceeds of which were used primarily to fund the termination of the Indemnification Agreement. As a result of the August 2025 amendment, the A&R Term B Facility bears interest at a rate per annum based on Term SOFR plus an interest rate margin of 2.00% per annum.
As of December 31, 2025, we were in compliance with all covenants related to the A&R Credit Agreement, Senior Notes due 2029, and Senior Notes due 2032.
Refer to Note 11. Long-Term Debt and Note 12. Derivative Financial Instruments of the Notes to Consolidated Financial Statements for a description of our debt obligations and the timing of future principal and interest payments, including impacts from our interest rate derivatives.
Common Share Repurchase Program
In August 2023, we announced that our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of our common stock over an unlimited time period. During the twelve months ended December 31, 2025, there were no common stock repurchases. During the twelve months ended December 31, 2024, we repurchased approximately 75 thousand shares of common stock in the open market at a total cost of $1 million. As of December 31, 2025, we had approximately $108 million of authorized repurchases remaining under the share repurchase program.
Cash Flow Summary for the Years Ended December 31, 2025 and 2024
Our cash flows from operating, investing, and financing activities for the years ended December 31, 2025 and 2024, as reflected in the Consolidated Financial Statements are summarized as follows:
Years Ended December 31,
$ change
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
2025 compared with 2024
Net cash used for operating activities for the year ended December 31, 2025 was $1,137 million, a decrease in cash from operating activities of $1,581 million. This change was primarily driven by a net loss of $527 million in 2025 compared to net income of $116 million in the prior year, a $583 million use of cash in 2025 versus a $71 million source of cash in the prior year associated with long-term obligations payable under the Indemnification Agreement. The decrease was also driven by an $111 million greater use of cash in accrued liabilities associated primarily with a reduction in short-term obligations payable under the Indemnification Agreement and $97 million lower cash provided by accounts payable.
Net cash used for investing activities for the year ended December 31, 2025 was $39 million, a decrease of $1,370 million, or 97.2%, as compared to 2024. The decrease was primarily driven by the prior year acquisition of Snap One for $1,337
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million and $77 million received in 2025 in connection with the sale of the Resideo Grid Services business, partially offset by an increase in capital expenditures of $36 million in 2025.
Net cash provided by financing activities for the year ended December 31, 2025 was $1,128 million, an increase of $97 million, or 9.4% as compared to 2024. This increase was primarily driven by a $596 million reduction in long term debt repayments offset by prior year proceeds of $482 million related to the issuance of Preferred Stock and an increase in Preferred Stock dividend payments of $23 million in 2025.
Contractual Obligations and Probable Liability Payments
In addition to our long-term debt discussed above, our material cash requirements include the following contractual obligations.
Indemnification Agreement Payments
In connection with the Honeywell Spin-Off, we entered into the Indemnification Agreement with Honeywell. On July 30, 2025, we entered into the Termination Agreement with Honeywell to terminate the Indemnification Agreement. Subject to the terms and conditions of the Termination Agreement, we made a pre-tax, one-time cash payment of $1,590 million to Honeywell in August 2025 using proceeds from the incremental term loans issued under the A&R Credit Agreement, together with a portion of our cash on hand. We are no longer required to make any further payments to Honeywell under the Indemnification Agreement and the associated affirmative and negative covenants no longer apply. During the twelve months ended December 31, 2025, we paid Honeywell $1,695 million under the Indemnification Agreement, which includes the impact of the Termination Agreement. For further discussion on the Indemnification Agreement refer to Note 15. Commitments and Contingencies of the Notes to Consolidated Financial Statements.
Environmental Liability
We make environmental liability payments for sites which we own and are directly responsible for. As of December 31, 2025, $22 million was deemed probable and reasonably estimable.
Operating Leases
We have operating lease arrangements for the majority of our manufacturing sites, offices, engineering, lab, and storage sites, stocking locations, warehouses, automobiles, and certain equipment. As of December 31, 2025, we had operating lease payment obligations of $346 million, with $57 million payable within 12 months.
Purchase Obligations
We enter into purchase obligations with various vendors in the normal course of business. As of December 31, 2025, we had purchase obligations of $178 million, with $130 million payable within 12 months.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, net revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Significant Estimates
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP and pursuant to SEC regulations and is based, in part, on the application of significant accounting policies, many of which require us to make estimates and assumptions. Application of the critical accounting estimates discussed below requires management’s significant judgments and involves a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We review our estimates and assumptions on an ongoing basis and reflect changes as appropriate when additional information becomes available. We base our estimates and assumptions on extensive historical experience and/or other pertinent factors we believe are applicable and reasonable under the circumstances, such as forecasts of future performance, which serve as the foundation for determining how to
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recognize and measure assets and liabilities not readily apparent from other sources. We consider the below critical areas in the application of our accounting policies and estimates that involve a significant level of estimation uncertainty, complex judgment, subjectivity, and have had or are reasonably likely to have a material impact on our financial condition or results of operations and are critical to the understanding of our Consolidated Financial Statements. Actual results could differ from our estimates and assumptions. Refer to Note 2. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
Goodwill and Intangible Assets
We review the carrying values of goodwill and identifiable intangible assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable and annually, on the first day of the fourth quarter. If the carrying value of a reporting unit exceeds its fair value, we record a goodwill impairmentloss as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Refer to Note 9. Goodwill and Other Intangible Assets, net of the Notes to Consolidated Financial Statements.
Revenue
Revenue is measured as the amount of consideration expected to be received in exchange for our products. Allowances for cash discounts, volume rebates, and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume rebates and other customer incentive programs are based upon certain percentages agreed upon with various customers, which are typically earned by the customer over an annual period.
Revenue is adjusted for variable consideration, which includes customer volume rebates and prompt payment discounts. We measure variable consideration by estimating expected outcomes using analysis and inputs based upon anticipated performance, historical data, and current and forecasted information. Customer returns are recorded as a reduction to sales on an actual basis throughout the year and also include an estimate at the end of each reporting period for future customer returns related to sales recorded prior to the end of the period. We generally estimate customer returns based upon the time lag that historically occurs between the sale date and the return date, while also factoring in any new business conditions that might impact the historical analysis such as new product introduction. Measurement of variable consideration is reviewed by management periodically and revenue is adjusted accordingly. We do not have significant financing components. Refer to Note 5. Revenue Recognition of the Notes to Consolidated Financial Statements.
Income Taxes
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. Refer to Note 17. Income Taxes of the Notes to Consolidated Financial Statements.
Other Matters
Litigation, Environmental Matters and the Indemnification Agreement
Refer to Note 15 . Commitments and Contingencies of the Notes to Consolidated Financial Statements for further discussion.
Recent Accounting Pronouncements
Refer to Note 2 . Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions, and projections about our industries and our business and financial results. Forward-looking statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals,” and words and terms of similar substance in connection with discussions of future operating or financial performance. This Annual Report includes industry and market data that we obtained from various third-party sources, including forecasts based upon such data; as with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Although we believe that the forward-looking statements contained in this Annual Report are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:
• our ability to spin-off the ADI Global Distribution business, including the timeframe and process for the same and unexpected consequences of the spin-off, including loss of customers;
• competition from other companies in our markets and segments, as well as in new markets and emerging markets;
• the potential adverse impacts of tariffs, import/export restrictions, or other trade barriers on global economic conditions, financial markets and our business;
• our ability to obtain additional future capital on favorable terms or at all;
• our ability to identify consumer preferences and industry standards, develop, and protect intellectual property related thereto, and successfully market new technologies, products, and services to consumers;
• our reliance on independent integrators to sell and install our solutions;
• our reliance on certain suppliers;
• the impact of disruptions in our supply chain from third-party suppliers and manufacturers, including our inability to obtain necessary raw materials and product components, production equipment, or replacement parts;
• inability to consummate acquisitions on satisfactory terms or to integrate such acquisitions effectively;
• the impact of earthquakes, hurricanes, fires, power outages, floods, pandemics, epidemics, natural disasters, and other catastrophic events or other public health emergencies;
• the impact of potentially volatile global market, geo-political and economic conditions and industry, and end market cyclicality, including factors such as interest rates, inflation, energy costs, availability of financing, consumer spending habits, and preferences, housing market changes, and employment rates;
• failure to achieve and maintain a high level of product and service quality, including the impact of warranty claims, product recalls, and product liability actions that may be brought against us;
• our ability to retain or expand relationships with significant customers;
• the significant failure or inability to comply with specifications and manufacturing requirements or delays or other problems with existing or new products or inability to meet price requirements;
• inability to successfully execute restructuring or transformation programs or to effectively manage our workforce;
• the failure to increase productivity through sustainable operational improvements;
• the failure to acquire, implement, maintain and upgrade business technology infrastructure systems;
• economic, political, regulatory, foreign exchange, and other risks of international operations;
• our dependence upon information technology infrastructure and network operations having adequate cyber-security functionality;
• risks associated with our relationships with Honeywell, including our reliance on Honeywell for the Honeywell Home trademark;
• regulations and societal actions to respond to global climate change;
• failure to comply with the broad range of current and future standards, laws, and regulations in the jurisdictions in which we operate;
• the impact of potential material litigation matters, government proceedings, and other contingencies and uncertainties;
• our ability to borrow funds and access capital markets in light of the terms of our debt documents or otherwise;
• provisions in our governing documents discouraging takeovers;
• our ability to recruit and retain qualified personnel;
• uncertainty in the development, deployment, and the use of artificial intelligence in our products and services, as well as our business interests more broadly;
• the CD&R Stockholder’s interest in and influence over us that may diverge from, or even conflict with, interests of the holders of our common stock, and the reduction in the relative voting power of holders of our common stock resulting from the issuance of preferred stock;
• our ability to maintain effective internal controls, and deliver timely financial statements;
• impairment of goodwill, other intangible assets, and long-lived assets;
• being required to make significant cash contributions to our defined benefit pension plans;
• compatibility and ease of integration of our products and solutions with third-party products and services and our ability to control such third-party integrations;
• other risks detailed under the caption “Risk Factors” in this Annual Report, in Part I, Item 1A. Risk Factors ; and
• certain factors discussed elsewhere in this Form 10-K.
These risks could cause actual results to differ materially from those implied by forward-looking statements in this Annual Report. Even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements made by us in this Form 10-K speak only as of the date on which they are made. We are under no obligation to and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
