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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/04/22 Resideo Technologies, Inc. 10-Q 7/02/22 90:10M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.81M
2: EX-4.2 Instrument Defining the Rights of Security Holders HTML 44K
3: EX-10.1 Material Contract HTML 88K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 31K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 27K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
13: R1 Document And Entity Information HTML 79K
14: R2 Consolidated Statements of Operations (Unaudited) HTML 100K
15: R3 Consolidated Statements of Comprehensive Income HTML 51K
(Unaudited)
16: R4 Consolidated Balance Sheets (Unaudited) HTML 123K
17: R5 Consolidated Balance Sheets (Unaudited) HTML 36K
(Parenthetical)
18: R6 Consolidated Statements of Cash Flows (Unaudited) HTML 101K
19: R7 Consolidated Statements of Stockholders' Equity HTML 69K
(Unaudited)
20: R8 Organization, Consolidation and Presentation of HTML 62K
Financial Statements
21: R9 Summary of Significant Accounting Policies HTML 32K
22: R10 Revenue Recognition HTML 136K
23: R11 Segment Financial Data HTML 118K
24: R12 Stock-Based Compensation Plans HTML 32K
25: R13 Leases HTML 135K
26: R14 Income Taxes HTML 37K
27: R15 Earnings Per Common Share HTML 108K
28: R16 Inventories Net HTML 46K
29: R17 Property, Plant, and Equipment, Net HTML 60K
30: R18 Acquisitions HTML 67K
31: R19 Goodwill and Other Intangible Assets, Net HTML 182K
32: R20 Accrued Liabilities HTML 57K
33: R21 Commitments and Contingencies HTML 124K
34: R22 Long-term Debt and Credit Agreement HTML 74K
35: R23 Derivative Instruments HTML 36K
36: R24 Pension HTML 35K
37: R25 Summary of Significant Accounting Policies HTML 32K
(Policies)
38: R26 Organization, Operations and Basis of Presentation HTML 47K
(Tables)
39: R27 Revenue Recognition (Tables) HTML 130K
40: R28 Segment Financial Data (Tables) HTML 110K
41: R29 Leases (Tables) HTML 134K
42: R30 Earnings Per Common Share (Tables) HTML 102K
43: R31 Inventories Net (Tables) HTML 46K
44: R32 Property, Plant, and Equipment, Net (Tables) HTML 57K
45: R33 Acquisitions (Tables) HTML 58K
46: R34 Goodwill and Other Intangible Assets, Net (Tables) HTML 185K
47: R35 Accrued Liabilities (Tables) HTML 56K
48: R36 Commitments and Contingencies (Tables) HTML 99K
49: R37 Long-term Debt and Credit Agreement (Tables) HTML 54K
50: R38 Organization, Operations and Basis of Presentation HTML 33K
- Additional Information (Details)
51: R39 Organization, Operations and Basis of Presentation HTML 38K
- Reconciliation of Cash, Cash and Cash
Equivalents and Restricted Cash (Details)
52: R40 Revenue Recognition - Schedule of Disaggregated HTML 54K
Revenue (Details)
53: R41 Revenue Recognition - Additional Information HTML 28K
(Details)
54: R42 Segment Financial Data - Additional Information HTML 27K
(Details)
55: R43 Segment Financial Data - Summary of Segments HTML 44K
Financial Data (Details)
56: R44 Stock-Based Compensation Plans - Additional HTML 46K
Information (Details)
57: R45 Leases - Schedule of Operating Lease Expense HTML 32K
(Details)
58: R46 Leases - Additional Information (Details) HTML 27K
59: R47 Leases - Summary of Lease Recognized Related to HTML 38K
Operating Leases (Details)
60: R48 Leases - Future Minimum Lease Payments Under HTML 48K
Non-cancelable Leases (Details)
61: R49 Leases - Supplemental Cash Flow Information HTML 32K
Related to Operating Leases (Details)
62: R50 Income Taxes - Additional Information (Details) HTML 29K
63: R51 Earnings Per Common Share - Schedule of HTML 61K
Computation of Basic and Diluted Earnings Per
Share (Details)
64: R52 Earnings Per Common Share - Additional Information HTML 32K
(Details)
65: R53 Inventories Net (Details) HTML 35K
66: R54 Property, Plant, and Equipment, Net - Schedule of HTML 43K
Property, Plant, and Equipment, Net (Details)
67: R55 Property, Plant, and Equipment, Net - Additional HTML 27K
Information (Details)
68: R56 Acquisitions - Additional Information (Details) HTML 59K
69: R57 Acquisitions - Summary of Preliminary Allocation HTML 59K
of Purchase Price (Details)
70: R58 Acquisitions - Summary of Preliminary Allocation HTML 32K
of Purchase Price (Parenthetical) (Details)
71: R59 Goodwill and Other Intangible Assets, Net - HTML 38K
Schedule of Goodwill Balance and Changes in
Carrying Amount of Goodwill by Segment (Details)
72: R60 Goodwill and Other Intangible Assets, Net - HTML 61K
Schedule of Intangible Assets With Finite Lives
(Details)
73: R61 Goodwill and Other Intangible Assets, Net - HTML 27K
Schedule of Intangible Assets With Finite Lives
(Parenthetical) (Details)
74: R62 Goodwill and Other Intangible Assets, Net - HTML 36K
Schedule of Estimated Amortization Expense
(Details)
75: R63 Accrued Liabilities - Summary of Accrued HTML 40K
Liabilities (Details)
76: R64 Commitments and Contingencies - Additional HTML 61K
Information (Details)
77: R65 Commitments and Contingencies - Summary of HTML 32K
Reimbursement Agreement Liabilities (Details)
78: R66 Commitments and Contingencies - Summary of HTML 33K
Reimbursement Agreement Liabilities
(Parenthetical) (Details)
79: R67 Commitments and Contingencies - Summary of HTML 36K
Reimbursement Agreement Liabilities Included in
Balance Sheet Accounts (Details)
80: R68 Commitments and Contingencies - Summary of HTML 34K
Recorded Obligations for Product Warranties and
Product Performance Guarantee (Details)
81: R69 Long-term Debt and Credit Agreement - Schedule of HTML 43K
Long Term Debt (Details)
82: R70 Long-term Debt and Credit Agreement - Schedule of HTML 30K
Long Term Debt (Parenthetical) (Details)
83: R71 Long-term Debt and Credit Agreement - Additional HTML 65K
Information (Details)
84: R72 Derivative Instruments - Additional Information HTML 50K
(Details)
85: R73 Pension - Additional Information (Details) HTML 33K
88: XML IDEA XML File -- Filing Summary XML 164K
86: XML XBRL Instance -- rezi-20220702_htm XML 2.56M
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i July 2, i 2022 /
or
i ☐ 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 i 001-38635
i Resideo Technologies, Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
|
i 82-5318796 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
i 16100 N 71st Street, i Suite 550 i Scottsdale, i Arizona |
|
i 85254 |
(Address of principal executive offices) |
|
(Zip Code) |
( i 480) i 573-5340
(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: |
i Common Stock, par value $0.001 per share |
|
i REZI |
|
i 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. i 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). i 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.
i Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
Emerging growth company |
i ☐ |
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 i ☐ No ☒
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of July 29, 2022 was i 145,686,840 shares.
|
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Page |
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Item 1. |
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Unaudited Consolidated Financial Statements |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
Unaudited Consolidated Balance Sheets as of July 2, 2022 and December 31, 2021 |
5 |
|
|
|
|
|
|
6 |
|
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|
|
|
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7 |
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8 |
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Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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|
|
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Item 3. |
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32 |
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Item 4. |
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33 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 6. |
|
35 |
2
Part I. Financial Information
Item 1. Unaudited Consolidated Financial Statements
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except shares in thousands, and per share data)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net revenue |
|
$ |
i 1,686 |
|
|
$ |
i 1,477 |
|
|
$ |
i 3,192 |
|
|
$ |
i 2,896 |
|
Cost of goods sold |
|
|
i 1,219 |
|
|
|
i 1,091 |
|
|
|
i 2,287 |
|
|
|
i 2,135 |
|
Gross profit |
|
|
i 467 |
|
|
|
i 386 |
|
|
|
i 905 |
|
|
|
i 761 |
|
Research and development expenses |
|
|
i 28 |
|
|
|
i 22 |
|
|
|
i 52 |
|
|
|
i 43 |
|
Selling, general and administrative expenses |
|
|
i 244 |
|
|
|
i 236 |
|
|
|
i 479 |
|
|
|
i 451 |
|
Intangible asset amortization |
|
|
i 9 |
|
|
|
i 7 |
|
|
|
i 16 |
|
|
|
i 16 |
|
Income from operations |
|
|
i 186 |
|
|
|
i 121 |
|
|
|
i 358 |
|
|
|
i 251 |
|
Other expense, net |
|
|
i 41 |
|
|
|
i 28 |
|
|
|
i 81 |
|
|
|
i 72 |
|
Interest expense, net |
|
|
i 14 |
|
|
|
i 12 |
|
|
|
i 25 |
|
|
|
i 25 |
|
Income before taxes |
|
|
i 131 |
|
|
|
i 81 |
|
|
|
i 252 |
|
|
|
i 154 |
|
Provision for income taxes |
|
|
i 37 |
|
|
|
i 23 |
|
|
|
i 71 |
|
|
|
i 47 |
|
Net income |
|
$ |
i 94 |
|
|
$ |
i 58 |
|
|
$ |
i 181 |
|
|
$ |
i 107 |
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
i 0.65 |
|
|
$ |
i 0.40 |
|
|
$ |
i 1.25 |
|
|
$ |
i 0.74 |
|
Diluted |
|
$ |
i 0.63 |
|
|
$ |
i 0.39 |
|
|
$ |
i 1.22 |
|
|
$ |
i 0.72 |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 145,457 |
|
|
|
i 143,939 |
|
|
|
i 145,286 |
|
|
|
i 143,657 |
|
Diluted |
|
|
i 148,829 |
|
|
|
i 148,328 |
|
|
|
i 148,836 |
|
|
|
i 148,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
See accompanying notes to the unaudited consolidated financial statements.
3
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 94 |
|
|
$ |
i 58 |
|
|
$ |
i 181 |
|
|
$ |
i 107 |
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange translation (loss) gain |
|
|
( i 70 |
) |
|
|
i 9 |
|
|
|
( i 79 |
) |
|
|
( i 17 |
) |
Changes in unrealized gain (loss) on derivatives, net of tax |
|
|
i 1 |
|
|
|
( i 2 |
) |
|
|
i 24 |
|
|
|
- |
|
Total other comprehensive (loss) income, net of tax |
|
|
( i 69 |
) |
|
|
i 7 |
|
|
|
( i 55 |
) |
|
|
( i 17 |
) |
Comprehensive income |
|
$ |
i 25 |
|
|
$ |
i 65 |
|
|
$ |
i 126 |
|
|
$ |
i 90 |
|
See accompanying notes to the unaudited consolidated financial statements.
4
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares in thousands, and per share data)
(Unaudited)
|
|
|
|
|
||||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 251 |
|
|
$ |
i 775 |
|
Accounts receivable less allowances of $ i 11 million and $ i 9 million, respectively |
|
|
i 1,073 |
|
|
|
i 876 |
|
Inventories, net |
|
|
i 971 |
|
|
|
i 740 |
|
Other current assets |
|
|
i 186 |
|
|
|
i 150 |
|
Total current assets |
|
|
i 2,481 |
|
|
|
i 2,541 |
|
Property, plant and equipment, net |
|
|
i 363 |
|
|
|
i 287 |
|
Goodwill |
|
|
i 2,695 |
|
|
|
i 2,661 |
|
Other intangible assets, net |
|
|
i 463 |
|
|
|
i 120 |
|
Other assets |
|
|
i 314 |
|
|
|
i 244 |
|
Total assets |
|
$ |
i 6,316 |
|
|
$ |
i 5,853 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 987 |
|
|
$ |
i 883 |
|
Current maturities of long-term debt |
|
|
i 12 |
|
|
|
i 10 |
|
Accrued liabilities |
|
|
i 580 |
|
|
|
i 601 |
|
Total current liabilities |
|
|
i 1,579 |
|
|
|
i 1,494 |
|
Long-term debt, net of current maturities |
|
|
i 1,410 |
|
|
|
i 1,220 |
|
Obligations payable under Indemnification Agreements |
|
|
i 601 |
|
|
|
i 585 |
|
Other liabilities |
|
|
i 332 |
|
|
|
i 302 |
|
Total liabilities |
|
|
i 3,922 |
|
|
|
i 3,601 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
||
Stockholders’ Equity: |
|
|
|
|
|
|
||
Common stock, $ i i 0.001 / par
value, i i 700,000 / shares
authorized, |
|
|
i - |
|
|
|
i - |
|
Additional paid-in capital |
|
|
i 2,147 |
|
|
|
i 2,121 |
|
Retained earnings |
|
|
i 498 |
|
|
|
i 317 |
|
Accumulated other comprehensive loss, net |
|
|
( i 220 |
) |
|
|
( i 165 |
) |
Treasury stock, at cost |
|
|
( i 31 |
) |
|
|
( i 21 |
) |
Total stockholders’ equity |
|
|
i 2,394 |
|
|
|
i 2,252 |
|
Total liabilities and stockholders’ equity |
|
$ |
i 6,316 |
|
|
$ |
i 5,853 |
|
See accompanying notes to the unaudited consolidated financial statements.
5
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
i 181 |
|
|
$ |
i 107 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 45 |
|
|
|
i 45 |
|
Share-based compensation expense |
|
|
i 22 |
|
|
|
i 19 |
|
Other, net |
|
|
( i 5 |
) |
|
|
i 9 |
|
Changes in operating assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( i 145 |
) |
|
|
( i 33 |
) |
Inventories, net |
|
|
( i 127 |
) |
|
|
( i 8 |
) |
Other current assets |
|
|
( i 21 |
) |
|
|
( i 24 |
) |
Accounts payable |
|
|
i 54 |
|
|
|
( i 15 |
) |
Accrued liabilities |
|
|
( i 47 |
) |
|
|
( i 1 |
) |
Other, net |
|
|
i 19 |
|
|
|
- |
|
Net cash (used in) provided by operating activities |
|
|
( i 24 |
) |
|
|
i 99 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( i 24 |
) |
|
|
( i 35 |
) |
Acquisitions, net of cash acquired |
|
|
( i 633 |
) |
|
|
( i 10 |
) |
Other, net |
|
|
( i 13 |
) |
|
|
i 3 |
|
Net cash used in investing activities |
|
|
( i 670 |
) |
|
|
( i 42 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from issuance of A&R Term B Facility |
|
|
i 200 |
|
|
|
i 950 |
|
Payments of debt facility issuance and modification costs |
|
|
( i 4 |
) |
|
|
( i 21 |
) |
Repayments of long-term debt |
|
|
( i 6 |
) |
|
|
( i 923 |
) |
Other, net |
|
|
( i 7 |
) |
|
|
i 1 |
|
Net cash provided by financing activities |
|
|
i 183 |
|
|
|
i 7 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
( i 13 |
) |
|
|
( i 2 |
) |
Net (decrease) increase in cash and cash equivalents and restricted cash |
|
|
( i 524 |
) |
|
|
i 62 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
i 779 |
|
|
|
i 517 |
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
i 255 |
|
|
$ |
i 579 |
|
|
|
|
|
|
|
|
||
Supplemental Cash Flow Information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
i 21 |
|
|
$ |
i 21 |
|
Income taxes paid, net |
|
$ |
i 79 |
|
|
$ |
i 46 |
|
See accompanying notes to the unaudited consolidated financial statements.
6
RESIDEO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except shares in thousands)
(Unaudited)
Fiscal Quarters |
|
Common |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Treasury |
|
|
Treasury |
|
Total |
|
||||||||
Balance as of April 2, 2022 |
|
|
i 145,372 |
|
|
$ |
i - |
|
|
$ |
i 2,135 |
|
|
$ |
i 404 |
|
|
$ |
( i 151 |
) |
|
|
i 1,696 |
|
|
$ |
( i 27 |
) |
$ |
i 2,361 |
|
Net income |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 94 |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 94 |
|
Other comprehensive loss, net of tax |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
( i 69 |
) |
|
|
- |
|
|
|
i - |
|
|
( i 69 |
) |
Stock issuances, net of shares withheld for taxes |
|
|
i 312 |
|
|
|
i - |
|
|
|
i 1 |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 148 |
|
|
|
( i 4 |
) |
|
( i 3 |
) |
Share-based compensation |
|
|
- |
|
|
|
i - |
|
|
|
i 11 |
|
|
|
i - |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 11 |
|
Balance as of July 2, 2022 |
|
|
i 145,684 |
|
|
$ |
i - |
|
|
$ |
i 2,147 |
|
|
$ |
i 498 |
|
|
$ |
( i 220 |
) |
|
|
i 1,844 |
|
|
$ |
( i 31 |
) |
$ |
i 2,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of April 3, 2021 |
|
|
i 143,819 |
|
|
$ |
i - |
|
|
$ |
i 2,088 |
|
|
$ |
i 124 |
|
|
$ |
( i 170 |
) |
|
|
i 1,069 |
|
|
$ |
( i 10 |
) |
$ |
i 2,032 |
|
Net income |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 58 |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 58 |
|
Other comprehensive income, net of tax |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 7 |
|
|
|
- |
|
|
|
i - |
|
|
i 7 |
|
Stock issuances, net of shares withheld for taxes |
|
|
i 352 |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 119 |
|
|
|
( i 4 |
) |
|
( i 4 |
) |
Share-based compensation |
|
|
- |
|
|
|
i - |
|
|
|
i 10 |
|
|
|
i - |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 10 |
|
Balance as of July 3, 2021 |
|
|
i 144,171 |
|
|
$ |
i - |
|
|
$ |
i 2,098 |
|
|
$ |
i 182 |
|
|
$ |
( i 163 |
) |
|
|
i 1,188 |
|
|
$ |
( i 14 |
) |
$ |
i 2,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fiscal Year to Date Periods |
|
Common |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Treasury |
|
|
Treasury |
|
Total |
|
||||||||
Balance as of December 31, 2021 |
|
|
i 144,808 |
|
|
$ |
i - |
|
|
$ |
i 2,121 |
|
|
$ |
i 317 |
|
|
$ |
( i 165 |
) |
|
|
i 1,440 |
|
|
$ |
( i 21 |
) |
$ |
i 2,252 |
|
Net income |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 181 |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 181 |
|
Other comprehensive loss, net of tax |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
( i 55 |
) |
|
|
- |
|
|
|
i - |
|
|
( i 55 |
) |
Stock issuances, net of shares withheld for taxes |
|
|
i 876 |
|
|
|
i - |
|
|
|
i 4 |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 404 |
|
|
|
( i 10 |
) |
|
( i 6 |
) |
Share-based compensation |
|
- |
|
|
|
i - |
|
|
|
i 22 |
|
|
|
i - |
|
|
i - |
|
|
- |
|
|
|
i - |
|
|
i 22 |
|
|||
Balance as of July 2, 2022 |
|
|
i 145,684 |
|
|
$ |
i - |
|
|
$ |
i 2,147 |
|
|
$ |
i 498 |
|
|
$ |
( i 220 |
) |
|
|
i 1,844 |
|
|
$ |
( i 31 |
) |
$ |
i 2,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance as of December 31, 2020 |
|
|
i 143,059 |
|
|
$ |
i - |
|
|
$ |
i 2,070 |
|
|
$ |
i 75 |
|
|
$ |
( i 146 |
) |
|
|
i 900 |
|
|
$ |
( i 6 |
) |
$ |
i 1,993 |
|
Net income |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 107 |
|
|
|
i - |
|
|
|
- |
|
|
|
i - |
|
|
i 107 |
|
Other comprehensive loss, net of tax |
|
|
- |
|
|
|
i - |
|
|
|
i - |
|
|
|
i - |
|
|
|
( i 17 |
) |
|
|
- |
|
|
|
i - |
|
|
( i 17 |
) |
Stock issuances, net of shares withheld for taxes |
|
|
i 1,112 |
|
|
|
i - |
|
|
|
i 9 |
|
|
|
i - |
|
|
|
i - |
|
|
|
i 288 |
|
|
|
( i 8 |
) |
|
i 1 |
|
Share-based compensation |
|
- |
|
|
|
i - |
|
|
|
i 19 |
|
|
|
i - |
|
|
i - |
|
|
- |
|
|
|
i - |
|
|
i 19 |
|
|||
Balance as of July 3, 2021 |
|
|
i 144,171 |
|
|
$ |
i - |
|
|
$ |
i 2,098 |
|
|
$ |
i 182 |
|
|
$ |
( i 163 |
) |
|
|
i 1,188 |
|
|
$ |
( i 14 |
) |
$ |
i 2,103 |
|
See accompanying notes to the unaudited consolidated financial statements.
7
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Note 1. Organization, Operations, and Basis of Presentation
Business Description
Resideo Technologies, Inc. (“Resideo” or “the Company”), is a leading manufacturer and developer of technology-driven products that provide critical comfort, energy, smoke and carbon monoxide detection home safety products, and security solutions to homes globally. The Company is also the leading wholesale distributor of low-voltage security products including access control, fire detection, fire suppression, intrusion, and video products, and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. The Company has a global footprint serving commercial and residential end markets.
We acquired First Alert, Inc. (“First Alert”) on March 31, 2022. Refer to Note 11. Acquisitions for further detail on the First Alert acquisition.
The Company was incorporated in Delaware on April 24, 2018. The Company separated from Honeywell International Inc. (“Honeywell”) on i October 29, 2018, becoming an independent publicly traded company as a result of a pro rata distribution of the Company’s common stock to shareholders of Honeywell (the “Spin-Off”).
Basis of Presentation
The accompanying unaudited consolidated financial statements (collectively, the “Financial Statements”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, which consist of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods indicated. Operating results for the period from January 1, 2022 through July 2, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.
During the three months ended July 2, 2022, the Company changed the presentation of intangible asset amortization. These expenses are now presented as a separate line on the unaudited consolidated statements of operations, whereas they were previously included in cost of goods sold and selling, general and administrative expenses. Prior periods have been reclassified to conform to the current period presentation. The reclassification decreased cost of goods sold by $ i 7 million and $ i 11 million, and decreased selling, general and administrative expenses by $ i 2 million and $ i 5 million for the three and six months ended July 2, 2022, respectively. The reclassification decreased cost of goods sold by $ i 5 million and $ i 12 million, and decreased selling, general and administrative expenses by $ i 2 million and $ i 4 million for the three and six months ended July 3, 2021, respectively. The reclassification had no impact on total operating costs, income from operations, net income, earnings per common share or total equity
Certain reclassifications have been made to prior period amounts in the unaudited consolidated financial statements to conform to the current presentation.
For additional information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2022.
Reporting Periods
The Company’s fiscal quarters are based on a four-four-five week calendar with the periods ending on the Saturday of the last week in the quarter except that December 31st will always be the year end date. Therefore, the financial results of certain fiscal quarters may not be comparable to prior fiscal quarters.
8
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Restricted Cash
The following table provides a reconciliation of cash, cash and cash equivalents and restricted cash reported within the consolidated balance sheets that total the amounts shown in the consolidated statements of cash flows (in millions):
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
i 251 |
|
|
$ |
i 775 |
|
Restricted cash included in Other current assets (1) |
|
|
i 4 |
|
|
|
i 4 |
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cashflows |
|
$ |
i 255 |
|
|
$ |
i 779 |
|
|
|
|
|
|
|
|
||
Note 2. Summary of Significant Accounting Policies
Recent Accounting Pronouncements—The Company considers the applicability and impact of all recent accounting standards updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated financial position or results of operations.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which is optional guidance related to reference rate reform that provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance along with its subsequent clarifications, is effective from March 12, 2020 through December 31, 2022 and is applicable for the Company’s A&R Senior Credit Facilities and Swap Agreements, which use LIBOR as a reference rate. The A&R Senior Credit Facilities include a transition clause to a new reference rate in the event LIBOR is discontinued and Swap Agreements will be amended to match the new reference rate. We have evaluated the potential impact of adopting this guidance, and we do not expect it to have a material impact on our consolidated financial statements. Refer to Note 15. Long-term Debt and Credit Agreement for further details on the Company’s Swap Agreements and A&R Senior Credit Facilities.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. Under this guidance, an acquirer must recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 effective April 1, 2022, on a prospective basis. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.
9
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Note 3. Revenue Recognition
Disaggregated Revenue
The Company has two operating segments, Products & Solutions and ADI Global Distribution. Disaggregated revenue information for Products & Solutions is presented by product grouping while ADI Global Distribution is presented by region. Beginning January 1, 2022, the Products & Solutions segment further disaggregated the Comfort product grouping into Air and Water and Residential Thermal Solutions is now referenced as Energy. As of April 1, 2022, the First Alert business is included in the results of operations as of its March 31, 2022 acquisition date in the Security and Safety grouping.
Revenues by product grouping and region are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Products & Solutions Disaggregated Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Air |
|
$ |
i 262 |
|
|
$ |
i 206 |
|
|
$ |
i 476 |
|
|
$ |
i 397 |
|
Water |
|
|
i 81 |
|
|
|
i 89 |
|
|
|
i 172 |
|
|
|
i 177 |
|
Energy |
|
|
i 154 |
|
|
|
i 140 |
|
|
|
i 313 |
|
|
|
i 290 |
|
Security and Safety |
|
|
i 267 |
|
|
|
i 163 |
|
|
|
i 422 |
|
|
|
i 340 |
|
Total Products & Solutions |
|
$ |
i 764 |
|
|
$ |
i 598 |
|
|
$ |
i 1,383 |
|
|
$ |
i 1,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
ADI Global Distribution Disaggregated Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. and Canada |
|
|
i 791 |
|
|
|
i 731 |
|
|
|
i 1,543 |
|
|
|
i 1,398 |
|
EMEA (1) |
|
|
i 123 |
|
|
|
i 140 |
|
|
|
i 249 |
|
|
|
i 274 |
|
APAC (2) |
|
|
i 8 |
|
|
|
i 8 |
|
|
|
i 17 |
|
|
|
i 20 |
|
Total ADI Global Distribution |
|
|
i 922 |
|
|
|
i 879 |
|
|
|
i 1,809 |
|
|
|
i 1,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net revenue |
|
$ |
i 1,686 |
|
|
$ |
i 1,477 |
|
|
$ |
i 3,192 |
|
|
$ |
i 2,896 |
|
(1) EMEA represents Europe, the Middle East and Africa.
(2) APAC represents Asia and Pacific countries.
/
The Company recognizes the majority of its revenue from performance obligations outlined in contracts with its customers that are satisfied at a point in time. Less than i 3% of the Company’s revenue is satisfied over time. As of July 2, 2022 and July 3, 2021, contract assets and liabilities were not material.
/
Note 4. Segment Financial Data
The Company monitors its business operations through i two operating segments: Products & Solutions and ADI Global Distribution.
These operating segments follow the same accounting policies used for our consolidated financial statements. We evaluate a segment's performance on a U.S. GAAP basis based primarily upon operating income before corporate expenses.
Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment. These items are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, unallocated pension expense, restructuring charges, acquisition-related costs, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology, strategy, communications and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, and other income (expense).
10
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions, and assesses operating performance.
The following table represents summary financial data attributable to the segments:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Products & Solutions |
|
|
i 764 |
|
|
|
i 598 |
|
|
|
i 1,383 |
|
|
|
i 1,204 |
|
ADI Global Distribution |
|
|
i 922 |
|
|
|
i 879 |
|
|
|
i 1,809 |
|
|
|
i 1,692 |
|
Total Net revenue: |
|
$ |
i 1,686 |
|
|
$ |
i 1,477 |
|
|
$ |
i 3,192 |
|
|
$ |
i 2,896 |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Products & Solutions |
|
$ |
i 154 |
|
|
$ |
i 129 |
|
|
$ |
i 307 |
|
|
$ |
i 259 |
|
ADI Global Distribution |
|
|
i 86 |
|
|
|
i 66 |
|
|
|
i 166 |
|
|
|
i 125 |
|
Corporate |
|
|
( i 54 |
) |
|
|
( i 74 |
) |
|
|
( i 115 |
) |
|
|
( i 133 |
) |
Total Income from operations: |
|
$ |
i 186 |
|
|
$ |
i 121 |
|
|
$ |
i 358 |
|
|
$ |
i 251 |
|
The Company’s Chief Operating Decision Maker does not use segment assets information to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.
/
Note 5. Stock-Based Compensation Plans
Restricted Stock Units (“RSUs”) and Performance Stock Unit (“PSUs”)
During the six months ended July 2, 2022, as part of the Company’s annual long-term compensation under the 2018 Stock Incentive Plan of Resideo Technologies, Inc. and its Affiliates and the 2018 Stock Incentive Plan for Non-Employee Directors of Resideo Technologies, Inc. as may be amended from time to time (together, the “Stock Incentive Plan”), it granted i 672,453 market-based PSUs and i 1,035,043 service-based RSUs to eligible employees. The weighted average grant date fair value per share for market-based PSUs and service-based RSUs was $ i 36.04 and $ i 24.54, respectively. i Annual awards to our key employees generally have a three or i four year performance period. / The fair value is based on the Company’s stock price as of the date of grant.
/
Note 6. Leases
The Company is party to operating leases for the majority of its manufacturing sites, offices, engineering and lab sites, stocking locations, warehouses, automobiles, and certain equipment. Certain of the Company’s real estate leases include variable rental payments which adjust periodically based on inflation. Generally, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company’s operating lease expense for the three and six months ended July 2, 2022 and July 3, 2021 consisted of the following:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Cost of goods sold |
|
$ |
i 7 |
|
|
$ |
i 4 |
|
|
$ |
i 10 |
|
|
$ |
i 8 |
|
Selling, general and administrative |
|
|
i 13 |
|
|
|
i 10 |
|
|
|
i 25 |
|
|
$ |
i 22 |
|
Total operating lease expense |
|
$ |
i 20 |
|
|
$ |
i 14 |
|
|
$ |
i 35 |
|
|
$ |
i 30 |
|
Total operating lease expense includes variable lease expense of $ i 5 million and $ i 9 million for the three and six months ended July 2, 2022, respectively. For the three and six months ended July 3, 2021, total operating lease
11
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
expense include variable lease expense of $ i 4 million and $ i 8 million, respectively. Total operating lease expense also include offsetting sublease income which is immaterial for the three and six months ended July 2, 2022 and July 3, 2021.
The Company recognized the following related to its operating leases:
|
|
Financial |
|
As of July 2, |
|
|
As of December 31, |
|
||
Operating right-of-use assets |
|
Other assets |
|
$ |
i 172 |
|
|
$ |
i 141 |
|
Operating lease liabilities - current |
|
Accrued liabilities |
|
$ |
i 36 |
|
|
$ |
i 32 |
|
Operating lease liabilities - noncurrent |
|
Other long-term liabilities |
|
$ |
i 146 |
|
|
$ |
i 120 |
|
Future minimum lease payments under non-cancelable leases are as follows:
|
|
As of July 2, |
|
|
2022 (excluding the six months ended July 2, 2022) |
|
$ |
i 22 |
|
2023 |
|
|
i 42 |
|
2024 |
|
|
i 33 |
|
2025 |
|
|
i 28 |
|
2026 |
|
|
i 24 |
|
Thereafter |
|
|
i 66 |
|
Total future minimum lease payments |
|
|
i 215 |
|
Less: imputed interest |
|
|
i 33 |
|
Present value of future minimum lease payments |
|
$ |
i 182 |
|
Weighted-average remaining lease term (years) |
|
|
i 6.36 |
|
Weighted-average incremental borrowing rate |
|
|
i 5.28 |
% |
Supplemental cash flow information related to the Company’s operating leases was as follows:
|
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
||
Cash outflows for operating leases |
|
|
|
$ |
i 16 |
|
|
$ |
i 17 |
|
Non-cash activities: |
|
|
|
|
|
|
|
|
||
Right of use assets obtained in exchange for new operating lease liabilities |
|
|
|
$ |
i 56 |
|
|
$ |
i 17 |
|
Note 7. Income Taxes
The Company recorded tax expense of $ i 37 million and $ i 71 million for the three and six months ended July 2, 2022, respectively. The Company recorded tax expense of $ i 23 million and $ i 47 million for the three and six months ended July 3, 2021, respectively.
For interim periods, income tax is equal to the total of (1) year-to-date pretax income multiplied by the Company’s forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where the Company expects to report losses for which the Company does not expect to receive tax benefits, the Company applies separate forecasted effective tax rates to those jurisdictions rather than including them in the consolidated forecasted effective tax rate.
12
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
For the three months ended July 2, 2022, the net tax expense of $ i 37 million consists primarily of interim period tax expense based on year-to-date pretax income multiplied by the Company’s forecasted effective tax rate. In addition to items specific to the period, the Company’s income tax rate is impacted by the mix of earnings across the jurisdictions in which the Company operates, non-deductible expenses, and U.S. taxation of foreign earnings.
For the six months ended July 2, 2022, the net tax expense of $ i 71 million consists primarily of interim period tax expense based on year-to-date pretax income multiplied by the Company’s forecasted effective tax rate. In addition to items specific to the period, the Company’s income tax rate is impacted by the mix of earnings across the jurisdictions in which the Company operates, non-deductible expenses, and U.S. taxation of foreign earnings.
/Note 8. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per share (in millions, except shares in thousands, and per share data):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Numerator for Basic and Diluted Earnings Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
i 94 |
|
|
$ |
i 58 |
|
|
$ |
i 181 |
|
|
$ |
i 107 |
|
Denominator for Basic and Diluted Earnings Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average basic number of shares outstanding |
|
|
i 145,457 |
|
|
|
i 143,939 |
|
|
|
i 145,286 |
|
|
|
i 143,657 |
|
Add: dilutive effect of stock equivalents |
|
|
i 3,372 |
|
|
|
i 4,389 |
|
|
|
i 3,550 |
|
|
|
i 4,393 |
|
Weighted average diluted number of shares outstanding |
|
|
i 148,829 |
|
|
|
i 148,328 |
|
|
|
i 148,836 |
|
|
|
i 148,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
i 0.65 |
|
|
$ |
i 0.40 |
|
|
$ |
i 1.25 |
|
|
$ |
i 0.74 |
|
Diluted |
|
$ |
i 0.63 |
|
|
$ |
i 0.39 |
|
|
$ |
i 1.22 |
|
|
$ |
i 0.72 |
|
Diluted earnings per common share is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of the Company’s common stock for the three and six months ended July 2, 2022 and July 3, 2021. For the three and six months ended July 2, 2022, average options and other rights to purchase approximately i i 0.9 / million shares of common stock were outstanding and anti-dilutive, and therefore excluded from the computation of diluted earnings per common share. In addition, an average of i 1.0 million and i 0.9 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the three and six months ended July 2, 2022, respectively, as the contingency had not been satisfied. For the three and six months ended July 3, 2021, average options and other rights to purchase approximately i i 0.1 / million shares of common stock were outstanding and anti-dilutive, and therefore excluded from the computation of diluted income per common share. An average of approximately i 0.9 million and i 0.8 million shares of performance-based unit awards are excluded from the computation of diluted earnings per common share for the three and six months ended July 3, 2021, respectively, as the contingency had not been satisfied.
/13
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Note 9. Inventories, Net
|
|
|
|
|
||||
Raw materials |
|
$ |
i 264 |
|
|
$ |
i 174 |
|
Work in process |
|
|
i 24 |
|
|
|
i 17 |
|
Finished products |
|
|
i 683 |
|
|
|
i 549 |
|
Total Inventories, Net |
|
$ |
i 971 |
|
|
$ |
i 740 |
|
Note 10. Property, Plant, and Equipment, Net
|
|
|
|
|
||||
Machinery and equipment |
|
$ |
i 641 |
|
|
$ |
i 602 |
|
Buildings and improvements |
|
|
i 297 |
|
|
|
i 292 |
|
Construction in progress |
|
|
i 60 |
|
|
|
i 35 |
|
Other |
|
|
i 8 |
|
|
|
i 4 |
|
Total Gross Property, Plant, and Equipment |
|
|
i 1,006 |
|
|
|
i 933 |
|
Accumulated depreciation |
|
|
( i 643 |
) |
|
|
( i 646 |
) |
Property, Plant, and Equipment, Net |
|
$ |
i 363 |
|
|
$ |
i 287 |
|
Depreciation expense for the three and six months ended July 2, 2022 and July 3, 2021 were $ i i 29 / million and $ i i 15 / million, respectively.
/
Note 11. Acquisitions
On i February 6, 2022, the Company announced it had entered into a definitive agreement to purchase i 100% of the issued and outstanding capital stock of First Alert, a leading provider of home safety products. The acquisition closed on March 31, 2022 for an aggregate cash purchase price of $ i 614 million (including preliminary post-closing adjustments of $ i 6 million). First Alert is expected to expand and leverage the Company's footprint in the home with complementary smoke and carbon monoxide detection home safety products and fire suppression products. The business is included within the Products & Solutions segment.
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition. The Company preliminarily determined the fair value of the tangible and intangible assets and liabilities acquired, and recorded goodwill based on the excess of the fair value of the acquisition consideration over such fair values as follows:
Cash and other current assets |
|
$ |
i 4 |
|
Accounts receivable, net |
|
|
i 72 |
|
Inventories, net |
|
|
i 117 |
|
Property, plant and equipment |
|
|
i 87 |
|
Goodwill (1) |
|
|
i 72 |
|
Other intangible assets, net |
|
|
i 349 |
|
Other assets (non-current) |
|
|
i 37 |
|
Total assets |
|
|
i 738 |
|
Accounts payable |
|
|
i 55 |
|
Accrued liabilities |
|
|
i 33 |
|
Other liabilities |
|
|
i 36 |
|
Total liabilities |
|
|
i 124 |
|
Net asset acquired (2) |
|
$ |
i 614 |
|
(1) The $ i 72 million of preliminary goodwill was allocated to the Products & Solutions segment. Goodwill from this acquisition is partially deductible for tax purposes.
14
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
(2) Reflects preliminary purchase price allocation.
/
First Alert contributed $ i 113 million in net revenue for the three months ended July 2, 2022. The net income for the period was not material. On a pro forma basis, First Alert's net revenue for the three months ended April 2, 2022 and the twelve months ended December 31, 2021 was $ i 110 million and $ i 395 million, respectively. The pro forma net income for both periods was not material.
The Company expensed approximately $ i 10 million of costs related to the acquisition of First Alert during the six months ended July 2, 2022. These costs, which consist primarily of advisory, insurance, and legal fees, are included in Selling, general and administrative expenses in the accompanying unaudited Consolidated Statements of Operations.
On February 14, 2022, the Company acquired i 100% of the outstanding equity of Arrow Wire and Cable Inc. (“Arrow”), a leading regional distributor of data communications, connectivity and security products, for an aggregate cash purchase price of $ i 15 million. The business is included within the ADI Global Distribution segment and is expected to strengthen the Company’s global distribution portfolio in the data communications category with an assortment of copper and fiber cabling and connectivity, connectors, racking solutions, and network equipment. The Company is still assessing the final allocation of the purchase price to the assets and liabilities of the business.
/
Note 12. Goodwill and Other Intangible Assets, Net
The Company's goodwill balance and changes in the carrying amount of goodwill by segment are as follows (in millions):
|
|
Products & Solutions |
|
|
ADI Global Distribution |
|
|
Total |
|
|||
Balance as of December 31, 2021 |
|
$ |
i 2,010 |
|
|
$ |
i 651 |
|
|
$ |
i 2,661 |
|
Adjusted Goodwill from acquisitions |
|
|
i 72 |
|
|
|
i 7 |
|
|
|
i 79 |
|
Currency translation |
|
|
( i 34 |
) |
|
|
( i 11 |
) |
|
|
( i 45 |
) |
Balance as of July 2, 2022 |
|
$ |
i 2,048 |
|
|
$ |
i 647 |
|
|
$ |
i 2,695 |
|
i The table that follows presents the major components of intangible assets as of July 2, 2022 and December 31, 2021. Intangible assets that are fully amortized have been removed from the disclosures.
15
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
|
|
Range of Life (Years) |
|
Weighted Average Amortization Period (Years) |
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
As of July 2, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other intangible assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Patents and technology |
|
i 3- i 10 |
|
i 10 |
|
$ |
i 64 |
|
|
$ |
( i 24 |
) |
|
$ |
i 40 |
|
Customer relationships |
|
i 7- i 15 |
|
i 14 |
|
|
i 294 |
|
|
|
( i 107 |
) |
|
|
i 187 |
|
Trademarks (1) |
|
i 10-Indefinite |
|
i 10 |
|
|
i 194 |
|
|
|
( i 8 |
) |
|
|
i 186 |
|
Software |
|
i 2- i 7 |
|
i 6 |
|
|
i 164 |
|
|
|
( i 114 |
) |
|
|
i 50 |
|
Total intangible assets |
|
|
|
|
|
$ |
i 716 |
|
|
$ |
( i 253 |
) |
|
$ |
i 463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other intangible assets, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Patents and technology |
|
i 3- i 10 |
|
i 9 |
|
$ |
i 31 |
|
|
$ |
( i 23 |
) |
|
$ |
i 8 |
|
Customer relationships |
|
i 7- i 15 |
|
i 14 |
|
|
i 162 |
|
|
|
( i 106 |
) |
|
|
i 56 |
|
Trademarks |
|
i 10 |
|
i 10 |
|
|
i 14 |
|
|
|
( i 8 |
) |
|
|
i 6 |
|
Software |
|
i 2- i 7 |
|
i 6 |
|
|
i 162 |
|
|
|
( i 112 |
) |
|
|
i 50 |
|
Total intangible assets |
|
|
|
|
|
$ |
i 369 |
|
|
$ |
( i 249 |
) |
|
$ |
i 120 |
|
The Company uses the straight-line method of amortization and expects to recognize amortization expense over the next five fiscal years as follows (in millions):
2022 (excluding the six months ended July 2, 2022) |
|
$ |
i 19 |
|
2023 |
|
|
i 44 |
|
2024 |
|
|
i 32 |
|
2025 |
|
|
i 31 |
|
2026 |
|
|
i 27 |
|
/
Note 13. Accrued Liabilities
|
|
|
|
|
||||
Obligations payable under Indemnification Agreements |
|
$ |
i 140 |
|
|
$ |
i 140 |
|
Taxes payable |
|
|
i 52 |
|
|
|
i 54 |
|
Compensation, benefit and other employee-related |
|
|
i 88 |
|
|
|
i 114 |
|
Customer rebate reserve |
|
|
i 77 |
|
|
|
i 94 |
|
Current operating lease liability |
|
|
i 36 |
|
|
|
i 32 |
|
Other |
|
|
i 187 |
|
|
|
i 167 |
|
Total Accrued liabilities |
|
$ |
i 580 |
|
|
$ |
i 601 |
|
Refer to Note 14. Commitments and Contingencies for further details on Obligations payable under Indemnification Agreements.
/
Note 14. Commitments and Contingencies
Environmental Matters
The Company is subject to various federal, state, local, and foreign government requirements relating to the protection of the environment and accrues costs related to environmental matters when it is probable that it has incurred a liability related to a contaminated site and the amount can be reasonably estimated. Environmental-related
16
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
expenses for sites owned and operated by Resideo are presented within Cost of goods sold for operating sites. For the three and six months ended July 2, 2022 and July 3, 2021, environmental expenses related to these operating sites were not material. Liabilities for environmental costs were $ i i 22 / million as of July 2, 2022 and December 31, 2021.
Obligations Payable Under Indemnification Agreements
The indemnification and reimbursement agreement (the “Reimbursement Agreement”) and the tax matters agreement (the “Tax Matters Agreement”) (collectively, the “Indemnification Agreements”) are described below.
Reimbursement Agreement
i In connection with the Spin-Off, the Company entered into the Reimbursement Agreement with Honeywell pursuant to which the Company has an obligation to make cash payments to Honeywell in amounts equal to i 90% of payments for certain Honeywell environmental-liability payments, which include amounts billed (“payments”), less i 90% of Honeywell’s net insurance receipts relating to such liabilities, and less i 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales (the “recoveries”). The amount payable by the Company in respect of such liabilities arising in respect of any given year is subject to a cap of $ i 140 million. / See Note 17. Commitments and Contingencies in the Company’s 2021 Annual Report on Form 10-K for further discussion.
The following table summarizes information concerning the Company’s Reimbursement Agreement liabilities:
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
||||
Beginning balance |
|
$ |
i 597 |
|
|
$ |
i 591 |
|
Accruals for indemnification liabilities deemed probable and reasonably estimable |
|
|
i 86 |
|
|
|
i 72 |
|
Indemnification payment |
|
|
( i 70 |
) |
|
|
( i 70 |
) |
Ending balance (1) |
|
$ |
i 613 |
|
|
$ |
i 593 |
|
/
For the three and six months ended July 2, 2022, net expenses related to the Reimbursement Agreement were $ i 45 million and $ i 86 million, respectively, and for the three and six months ended July 3, 2021, net expenses related to the Reimbursement Agreement were $ i 36 million and $ i 72 million, respectively, and are recorded in Other expense, net.
Reimbursement Agreement liabilities are included in the following balance sheet accounts:
|
|
|
|
|
||||
Accrued liabilities |
|
$ |
i 140 |
|
|
$ |
i 140 |
|
Obligations payable under Indemnification Agreements |
|
|
i 473 |
|
|
|
i 457 |
|
|
|
$ |
i 613 |
|
|
$ |
i 597 |
|
17
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
/
The Company does not currently possess sufficient information to reasonably estimate the amounts of indemnification liabilities to be recorded upon future completion of studies, litigation or settlements, and neither the timing nor the amount of the ultimate costs associated with such indemnification liability payments can be determined although they could be material to the Company’s unaudited consolidated results of operations and operating cash flows in the periods recognized or paid.
Tax Matters Agreement
In connection with the Spin-Off, the Company entered into the Tax Matters Agreement with Honeywell pursuant to which it is 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 Spin-Off. In addition, the Tax Matters Agreement addresses the allocation of liability for taxes that are incurred as a result of restructuring activities undertaken to effectuate the Spin-Off. As of July 2, 2022 and December 31, 2021, the Company has recorded a liability in respect to the Tax Matters Agreement of $ i i 128 / million, which is included in Obligations payable under Indemnification Agreements.
Trademark Agreement
In connection with the Spin-Off, the Company and Honeywell entered into a i 40-year Trademark License Agreement (the “Trademark Agreement”) that authorizes the Company’s use of certain licensed trademarks in the operation of Resideo’s business for the advertising, sale, and distribution of certain licensed products. In exchange, the Company pays a royalty fee which is generally equal to i 1.5% on net revenue to Honeywell related to such licensed products which is recorded in Selling, general and administrative expenses on the unaudited Consolidated Statements of Operations. For the three and six months ended July 2, 2022, royalty fees were $ i 5 million and $ i 11 million, respectively. For the three and six months ended July 3, 2021, royalty fees were $ i 4 million and $ i 9 million, respectively.
Other Matters
The Company is subject to lawsuits, investigations, and disputes arising out of the conduct of its business, including matters relating to commercial transactions, government contracts, product liability, prior acquisitions and divestitures, employee matters, intellectual property, and environmental, health, and safety matters. The Company recognizes a liability for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on a careful analysis of each matter with the assistance of outside legal counsel and, if applicable, other experts. No such matters are material to the Company’s unaudited financial statements.
The Company, the Company’s former CEO Michael Nefkens, the Company’s former CFO Joseph Ragan, and the Company’s former CIO Niccolo de Masi were named defendants in a class action securities suit that was filed in the U.S. District Court for the District of Minnesota styled In re Resideo Technologies, Inc. Securities Litigation (the “Securities Litigation”). The amended complaint asserted claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, broadly alleging, among other things, that the defendants (or some of them) made false and misleading statements regarding, among other things, Resideo’s business, performance, the efficiency of its supply chain, operational and administrative issues resulting from the spin-off from Honeywell, certain business initiatives, and financial guidance in 2019. Following a court-approved settlement resolving the Securities Litigation, on March 25, 2022, the court entered a final judgement, which was amended to provide a dismissal of the Securities Litigation with prejudice on April 14, 2022.
Certain current or former directors and officers of the Company were defendants in a consolidated derivative action in the District Court for the District of Delaware under the caption In re Resideo Technologies, Inc. Derivative Litigation (the “Federal Derivative Action”). On September 23, 2021, the Federal Derivative Action was transferred to the District of Minnesota, where Securities Litigation was pending. On September 1, 2021, an additional shareholder derivative complaint was filed by Riviera Beach, part of the leadership group in the Federal Derivative Action, and
18
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
City of Hialeah Employees Retirement System against certain current or former directors and officers of the Company in the District of Minnesota, alleging substantially that the same facts and making substantially the same claims against the same defendants as in the Federal Derivative Action, and additionally referencing board materials obtained through a demand made pursuant to Section 220 of the Delaware Code Title 8 (the “Riviera Beach Action”). On December 1, 2021, the Federal Derivative Action and the Riviera Beach Action were consolidated into a single action under the caption: In re Resideo Technologies, Inc. Derivative Litigation (the “Consolidated Federal Derivative Action”) and was stayed pending entry of final judgement in the Securities Litigation. On April 19, 2022, after entry of the final judgement in the Securities Litigation, the court entered the parties’ stipulation suspending all deadlines in the case for sixty days to facilitate settlement discussions. On July 8, 2022, the parties participated in a status conference with the Court, following which, on July 19, 2022, the Court entered a sealed order extending the stay and addressing certain matters in respect of the ongoing settlement discussions.
On June 25, 2021, the Bud & Sue Frashier Family Trust U/A DTD 05/05/98, filed a shareholder derivative complaint against certain current or former directors and officers of the Company in the Court of Chancery of the State of Delaware, captioned Bud & Sue Frashier Trust U/A DTD 05/05/98 v. Fradin (“Delaware Chancery Derivative Action”). The Delaware Chancery Derivative Action alleges substantially the same facts and makes substantially the same claims as the Federal Derivative Action, and additionally references board materials obtained through a demand made pursuant to Section 220 of the Delaware Code Title 8. The Delaware Chancery Derivative Action remains stayed by order of the Court.
While the Company is engaged in discussions concerning potential settlement of the Federal Derivative Action and the Delaware Chancery Derivative Action, there can be no guarantees that a settlement will be reached or approved. In the event that no settlement is reached, the Company intends to defend these actions vigorously, but there can be no assurance that the defense will be successful.
See Note 17. Commitments and Contingencies of Notes to Consolidated and Combined Financial Statements in the Company’s 2021 Annual Report on Form 10-K for further discussion of these matters.
Warranties and Guarantees
In the normal course of business, the Company issues product warranties and product performance guarantees. It accrues for the estimated cost of product warranties and 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.
The following table summarizes information concerning recorded obligations for product warranties and product performance guarantees:
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
||||
Beginning of period |
|
$ |
i 23 |
|
|
$ |
i 22 |
|
Accruals for warranties/guarantees issued during the year |
|
|
i 11 |
|
|
|
i 8 |
|
Additions from acquisitions |
|
|
i 14 |
|
|
|
- |
|
Settlements and adjustments |
|
|
( i 13 |
) |
|
|
( i 10 |
) |
End of period |
|
$ |
i 35 |
|
|
$ |
i 20 |
|
19
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Note 15. Long-term Debt and Credit Agreement
The Company’s long-term debt as of July 2, 2022 and December 31, 2021 consisted of the following:
|
|
|
|
|
||||
i 4.000% notes due i 2029 |
|
$ |
i 300 |
|
|
$ |
i 300 |
|
Seven-year variable rate A&R Term B Facility |
|
|
i 1,137 |
|
|
|
i 943 |
|
Unamortized deferred financing costs |
|
|
( i 15 |
) |
|
|
( i 13 |
) |
Total outstanding indebtedness |
|
|
i 1,422 |
|
|
|
i 1,230 |
|
Less: Amounts expected to be paid within one year |
|
|
i 12 |
|
|
|
i 10 |
|
Total long-term debt due after one year |
|
$ |
i 1,410 |
|
|
$ |
i 1,220 |
|
As of July 2, 2022 and July 3, 2021, the interest rate for the Amendment and Restatement Agreement (“A&R”) Term B Facility (defined below) was i 3.59% and i 2.75%, respectively, and there were i i no / borrowings and i i no / letters of credit issued under the A&R Revolving Credit Facility (as defined below). During the six months ended July 3, 2021, the Company incurred debt extinguishment costs of $ i 23 million related to the execution of the A&R Credit Agreement (as defined below) and a partial redemption of previously outstanding senior notes. As of July 2, 2022, the Company was in compliance with all covenants related to the A&R Credit Agreement and the Senior Notes due 2029 (as defined below).
The Company assessed the amounts recorded under the Amendment and Restatement Agreement Term B Facility, the Senior Notes due 2029, and the A&R Revolving Credit Facility. The Company determined that the A&R Revolving Credit Facility approximated fair value. As of July 2, 2022, the A&R Term B Facility and the Senior Notes due 2029 had approximate fair values of $ i 1,100 million and $ i 236 million, respectively. The fair values of the debt are based on the quoted inactive prices and are therefore classified as Level 2 within the valuation hierarchy.
Senior Notes due 2029
On August 26, 2021, the Company issued $ i 300 million in principal amount of i 4% senior unsecured notes due in i 2029 (the “Senior Notes due 2029”). The Senior Notes due 2029 are senior unsecured obligations of Resideo guaranteed by Resideo’s existing and future domestic subsidiaries and rank equally with all of Resideo’s senior unsecured debt and senior to all of Resideo’s subordinated debt.
Credit Agreement
i On February 12, 2021, the Company entered into an Amendment and Restatement Agreement with JP Morgan Chase Bank N.A. as administrative agent (the “A&R Credit Agreement”). This agreement effectively replaced the Company’s previous senior secured credit facilities.
The A&R Credit Agreement provides for a (i) i seven-year senior secured term B loan facility in an aggregate principal amount of $ i 950 million (the “A&R Term B Facility”) and (ii) a i five-year senior secured revolving credit facility in an aggregate principal amount of $ i 500 million (the “A&R Revolving Credit Facility” and, together with the A&R Term B Facility, the “A&R Senior Credit Facilities”).
On March 28, 2022, the A&R Credit Agreement was further amended to include an additional aggregate principal amount of $ i 200 million in the loans.
Refer to Note 18. Long-Term Debt and Credit Agreement in the Company’s 2021 Annual Report on Form 10-K for further discussion regarding the Company’s long-term debt and credit agreement.
/
20
RESIDEO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, unless otherwise noted)
(Unaudited)
Note 16. Derivative Instruments
The Company uses interest rate swap agreements to manage exposure to interest rate risks. The Company does not use interest rate swap agreements for speculative or trading purposes. The gain or loss on the interest rate swaps that qualify as derivatives is recorded in Accumulated other comprehensive loss and is subsequently recognized as Interest expense in the Consolidated Statements of Operations when the hedged exposure affects earnings. If the related debt or the interest rate swap is terminated prior to maturity, the fair value of the interest rate swap recorded in Accumulated other comprehensive loss may be recognized in the Consolidated Statements of Operations based on an assessment of the agreements at the time of termination.
On March 31, 2021, the Company entered into i eight interest rate swap agreements (the “Swap Agreements”) with several financial institutions for a combined notional value of $ i 560 million. i The effect of the Swap Agreements is to convert a portion of the Company’s variable interest rate obligations based on three-month LIBOR with a minimum rate of i 0.50% per annum to a base fixed weighted average rate of i 0.9289% over terms ranging from two to i four years. The Swap Agreements are adjusted to fair value on a quarterly basis. / The estimated fair value is based on Level 2 inputs primarily including the forward LIBOR curve available to swap dealers. Contract gains recognized in other comprehensive income (loss) totaled $ i 1 million and $ i 24 million for the three and six months ended July 2, 2022, respectively. Contract gains or losses recognized in other comprehensive income (loss) were immaterial for the three and six months ended July 3, 2021, respectively. Amounts reclassified from Accumulated other comprehensive loss into earnings were not material for any of the periods presented. The fair value of the Swap Agreements as of July 2, 2022 was $ i 31 million, of which $ i 9 million was recognized in Other current assets and $ i 22 million was recognized in Other assets. The fair value of the Swap Agreements as of July 3, 2021 was immaterial. Amounts expected to be reclassified into earnings in the next 12 months were not material as of July 2, 2022.
/Note 17. Pension
The Company sponsors multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of its U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. It also sponsors defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, France, India, Switzerland, and the Netherlands. The pension obligations as of July 2, 2022 and December 31, 2021 were $ i 109 million and $ i 115 million, respectively, and are included in Other liabilities in the unaudited Consolidated Balance Sheets.
The service cost component of the net periodic benefit cost for the three and six months ended July 2, 2022 and July 3, 2021 was $ i i 7 / million and $ i i 15 / million, respectively, and is recognized where the related employee compensation expenses are recognized. The other components of net periodic benefit cost are recognized in other expense, net. These costs were not material for any of the periods presented.
/
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Resideo Technologies, Inc. and its consolidated subsidiaries (“Resideo” or “the Company”, “we”, “us” or “our”) for the three and six months ended July 2, 2022 and should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto contained elsewhere in this Form 10-Q. The financial information as of July 2, 2022 should be read in conjunction with the consolidated and combined financial statements for the year ended December 31, 2021 contained in our 2021 Annual Report on Form 10-K (the “2021 Annual Report on Form 10-K”).
FORWARD LOOKING STATEMENTS
This Quarterly Report on 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:
22
23
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 2021 Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 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 2021 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.
Overview and Business Trends
We are a leading global manufacturer and distributor of technology-driven products and solutions that help homeowners and businesses stay connected and in control of their comfort, security, and energy use. We are a leader in the home heating, ventilation and air conditioning controls markets, smoke and carbon monoxide detection home safety and fire suppression products, and security markets. We have a global footprint serving commercial and residential end-markets. We manage our business operations through two operating segments, Products & Solutions and ADI Global Distribution. Our Products & Solutions segment offerings include temperature and humidity control, energy products and solutions, water and air solutions, smoke and carbon monoxide detection home safety products, security panels, sensors, peripherals, wire and cable, communications devices, video cameras, awareness solutions, cloud infrastructure, installation and maintenance tools, and related software. Our ADI Global Distribution business is the leading wholesale distributor of low-voltage security products including access control, fire detection, intrusion, and video products and participates significantly in the broader related markets of audio, communications, data communications, networking, power, ProAV, smart home, and wire and cable. The Products & Solutions segment, consistent with our industry, has a higher gross and operating profit margin profile in comparison to the ADI Global Distribution segment.
In March 2022, we completed the acquisition of First Alert, Inc. ("First Alert"), a leading provider of home safety products. This acquisition was integrated into the Products & Solutions portfolio and expands our footprint in the home with complementary smoke and carbon monoxide detection home safety and fire suppression products.
Our financial performance is influenced by macroeconomic factors such as repair and remodeling activity, residential and non-residential construction, employment rates, interest rates, and the overall macroeconomic environment. We are experiencing global shortages in key materials and components in certain instances impacting our ability to supply certain products. Additionally, the current inflationary environment has resulted in higher raw materials, freight, and other costs, and unfavorable foreign currency impacts from a stronger U.S. dollar.
Second Quarter Highlights
Net revenue increased $209 million, or 14%, over the second quarter prior year primarily from $128 million in revenue from the First Alert and Arrow acquisitions and higher selling prices for our products in response to the current inflationary environment. Partially offsetting these increases were foreign currency fluctuations of approximately 300 bps or $40 million.
Gross profit as a percent of net revenues was 28% for the three months ended July 2, 2022, an approximately 200 bps increase over the same period last year. The drivers of the increase include favorable price and positive sales mix, including from recent acquisitions, of 400 bps. Partially offsetting the increases were higher costs as a result of the current inflationary environment of 200 bps.
Research and development expenses for the three months ended July 2, 2022 was $28 million, an increase of $6 million from $22 million for the three months ended July 3, 2021. The increase was driven by acquisitions and new product investments.
24
Selling, general and administrative expenses for the three months ended July 2, 2022 were $244 million, an increase of $8 million or 3% from $236 million for the three months ended July 3, 2021. The increase was primarily driven by increased costs associated with the First Alert acquisition of $16 million, labor inflation of $6 million, and investment of $4 million offset by lower legal and foreign currency impacts. As a percentage of net sales, selling, general and administrative expense improved 200 bps despite increases incurred as a result of acquisitions, labor inflation, and foreign currency fluctuations.
Net income for the three months ended July 2, 2022 was $94 million compared to net income of $58 million for the three months ended July 3, 2021, a 62% increase and $0.25 improvement in earnings per share. The improvement is a result of the discussion above.
Unrestricted cash on hand was approximately $251 million and liquidity was approximately $751 million as of July 2, 2022. Also, there were no borrowings under the $500 million revolving credit facility.
COVID-19 and Recent Macroeconomic Environment
Our visibility toward future performance is more limited than is typical due to the uncertainty surrounding the duration and ultimate impact of COVID-19 and its variants, and the overall prevailing macroeconomic environment, including due to COVID-19. For example, recent business conditions have been impacted by shortages in key materials and components which have impacted our ability to supply certain products. We have also experienced various inflationary impacts, such as increased labor rates, materials price inflation, and increased freight costs. In response to these challenges, we have, among other measures, aggressively managed supplier relationships to mitigate some of these shortages, developed contingency plans for future supply, aligned our production schedules with demand in a proactive manner; and pursued further improvements in the productivity and effectiveness of our manufacturing, selling, and administrative activities.
Results of Operations
We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280, Segment Reporting. We have determined that we have two reportable segments, organized and managed principally by the different services provided. While the segments often operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors. We report all other business activities in Corporate and unallocated costs. Corporate assets consist primarily of cash, investments, prepaid expenses, current and deferred taxes and property, plant and equipment. These items are not allocated to the operating segments. Corporate unallocated expenses primarily include share-based compensation expenses, restructuring charges, acquisition costs, gain on legal settlements, and other expenses related to executive, legal, finance, tax, treasury, human resources, information technology and strategy, and corporate travel expenses. Additional unallocated amounts primarily include non-operating items such as interest income, interest expense, and other income (expense).
Consolidated Statements of Operations
25
(In millions, except shares in thousands and per share data)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net revenue |
|
$ |
1,686 |
|
|
$ |
1,477 |
|
|
$ |
3,192 |
|
|
$ |
2,896 |
|
Cost of goods sold |
|
|
1,219 |
|
|
|
1,091 |
|
|
|
2,287 |
|
|
|
2,135 |
|
Gross profit |
|
|
467 |
|
|
|
386 |
|
|
|
905 |
|
|
|
761 |
|
Research and development expenses |
|
|
28 |
|
|
|
22 |
|
|
|
52 |
|
|
|
43 |
|
Selling, general and administrative expenses |
|
|
244 |
|
|
|
236 |
|
|
|
479 |
|
|
|
451 |
|
Intangible asset amortization |
|
|
9 |
|
|
|
7 |
|
|
|
16 |
|
|
|
16 |
|
Income from operations |
|
|
186 |
|
|
|
121 |
|
|
|
358 |
|
|
|
251 |
|
Other expense, net |
|
|
41 |
|
|
|
28 |
|
|
|
81 |
|
|
|
72 |
|
Interest expense |
|
|
14 |
|
|
|
12 |
|
|
|
25 |
|
|
|
25 |
|
Income before taxes |
|
|
131 |
|
|
|
81 |
|
|
|
252 |
|
|
|
154 |
|
Provision for income taxes |
|
|
37 |
|
|
|
23 |
|
|
|
71 |
|
|
|
47 |
|
Net income |
|
$ |
94 |
|
|
$ |
58 |
|
|
$ |
181 |
|
|
$ |
107 |
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.65 |
|
|
$ |
0.40 |
|
|
$ |
1.25 |
|
|
$ |
0.74 |
|
Diluted |
|
$ |
0.63 |
|
|
$ |
0.39 |
|
|
$ |
1.22 |
|
|
$ |
0.72 |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
145,457 |
|
|
|
143,939 |
|
|
|
145,286 |
|
|
|
143,657 |
|
Diluted |
|
|
148,829 |
|
|
|
148,328 |
|
|
|
148,836 |
|
|
|
148,050 |
|
Net Revenue
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Net revenue |
|
$ |
1,686 |
|
|
$ |
1,477 |
|
|
$ |
3,192 |
|
|
$ |
2,896 |
|
% change compared with prior period |
|
|
14 |
% |
|
|
|
|
|
10 |
% |
|
|
|
||
Three months ended
Net revenue increased $209 million, or 14%, over the second quarter prior year primarily $128 million in revenue from the First Alert and Arrow acquisitions and higher selling prices of $113 million. Partially offsetting these increases were foreign currency fluctuations of approximately 300 bps or $40 million.
Six months ended
Net revenue for the six months ended July 2, 2022 was $3,192 million, an increase of $296 million, or 10%, from $2,896 million for the six months ended July 3, 2021. The increase in net revenue was driven by price increases and acquisitions revenue, partially offset by foreign exchange fluctuations.
Gross Profit as a Percent of Net Sales
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Cost of goods sold |
|
$ |
1,219 |
|
|
$ |
1,091 |
|
|
$ |
2,287 |
|
|
$ |
2,135 |
|
% change compared with prior period |
|
|
12 |
% |
|
|
|
|
|
7 |
% |
|
|
|
||
Gross profit percentage |
|
|
28 |
% |
|
|
26 |
% |
|
|
28 |
% |
|
|
26 |
% |
26
Three months ended
Gross profit as a percentage of net sales was 28% for the three months ended July 2, 2022, compared to a 200 bps increase over the same period last year. The drivers of the increase include favorable price and positive sales mix, including from recent acquisitions, of 400 bps. Partially offsetting the increases were unfavorable impacts from higher costs as a result of the current inflationary environment of 200 bps.
Six months ended
Gross profit as a percentage of net sales was 28% for the six months ended July 2, 2022, compared to 26% for the six months ended July 3, 2021. The primary items driving the increase in gross profit percentage were a 300 bps impact from price increases and favorable sales mix. This impact was partially offset by a 100 bps unfavorable impact from increased material costs.
Research and Development Expenses
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Research and development expenses |
|
$ |
28 |
|
|
$ |
22 |
|
|
$ |
52 |
|
|
$ |
43 |
|
% of revenue |
|
|
2 |
% |
|
|
1 |
% |
|
|
2 |
% |
|
|
1 |
% |
Three months ended
Research and development expenses for the three months ended July 2, 2022 was $28 million, an increase of $6 million from $22 million for the three months ended July 3, 2021. The increase was driven by acquisitions and new product investments.
Six months ended
Research and development expenses for the six months ended July 2, 2022 was $52 million, an increase of $9 million from $43 million for the six months ended July 3, 2021. The increase was driven by planned investment to support new product launches and the inclusion of acquisitions.
Selling, General and Administrative Expenses
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Selling, general and administrative |
|
$ |
244 |
|
|
$ |
236 |
|
|
$ |
479 |
|
|
$ |
451 |
|
% of revenue |
|
|
14 |
% |
|
|
16 |
% |
|
|
15 |
% |
|
|
16 |
% |
Three months ended
Selling, general and administrative expenses for the three months ended July 2, 2022 was $244 million, an increase of $8 million, or 3%, from $236 million for the three months ended July 3, 2021. The increase was primarily driven by increased costs associated with the First Alert acquisition of $16 million, labor inflation of $6 million, and investment of $4 million offset by lower legal expenses as a result of the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, and foreign currency impacts. As a percentage of net sales, selling, general and administrative expenses improved 200 bps despite increases incurred as a result of acquisitions, labor inflation, and foreign currency fluctuations.
Six months ended
27
Selling, general and administrative expenses for the six months ended July 2, 2022 was $479 million, an increase of $28 million from $451 million for the six months ended July 3, 2021. The increase was driven by expenses related to acquisitions, transaction costs associated with the First Alert acquisition, increased investment, and labor inflation and other items totaling $56 million. These increases were partially offset by lower legal expenses as a result of the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, foreign currency translation and other cost reductions totaling $28 million.
Other Expense, Net
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Other expense, net |
|
$ |
41 |
|
|
$ |
28 |
|
|
$ |
81 |
|
|
$ |
72 |
|
Three months ended
Other expense, net for the three months ended July 2, 2022 was $41 million, an increase of $13 million from $28 million for the three months ended July 3, 2021. Other expense, net for the three months ended July 2, 2022 included $45 million in expenses related to the Honeywell Reimbursement Agreement partially offset by $4 million of other non-operating income. Other expense, net for the three months ended July 3, 2021, included $36 million in expenses related to the Honeywell Reimbursement Agreement, partially offset by $8 million of other non-operating income.
Six months ended
Other expense, net for the six months ended July 2, 2022 was $81 million, an increase of $9 million from $72 million for the six months ended July 3, 2021. Other expense, net for the six months ended July 2, 2022 included $86 million in expenses related to the Honeywell Reimbursement Agreement partially offset by $5 million of other non-operating income. Other expense, net for the six months ended July 3, 2021 included $72 million in expenses related to the Honeywell Reimbursement Agreement.
Tax Expense
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
|
|||||
|
|
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|||||
Provision for income taxes |
|
$ |
37 |
|
|
$ |
23 |
|
|
$ |
71 |
|
|
$ |
47 |
|
Effective tax rate |
|
|
28 |
% |
|
|
29 |
% |
|
|
28 |
% |
|
|
31 |
% |
Three months ended
For the three months ended July 2, 2022, the net tax expense of $37 million consists primarily of year-to-date pretax income multiplied by our forecasted effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.
Six months ended
For the six months ended July 2, 2022, the net tax expense of $71 million consists primarily of year-to-date pretax income multiplied by our forecasted effective tax rate. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, non-deductible expenses, and U.S. taxation of foreign earnings.
28
Segment Results of Operations
Products & Solutions Segment
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
|
|
|
July 2, |
|
|
|
|
|
|
|||||||
|
|
|
|
2021 |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
|||||||
Total revenue |
|
$ |
852 |
|
|
$ |
695 |
|
|
|
|
|
$ |
1,566 |
|
|
$ |
1,395 |
|
|
|
|
||
Operating profit |
|
$ |
154 |
|
|
$ |
129 |
|
|
|
19 |
% |
|
$ |
307 |
|
|
$ |
259 |
|
|
|
19 |
% |
Operating profit percentage |
|
|
20 |
% |
|
|
22 |
% |
|
|
|
|
|
22 |
% |
|
|
22 |
% |
|
|
|
||
On March 31, 2022, we completed the acquisition of First Alert, a leading provider of home safety products. This acquisition was integrated into the Products & Solutions portfolio and expands our footprint in the home with complementary smoke and carbon monoxide detection home safety products and fire suppression products.
Three months ended
Products & Solutions revenue increased 28%, mainly due to First Alert acquisition revenue and price increases, partially offset by foreign exchange fluctuations. Operating profit increased from $129 million to $154 million, or 19% primarily from positive price, net of inflationary cost increases of $7 million, higher demand of $11 million, and the contribution from the First Alert acquisition of $7 million.
Six months ended
Products & Solutions revenue increased 15%, mainly due to price increases and First Alert acquisition revenue, partially offset by foreign exchange fluctuations. Operating profit increased from $259 million to $307 million, or 19%. Operating profit was positively impacted by price increases, contributions from the First Alert acquisition, and other cost reductions totaling $166 million. These impacts were partially offset by increased material costs, unfavorable changes in sales mix, higher charges related to obsolete and surplus inventory, increased freight costs, increased investment totaling $118 million.
ADI Global Distribution Segment
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
|
|
|
July 2, |
|
|
|
|
|
|
|||||||
|
|
|
|
2021 |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
|||||||
External revenue |
|
$ |
922 |
|
|
$ |
879 |
|
|
|
5 |
% |
|
$ |
1,809 |
|
|
$ |
1,692 |
|
|
|
7 |
% |
Operating profit |
|
$ |
86 |
|
|
$ |
66 |
|
|
|
30 |
% |
|
$ |
166 |
|
|
$ |
125 |
|
|
|
33 |
% |
Operating profit percentage |
|
|
9 |
% |
|
|
8 |
% |
|
|
|
|
|
9 |
% |
|
|
7 |
% |
|
|
|
||
Three months ended
ADI Global Distribution revenue increased 5% highlighted by strong growth in the U.S. and Canada driven by price increases, and the impact of acquisitions, partially offset by foreign exchange fluctuations. Operating profit increased from $66 million to $86 million, or 30%. Operating profit was favorably impacted primarily by changes in sales mix, price increases, impact of acquisitions, and other expense productivity totaling $31 million. These positive impacts were partially offset by commercial investments, increased freight costs, as well as labor inflation totaling $11 million.
Six months ended
ADI Global Distribution revenue increased 7% driven by price increases and the impact of acquisitions, partially offset by foreign exchange fluctuations. Operating profit increased from $125 million to $166 million, or 33%. Operating profit was favorably impacted by changes in sales mix, price increases, impact of acquisitions, and other expense productivity totaling $60 million. These positive impacts were partially offset by commercial investments, increased freight costs, as well as labor inflation totaling $19 million.
29
Corporate
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
|
|
|
July 2, |
|
|
|
|
|
|
|||||||
|
|
|
|
2021 |
|
|
% Change |
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
|||||||
Corporate costs |
|
$ |
54 |
|
|
$ |
74 |
|
|
|
(27 |
)% |
|
$ |
115 |
|
|
$ |
133 |
|
|
|
(14 |
)% |
Three months ended
Corporate costs for the three months ended July 2, 2022 were $54 million, a decrease from $74 million for the three months ended July 3, 2021, or 27%. The decrease was due primarily to the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, and other cost reductions totaling $20 million.
Six months ended
Corporate costs for the six months ended July 2, 2022 were $115 million, a decrease from $133 million for the six months ended July 3, 2021, or 14%. The decrease was due primarily to the 2021 securities class action litigation settlement net of insurance recoveries of $16 million, lower consulting spend of $7 million, and other cost reductions. These positive impacts were partially offset by transaction costs associated with the First Alert acquisition of $10 million.
Capital Resources and Liquidity
Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations, supplemented by external sources of capital as needed. Additional liquidity may also be provided through access to the financial capital markets and a committed global credit facility. The following is a summary of our liquidity position:
Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies, and the expansion of our sales and marketing activities. While we may elect to seek additional funding at any time, we believe our existing cash, cash equivalents, and availability under our credit facilities are sufficient to meet our capital requirements through at least the next 12 months and the longer term. We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.
Reimbursement Agreement
In connection with the Spin-Off, we entered into the Reimbursement Agreement, pursuant to which we have an obligation to make cash payments to Honeywell in amounts equal to 90% of payments for certain Honeywell environmental-liability payments, which include amounts billed, less 90% of Honeywell’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by Honeywell in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales. The amount payable by us in respect of such liabilities arising in any given year is subject to a cap of $140 million.
The amount paid during the six months ended July 2, 2022 was $70 million. See Note 14. Commitments and Contingencies of Notes to Consolidated Financial Statements of this Form 10-Q and Note 17. Commitments and
30
Contingencies of Notes to Consolidated and Combined Financial Statements in our 2021 Annual Report on Form 10-K for further discussion.
Cash Flow Summary for the six months ended July 2, 2022 and July 3, 2021
Our cash flows from operating, investing and financing activities for the six months ended July 2, 2022 and July 3, 2021, as reflected in the unaudited Consolidated Statements of Cash Flows, are summarized as follows:
|
|
Six Months Ended |
|
|||||
|
|
July 2, |
|
|
|
|||
|
|
|
|
2021 |
|
|||
Cash provided by (used for): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(24 |
) |
|
$ |
99 |
|
Investing activities |
|
|
(670 |
) |
|
|
(42 |
) |
Financing activities |
|
|
183 |
|
|
|
7 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(13 |
) |
|
|
(2 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(524 |
) |
|
$ |
62 |
|
Cash used for operating activities for the six months ended July 2, 2022 increased by $123 million, primarily due to an increase in net income of $74 million, and an increase in current liabilities of $23 million. These increases were offset by increases in account receivable and inventory totaling $231 million. The increase in accounts receivable and inventory were necessary to support the increased sales activity.
Cash used for investing activities increased by $628 million, primarily due to $623 million of additional cash paid for acquisitions in the six months ended July 2, 2022.
Net cash provided by financing activities increased by $176 million. The increase was primarily due to $196 million of net proceeds from the March 2022 Amended A&R Credit Agreement, as compared to $6 million of net proceeds resulting from the 2021 execution of the A&R Credit Agreement, debt issuance and modification costs, and repayments of long-term debt and, cash used for other financing activities totaling $1 million.
Capital Expenditures
We believe our capital spending has been sufficient to support the requirements of the business. We expect to continue investing to expand and modernize our existing facilities and to create capacity for new product development.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, net revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
31
Critical Accounting Policies
The preparation of our unaudited Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider the accounting policies discussed in our 2021 Annual Report on Form 10-K to be critical to the understanding of our unaudited Financial Statements included in this Form 10-Q. There have been no material changes in our critical accounting policies as compared to what was disclosed in the 2021 Annual Report on Form 10-K. We adopted ASU 2021-08 effective April 1, 2022, on a prospective basis. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material. Actual results could differ from our estimates and assumptions, and any such differences could be material to our unaudited Financial Statements.
Other Matters
Litigation, Environmental Matters and Reimbursement Agreement
See Note 14. Commitments and Contingencies of Notes to Consolidated Financial Statements of this Form 10-Q for a discussion of environmental and other litigation matters.
Recent Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments.
Interest Rate Risk
As of July 2, 2022, $1,137 million of our total debt, excluding unamortized deferred financing costs, carried variable interest rates. In March 2021, eight interest rate swap agreements were entered into with various financial institutions for a combined notional amount of $560 million (the “Swap Agreements”). The Swap Agreements effectively converted a portion of the Company’s variable interest rate obligations based on three-month LIBOR with a minimum rate of 0.50% per annum to a base fixed weighted average rate of 0.9289% over a term of two to four years. For more information on the Swap Agreements, see Note 16. Derivative Instruments of Notes to Consolidated Financial Statements of this Form 10-Q. The fair market values of our fixed-rate financial instruments and Swap Agreements are sensitive to changes in interest rates. As of July 2, 2022, an increase or decrease in the interest rate by 100 basis points would have an approximate $6 million impact on our annual interest expense.
Foreign Currency Exchange Rate Risk
We are exposed to market risks from changes in currency exchange rates. While we primarily transact with customers in the U.S. Dollar, we also transact in foreign currencies, primarily including the Canadian Dollar, Euro, Mexican Peso, Indian Rupee, British Pound, and Czech Koruna. These exposures may impact total assets, liabilities, future earnings and/or operating cash flows. Our exposure to market risk for changes in foreign currency exchange rates arises from transactions arising from international trade, foreign currency denominated monetary assets and liabilities, and international financing activities between subsidiaries. We rely primarily on natural offsets to address our exposures and may supplement this approach from time to time by entering into forward and option hedging contracts. As of July 2, 2022 and December 31, 2021, we have no outstanding foreign currency hedging arrangements.
32
Commodity Price Risk
While we are exposed to commodity price risk, we attempt to pass through significant changes in component and raw material costs to our customers based on the contractual terms of our arrangements. In limited situations, we may not be fully compensated for such changes in costs.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures designed to give reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.
Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been or will be detected.
Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended July 2, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
33
PART II
Item 1. Legal Proceedings
See Note 14. Commitments and Contingencies — Other Matters of Notes to Consolidated Financial Statements of this Form 10-Q for a discussion on legal proceedings.
Item 1A. Risk Factors
We face a variety of risks that are inherent in our business and our industry, including operational, legal, and regulatory risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations, and historical trends. There have been no material changes to the risk factors described in our 2021 Annual Report on Form 10-K.
34
Item 6. Exhibits
The Exhibits listed below on the Exhibit Index are filed or incorporated by reference as part of this Form 10-Q.
Exhibit Number |
|
Exhibit Description |
4.2 |
|
|
|
|
|
10.1 |
|
Resideo Technologies, Inc. Bonus Plan, amended as of April 28, 2022 (filed herewith) |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document (filed herewith) |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema (filed herewith) |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase (filed herewith) |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
† |
Schedules omitted pursuant to item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon its request. |
35
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Resideo Technologies, Inc. |
|
|
|
|
Date: August 4, 2022 |
By: |
|
|
|
Executive Vice President and Chief Financial Officer (on behalf of the Registrant and as the Registrant’s Principal Financial Officer) |
|
|
|
Date: August 4, 2022 |
By: |
/s/ Tina Beskid |
|
|
|
|
|
Vice President and Chief Accounting Officer (Principal Accounting Officer) |
36
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| 12/15/22 | ||||
| Filed on: | 8/4/22 | 8-K | ||
| 7/29/22 | ||||
| 7/19/22 | ||||
| 7/8/22 | ||||
| 7/3/22 | ||||
| For Period end: | 7/2/22 | |||
| 4/19/22 | ||||
| 4/14/22 | ||||
| 4/2/22 | 10-Q | |||
| 4/1/22 | 4, 8-K | |||
| 3/31/22 | 8-K | |||
| 3/28/22 | 8-K | |||
| 3/25/22 | ||||
| 2/15/22 | 10-K, 4, 8-K | |||
| 2/14/22 | ||||
| 2/6/22 | 8-K | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K, SD | |||
| 12/1/21 | ||||
| 9/23/21 | ||||
| 9/1/21 | ||||
| 8/26/21 | 8-K | |||
| 7/3/21 | 10-Q | |||
| 6/25/21 | ||||
| 4/3/21 | 10-Q | |||
| 3/31/21 | ||||
| 2/12/21 | 8-K | |||
| 12/31/20 | 10-K, SD | |||
| 3/12/20 | ||||
| 10/29/18 | 3, 3/A, 4, 8-K, 8-K/A | |||
| 4/24/18 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/14/24 Resideo Technologies, Inc. 10-K 12/31/23 138:13M 2/21/23 Resideo Technologies, Inc. 10-K 12/31/22 145:15M |