Resideo separated from Honeywell in 2018, becoming an independently traded company as a result of a pro rata distribution of our Parent's common stock to the stockholders of Honeywell (the “Parent Spin-Off”). In connection with the Parent Spin-Off from Honeywell, our Parent entered into an Indemnification Agreement pursuant to which our Parent had an obligation to make cash payments associated with Honeywell’s environmental liabilities which were capped at $140 million annually. Prior to the Parent entering into a definitive agreement with Honeywell to terminate the Indemnification Agreement, the Indemnification Agreement extended until the earlier of (1) December 31, 2043; or (2) December 31 of the third consecutive anniversary where the annual reimbursement obligation (including accrued amounts) has been less than $25 million.

Subsidiaries of the Company were jointly and severally liable for our Parent’s obligations for the Indemnification Agreement. As such, an allocated portion of our Parent's Indemnification Agreement expenses were presented within Indemnification Agreement expense in the Unaudited Condensed Combined Statements of Operations, as the Company was jointly and severally liable for such agreement until our Parent entered into an agreement with Honeywell in the third quarter of 2025 to terminate it as discussed under “Termination Agreement” below. Given the lack of a contractual agreement for the Company to pay a specified amount to Parent (i.e., its co-obligors), the allocation basis was determined based on what the Company would reasonably expect to pay on behalf of its co-obligors. No payments were made by the Company to Honeywell as payments were made by Parent historically and in each reporting period.

On July 30, 2025, our Parent entered into a definitive agreement with Honeywell to terminate the Indemnification Agreement (“Termination Agreement”). Our Parent made a pre-tax, one-time cash payment of $1,590 million to Honeywell, which occurred in the third quarter of 2025. In addition, our Parent also paid a regularly scheduled payment of $35 million in the first, second and third quarters of 2025. Upon completion of the pre-tax, one-time cash payment, the Indemnification Agreement was fully terminated. Our Parent is no longer required to make any further payments to Honeywell under the Indemnification Agreement and the associated affirmative and negative covenants no longer apply. As a result of the Termination Agreement, our Parent recorded $972 million in pre-tax expense in 2025. The liability in connection with the Indemnification Agreement was fully repaid and is not presented on the Unaudited Condensed Combined Balance Sheets.

As the subsidiaries of the Company were jointly and severally liable for our Parent’s obligations during the periods the obligations were outstanding, an allocated portion of the expense is presented within Indemnification Agreement expense, net in the Unaudited Condensed Combined Statements of Operations as follows:

We are subject to lawsuits, investigations and disputes arising out of the conduct of our business, including matters relating to commercial transactions, government contracts, product liability, acquisitions and divestitures, employee matters, intellectual property, and environmental, health and safety matters. We recognize a liability for any contingency that is probable of occurrence and reasonably estimable. We continually assess the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. No such matters are material to our financial statements.

In the normal course of business, we issue product warranties and product performance guarantees. We accrue for the estimated cost of product warranties and product performance guarantees based on contract terms and historical experience at the time of sale. Adjustments to initial obligations for warranties and guarantees are made as changes to the obligations become reasonably estimable. Product warranties and product performance guarantees are included in Accrued liabilities and Other liabilities on the Unaudited Condensed Combined Balance Sheets.

In February 2026, the United States Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) on goods imported into the United States were unauthorized. Following this ruling, and effective on April 20, 2026, the United States Customs and Border Protection launched a platform for importers of record to submit IEEPA tariff refund requests.

The Company applied a gain contingency model in accordance with ASC 450-30, Gain Contingencies. Under this model, a gain contingency is not recognized until the gain is realized or realizable. During the second quarter of 2026, we recognized approximately $20 million of IEEPA tariff refunds, which is included in Cost of goods sold on our Unaudited Condensed Combined Statement of Operations. We expect additional recoveries in future periods; however, uncertainties remain regarding the amount and timing of future collections. Therefore, we will recognize additional refunds when received.