Zebra Technologies Corporation — 2013 Form 10-K Summary
Business context and reporting period
Fiscal year ended December 31, 2013; the filing also reports fourth-quarter results. Zebra designs and sells barcode and specialty printers, supplies, software and services, and RFID-based location solutions. Sales are global and predominantly through distributors and resellers. In December 2013, Zebra acquired Hart Systems, a retail inventory-management and SaaS provider, expanding its retail solutions.
Financial performance and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $1,038.2 million (+4.2%) | $996.2 million |
| Gross profit / margin | $503.6 million / 48.5% | $491.6 million / 49.4% |
| Operating income / margin | $160.3 million / 15.4% | $164.4 million / 16.5% |
| Continuing-operations income | $134.2 million | $121.9 million |
| Net income | $134.4 million | $122.9 million |
| Diluted EPS | $2.63 | $2.37 |
| Cash, restricted cash, investments and marketable securities | $415.8 million | $394.1 million |
| Working capital | $635.0 million | $615.6 million |
- Operating cash flow was $194.8 million, versus $183.3 million in 2012. Capital expenditures were $20.2 million; acquisitions used $95.3 million and share repurchases used $63.1 million.
- Cash and cash equivalents were $62.8 million at year-end; most reported liquidity was in investments and marketable securities. The company had a $250 million revolving credit facility, with no borrowings outstanding and $1.8 million of letters of credit.
- 2013 sales by category: hardware $735.1 million (+0.6%), supplies $244.0 million (+14.8%), and service and software $53.6 million (+11.9%). Printer shipments rose 4.9%, while average selling price fell 3.3% to $469.
- International sales were 55.6% of revenue. Three distributor customers represented 42.2% of total sales combined.
Fourth-quarter results and changes versus prior periods
- Q4 net sales increased 12.4% to $284.5 million; net income rose 19.0% to $41.7 million and diluted EPS increased to $0.82 from $0.68.
- Q4 gross margin improved to 49.6% from 49.2%, while operating margin eased to 17.3% from 17.5%. Printer unit volume increased 14.6%, but average selling price declined 3.1% to $462, mainly from product mix.
- For the full year, sales growth was led by supplies and services/software, including the contribution from LaserBand, acquired in 2012. Higher volumes were partly offset by lower-priced product mix and currency effects. Gross margin fell 0.9 percentage point, and operating income declined 2.5% as operating expenses grew 4.9%.
- The effective tax rate declined to 18.1% from 25.8%, helping lift continuing-operations income despite lower operating income. Management cited international earnings mix and its foreign holding-company structure; the 2012 rate also included a nondeductible impairment charge.
Outlook, commentary, risks and unusual items
- The filing refers to 2014 first-quarter and full-year financial outlook in its forward-looking-statement discussion, but the supplied filing text does not provide clear guidance figures.
- Management expected Location Solutions restructuring actions to reduce annual costs by $4.0 million, with savings expected to be fully realized by Q1 2014. Supply-chain changes completed in 2013 were expected to generate $2.6 million in annual cost-of-sales savings.
- 2013 included $5.9 million of exit and restructuring costs. Other income included a net $1.6 million favorable litigation settlement related to an investment loss recorded in prior years. The prior year included a $9.1 million asset impairment charge.
- Key risks include dependence on Jabil Circuit as sole-source final assembler for thermal printers and most Location Solutions products; reliance on some sole-source component suppliers; international, currency and economic exposure; competitive and technology change; acquisition integration; intellectual-property claims; cybersecurity and product defects; and tax examinations. Management said pending legal matters were not expected to have a material adverse impact, while noting litigation outcomes remain uncertain.
- Hart acquisition purchase-price allocations were preliminary. Management’s internal-control assessment excluded Hart, acquired December 18, 2013; the independent auditor reported effective controls for the company overall and issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Review the full 2014 guidance and subsequent results; specific outlook amounts are not clear in the supplied text.
- Track whether Hart integration and SaaS expansion deliver expected growth, and confirm final purchase accounting.
- Monitor hardware pricing and mix, supplies growth, and the effects of currency on sales and margins.
- Assess the realization of restructuring savings and whether cost growth moderates after 2013 charges.
- Review customer concentration, Jabil and component-supplier continuity, and the liquidity and risk profile of the investment portfolio.
- Follow tax audit outcomes and the Singapore tax arrangement, whose 10% rate was scheduled to expire at the end of 2014 unless specified commitments were met.