10-Q 1 rezi-20211002.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission File Number 001-38635

Resideo Technologies, Inc.

 

(Exact name of registrant as specified in its charter)

 

Delaware

 

82-5318796

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

901 E 6th Street

Austin, Texas

 

78702

(Address of principal executive offices)

 

(Zip Code)

(512) 726-3500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol:

 

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

 

REZI

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of October 29, 2021 was 144,386,057 shares.

 


 

TABLE OF CONTENTS

 

 

Item

 

Page

 

 

 

 

Part I.

 

Item 1. Financial Statements

5

 

 

 

 

 

1.

Financial Statements

5

 

 

 

 

 

 

Consolidated Interim Statements of Operations (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020

5

 

 

 

 

 

 

Consolidated Interim Statements of Comprehensive Income (Loss) (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020

6

 

 

 

 

 

 

Consolidated Interim Balance Sheets (unaudited) – October 2, 2021 and December 31, 2020

7

 

 

 

 

 

 

Consolidated Interim Statements of Cash Flows (unaudited) – Nine Months Ended October 2, 2021 and September 26, 2020

8

 

 

 

 

 

 

Consolidated Interim Statements of Equity (unaudited) – Three and Nine Months Ended October 2, 2021 and September 26, 2020

9

 

 

 

 

 

 

Notes to Consolidated Interim Financial Statements (unaudited)

10

 

 

 

 

 

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

 

 

3.

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

 

4.

Controls and Procedures

35

 

 

 

 

Part II.

1.

Legal Proceedings

36

 

 

 

 

 

1A.

Risk Factors

36

 

 

 

 

 

6.

Exhibits

37

 

 

 

 

 

 

Signatures

38

 

 

 

2


 

Cautionary Statement Concerning Forward-Looking Statements

 

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

 

competition from other companies in our markets and segments, as well as in new markets and emerging markets;
our ability to successfully develop new technologies and products and develop and protect the intellectual property related to the same and to defend against IP threats of others;
our inability to maintain intellectual property agreements necessary to our business;
our ability to recruit and retain qualified personnel;
our ability to retain or expand relationships with significant customers;
changes in prevailing global and regional economic conditions;
the impact of pandemics, epidemics, natural disasters, and other public health emergencies, such as COVID-19;
fluctuation in financial results due to the seasonal nature of portions of our business;
failure to achieve and maintain a high level of product and service quality;
inability to obtain necessary product components, production equipment or replacement parts;
dependence upon information technology infrastructure having adequate cyber-security functionality;
labor disputes, work stoppages, other disruptions, or the need to relocate any of our facilities;
economic, political, regulatory, foreign exchange, and other risks of international operations, including the impact of tariffs;
changes in legislation or government regulations or policies;
the significant failure or inability to comply with the specifications and manufacturing requirements of our original equipment manufacturers (“OEMs”) customers;
the failure to increase productivity through sustainable operational improvements;
the operational constraints and financial distress of third parties;
our ability to borrow funds and access capital markets;
the amount of our obligations and nature of our contractual restrictions pursuant to, and disputes that have or may hereafter arise under, the Reimbursement Agreement and the other agreements we entered into with Honeywell in connection with the Spin-Off;
our reliance on Honeywell for the Honeywell Home trademark;
potential material environmental liabilities;
potential material costs as a result of warranty claims, including product recalls, and product liability actions that may be brought against us;
potential material litigation matters; including the shareholder litigation described in this Form 10-Q;
unforeseen U.S. federal income tax and foreign tax liabilities; and
certain factors discussed elsewhere in this Form 10-Q.

 

3


 

These and other factors are more fully discussed in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our 2020 Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in this Form 10-Q. There have been no material changes to the risk factors described in our 2020 Annual Report on Form 10-K. These risks could cause actual results to differ materially from those implied by forward-looking statements in this Form 10-Q. 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 Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.

 

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

 

PART I

 

The financial statements and related footnotes as of October 2, 2021 should be read in conjunction with the financial statements for the year ended December 31, 2020 contained in our 2020 Annual Report on Form 10-K.

4


 

Item 1. Financial Statements

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(In millions except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 2,
2021

 

 

September 26,
2020

 

 

October 2,
2021

 

 

September 26,
2020

 

Net revenue

 

$

1,496

 

 

$

1,362

 

 

$

4,392

 

 

$

3,570

 

Cost of goods sold

 

 

1,080

 

 

 

992

 

 

 

3,227

 

 

 

2,680

 

Gross profit

 

 

416

 

 

 

370

 

 

 

1,165

 

 

 

890

 

Selling, general and administrative expenses

 

 

229

 

 

 

221

 

 

 

684

 

 

 

676

 

Research and development expenses

 

 

20

 

 

 

18

 

 

 

63

 

 

 

55

 

Operating profit

 

 

167

 

 

 

131

 

 

 

418

 

 

 

159

 

Other expense, net

 

 

58

 

 

 

35

 

 

 

130

 

 

 

106

 

Interest expense

 

 

12

 

 

 

14

 

 

 

37

 

 

 

49

 

Income before taxes

 

 

97

 

 

 

82

 

 

 

251

 

 

 

4

 

Tax expense

 

 

29

 

 

 

7

 

 

 

76

 

 

 

26

 

Net income (loss)

 

$

68

 

 

$

75

 

 

$

175

 

 

$

(22

)

Weighted Average Number of Common Shares Outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

144,284

 

 

 

123,421

 

 

 

143,865

 

 

 

123,194

 

Diluted

 

 

148,559

 

 

 

125,235

 

 

 

148,260

 

 

 

123,194

 

Earnings (Loss) Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47

 

 

$

0.61

 

 

$

1.22

 

 

$

(0.18

)

Diluted

 

$

0.46

 

 

$

0.60

 

 

$

1.18

 

 

$

(0.18

)

 

The unaudited Notes to Consolidated Interim Financial Statements are an integral part of these statements.

 

5


 

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 2,
2021

 

 

September 26,
2020

 

 

October 2,
2021

 

 

September 26,
2020

 

Net income (loss)

 

$

68

 

 

$

75

 

 

$

175

 

 

$

(22

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

 

(24

)

 

 

28

 

 

 

(41

)

 

 

6

 

Changes in unrealized gain on derivatives

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total other comprehensive income (loss), net of tax

 

 

(24

)

 

 

28

 

 

 

(41

)

 

 

6

 

Comprehensive income (loss)

 

$

44

 

 

$

103

 

 

$

134

 

 

$

(16

)

 

The unaudited Notes to Consolidated Interim Financial Statements are an integral part of these statements.

 

6


 

 

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED INTERIM BALANCE SHEETS

(In millions, except number of shares which are reflected in thousands and par value)

(Unaudited)

 

 

 

October 2, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

686

 

 

$

517

 

Accounts receivable – net

 

 

932

 

 

 

863

 

Inventories – net

 

 

710

 

 

 

672

 

Other current assets

 

 

179

 

 

 

173

 

Total current assets

 

 

2,507

 

 

 

2,225

 

Property, plant and equipment – net

 

 

290

 

 

 

318

 

Goodwill

 

 

2,671

 

 

 

2,691

 

Other assets

 

 

366

 

 

 

376

 

Total assets

 

$

5,834

 

 

$

5,610

 

LIABILITIES

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

905

 

 

$

936

 

Current maturities of debt

 

 

10

 

 

 

7

 

Accrued liabilities

 

 

617

 

 

 

595

 

Total current liabilities

 

 

1,532

 

 

 

1,538

 

Long-term debt

 

 

1,222

 

 

 

1,155

 

Obligations payable under Indemnification Agreements

 

 

587

 

 

 

590

 

Other liabilities

 

 

335

 

 

 

334

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock, $0.001 par value, 700,000 shares authorized,
145,616 and 144,383 shares issued and outstanding as of October 2, 2021, 143,959 and 143,059 shares issued and outstanding as of December 31, 2020, respectively

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

2,111

 

 

 

2,070

 

Treasury stock, at cost

 

 

(16

)

 

 

(6

)

Retained earnings

 

 

250

 

 

 

75

 

Accumulated other comprehensive loss

 

 

(187

)

 

 

(146

)

Total equity

 

 

2,158

 

 

 

1,993

 

Total liabilities and equity

 

$

5,834

 

 

$

5,610

 

 

The unaudited Notes to Consolidated Interim Financial Statements are an integral part of these statements.

 

7


 

 

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

October 2, 2021

 

 

September 26, 2020

 

Cash flows provided by operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

175

 

 

$

(22

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

67

 

 

 

64

 

Stock compensation expense

 

 

29

 

 

 

21

 

Loss on extinguishment of debt

 

 

41

 

 

 

-

 

Other

 

 

4

 

 

 

20

 

Changes in assets and liabilities, net of acquired companies:

 

 

 

 

 

 

Accounts receivable

 

 

(78

)

 

 

(64

)

Inventories – net

 

 

(40

)

 

 

64

 

Other current assets

 

 

(6

)

 

 

15

 

Accounts payable

 

 

(19

)

 

 

(62

)

Accrued liabilities

 

 

26

 

 

 

52

 

Obligations payable under Indemnification Agreements

 

 

(3

)

 

 

(8

)

Other

 

 

7

 

 

 

12

 

Net cash provided by operating activities

 

 

203

 

 

 

92

 

Cash flows used for investing activities:

 

 

 

 

 

 

Expenditures for property, plant, equipment and other intangibles

 

 

(48

)

 

 

(50

)

Cash paid for acquisitions, net of cash acquired

 

 

(11

)

 

 

(35

)

Other

 

 

3

 

 

 

-

 

Net cash used for investing activities

 

 

(56

)

 

 

(85

)

Cash flows provided by financing activities:

 

 

 

 

 

 

Proceeds from long-term debt

 

 

1,250

 

 

 

-

 

Payment of debt facility issuance and modification costs

 

 

(39

)

 

-

 

Net proceeds from revolving credit facility

 

 

-

 

 

 

150

 

Repayment of long-term debt

 

 

(1,185

)

 

 

(11

)

Other

 

 

2

 

 

 

(4

)

Net cash provided by financing activities

 

 

28

 

 

 

135

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(6

)

 

 

(4

)

Net increase in cash and cash equivalents

 

 

169

 

 

 

138

 

Cash and cash equivalents at beginning of period

 

 

517

 

 

 

122

 

Cash and cash equivalents at end of period

 

$

686

 

 

$

260

 

 

The unaudited Notes to Consolidated Interim Financial Statements are an integral part of these statements.

8


 

 

RESIDEO TECHNOLOGIES, INC.

CONSOLIDATED INTERIM STATEMENTS OF EQUITY

(In millions, shares in thousands)

(Unaudited)

 

Three Months Ended October 2, 2021

 

Common
Shares

 

 

Treasury
Shares

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-
In Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

Balance at July 3, 2021

 

 

144,171

 

 

 

1,188

 

 

$

-

 

 

$

(14

)

 

$

2,098

 

 

$

182

 

 

$

(163

)

 

$

2,103

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

68

 

 

 

-

 

 

 

68

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24

)

 

 

(24

)

Stock issuances, net of shares withheld for taxes

 

 

212

 

 

 

45

 

 

 

-

 

 

 

(2

)

 

 

3

 

 

 

-

 

 

 

-

 

 

 

1

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

Balance at October 2, 2021

 

 

144,383

 

 

 

1,233

 

 

$

-

 

 

$

(16

)

 

$

2,111

 

 

$

250

 

 

$

(187

)

 

$

2,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 26, 2020

 

Common
Shares

 

 

Treasury
Shares

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-
In Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

Balance at June 27, 2020

 

 

123,378

 

 

 

852

 

 

$

-

 

 

$

(5

)

 

$

1,775

 

 

$

(59

)

 

$

(216

)

 

$

1,495

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

75

 

 

 

-

 

 

 

75

 

Other comprehensive income, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28

 

 

 

28

 

Stock issuances, net of shares withheld for taxes

 

 

65

 

 

 

29

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

7

 

Balance at September 26, 2020

 

 

123,443

 

 

 

881

 

 

$

-

 

 

$

(5

)

 

$

1,782

 

 

$

16

 

 

$

(188

)

 

$

1,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended October 2, 2021

 

Common
Shares

 

 

Treasury
Shares

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-
In Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

Balance at January 1, 2021

 

 

143,059

 

 

 

900

 

 

$

-

 

 

$

(6

)

 

$

2,070

 

 

$

75

 

 

$

(146

)

 

$

1,993

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

175

 

 

 

-

 

 

 

175

 

Other comprehensive loss, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(41

)

 

 

(41

)

Stock issuances, net of shares withheld for taxes

 

 

1,324

 

 

 

333

 

 

 

-

 

 

 

(10

)

 

 

12

 

 

 

-

 

 

 

-

 

 

 

2

 

Stock-based compensation

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29

 

 

 

-

 

 

-

 

 

 

29

 

Balance at October 2, 2021

 

 

144,383

 

 

 

1,233

 

 

$

-

 

 

$

(16

)

 

$

2,111

 

 

$

250

 

 

$

(187

)

 

$

2,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 26, 2020

 

Common
Shares

 

 

Treasury
Shares

 

 

Common
Stock

 

 

Treasury
Stock

 

 

Additional
Paid-
In Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Total
Equity

 

Balance at January 1, 2020

 

 

122,873

 

 

 

615

 

 

$

-

 

 

$

(3

)

 

$

1,761

 

 

$

38

 

 

$

(194

)

 

$

1,602

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-