Resideo Technologies, Inc. — 2020 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; quarterly figures are also provided. Resideo makes comfort, residential thermal and security products and operates ADI Global Distribution, a wholesale distributor of low-voltage security and related products. Products & Solutions represented 41.8% of annual revenue and ADI 58.2%. The company reported that COVID-19 constrained supply and demand and temporarily closed some ADI branches in the first half; demand improved in the second half.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Net revenue | $5.071 billion | $4.988 billion |
| Gross profit / margin | $1.313 billion / 26% | $1.277 billion / 26% |
| Operating profit / margin | $311 million / 6.1% | $258 million / 5.2% |
| Net income | $37 million | $36 million |
| Diluted EPS | $0.29 | $0.29 |
| Cash from operations | $244 million | $23 million |
| Capital expenditures | $70 million | $95 million |
| Cash and cash equivalents at year-end | $517 million | $122 million |
Operating cash flow less capital expenditures was approximately $174 million in 2020; this is a simple cash-flow measure, not a company-reported non-GAAP metric. Year-end accounts receivable were $863 million and inventory was $672 million. Current assets of $2.225 billion compared with current liabilities of $1.538 billion.
Year-end debt was $1.162 billion on the balance sheet, including $400 million of 6.125% senior notes due 2026 and variable-rate term loans. The company reported $780 million of variable-rate debt exposure. No borrowings or letters of credit were outstanding under the $350 million revolving facility at year-end. Cash less balance-sheet debt was approximately negative $645 million.
Changes versus prior comparable periods
- Annual revenue rose 2%, primarily from pricing and acquisitions, partly offset by lower volume. Gross margin was unchanged at 26%.
- Operating profit increased by $53 million; net income increased by $1 million. Other expense rose $29 million, mainly due to a $38 million increase in Reimbursement Agreement expense. The effective tax rate was 64%, with nondeductible indemnification costs identified as a significant factor.
- Products & Solutions external revenue declined 2% to $2.121 billion; operating profit increased 24% to $407 million, aided by transformation savings and productivity.
- ADI revenue increased 5% to $2.950 billion, including the Herman ProAV acquisition; operating profit fell 8% to $194 million, reflecting mix, commercial investments, acquisition costs and inflation.
- Quarterly revenue and net income were $1.179 billion and a $21 million loss in Q1; $1.029 billion and a $76 million loss in Q2; $1.362 billion and $75 million income in Q3; and $1.501 billion and $59 million income in Q4. Q4 2019 revenue was $1.304 billion and net loss was $9 million.
Outlook, risks and unusual items
- Outlook: The filing gives no quantified 2021 revenue or earnings guidance. Management said visibility was unusually limited due to COVID-19 and expected challenging business conditions, emphasizing expense control, aligning production with demand and further productivity improvements. It stated existing cash and credit availability were expected to meet requirements for at least 12 months.
- Honeywell obligations: The Reimbursement Agreement requires payments generally equal to 90% of specified Honeywell environmental liabilities, subject to an annual cap of $140 million. Resideo paid $140 million in 2020 and recorded a $591 million liability at year-end. The filing says payments could continue through 2043, subject to agreement terms; amounts and timing remain uncertain. The company also recorded a $139 million indemnity for future tax payments to Honeywell.
- Financing after year-end: In February 2021, Resideo entered a new credit agreement providing a $950 million term B facility and a $500 million revolver, and redeemed $140 million of senior notes at 106.125% of par plus accrued interest. These subsequent events affect the post-year-end capital structure, not the December 31, 2020 balance sheet.
- Equity issuance: The November–December 2020 public offering issued 19.55 million shares at $15 per share and generated approximately $279 million net proceeds, diluting existing shareholders.
- Other risks and contingencies: Key exposures include COVID-19 and supply-chain disruption (including semiconductor shortages), intense competition, cyber and data-privacy risks, foreign exchange and interest-rate exposure, environmental liabilities, and dependence on Honeywell agreements and licensed brands. Securities and derivative shareholder litigation related to alleged prior disclosures was pending; outcomes and potential costs were uncertain. The filing reports no impairment charges in 2020, 2019 or 2018.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective at December 31, 2020. The auditor gave an unqualified opinion on the financial statements and identified the Honeywell Reimbursement Agreement estimates as a critical audit matter.
Important facts for investors to verify
- Whether improvement in second-half demand and Products & Solutions operating profit can be sustained, and whether ADI can restore operating-profit growth.
- The assumptions, expected timing and annual cash requirements underlying the $591 million Reimbursement Agreement liability, and any developments in the related Honeywell environmental claims.
- Post-refinancing debt balances, interest costs, covenant headroom and the impact of the February 2021 note redemption.
- Whether 2020 operating cash flow is repeatable, given working-capital movements, taxes and the increase in cash partly funded by the share offering.
- Potential financial exposure and status of the securities and derivative litigation, environmental matters and tax indemnities.
- Comparability of gross-margin measures: the company reclassified research and development expense from cost of goods sold to SG&A, recasting prior periods; this did not affect net income.