SYNNEX Corporation — FY2012 Form 10-K
Entity and period: The filing is for SYNNEX Corporation, not a company identified as TD SYNNEX in the request metadata. It covers the fiscal year ended November 30, 2012; the filing was signed January 28, 2013. Fiscal Q4 ended November 30, 2012.
Business context
SYNNEX operated in two segments: distribution services, including IT and consumer electronics products and contract assembly, and Global Business Services (GBS), providing business-process outsourcing. The company generated about 87% of revenue in North America. Hewlett-Packard products and services accounted for approximately 36% of FY2012 revenue.
Key financial results
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $10.286 billion | $10.410 billion | Down 1.2% |
| Gross profit | $656.7 million | $630.5 million | Up 4.2% |
| Gross margin | 6.39% | 6.06% | Up 33 basis points |
| Operating income before non-operating items, taxes and noncontrolling interest | $255.0 million | $256.2 million | Down 0.5% |
| Net income attributable to SYNNEX | $151.4 million | $150.3 million | Up 0.7% |
| Diluted EPS | $3.99 | $4.08 | Down 2.2% |
| Cash from operating activities | $242.8 million | $219.2 million | Up $23.6 million |
SG&A rose 7.3% to $401.7 million, or 3.91% of revenue versus 3.60%. Net interest expense and finance charges fell 10.1% to $22.9 million. The effective tax rate was 35.5%, compared with 34.5%.
At November 30, cash and cash equivalents were $163.7 million, up from $67.6 million; working capital was $1.086 billion, versus $1.066 billion. Total borrowings were $275.3 million, compared with $383.0 million. Current borrowings and convertible debt totaled $194.1 million; the $141.4 million carrying value of convertible notes was classified as current. Total equity was $1.319 billion.
FY2012 cash from operations benefited from higher accounts payable ($106.9 million) and lower inventory ($49.5 million), partly offset by higher receivables ($113.0 million). Investing activities used $9.6 million; financing activities used $137.5 million, including net repayments on credit and securitization arrangements.
Material changes and Q4
- Distribution revenue declined 1.5% to $10.121 billion. Management attributed the decrease principally to transitioning a customer from traditional full-service distribution to fee-for-service, reducing reported FY2012 revenue by about 4%.
- GBS revenue increased 20.8% to $197.4 million, with about 70% of the increase attributed to acquisitions completed in late FY2011; new and existing customer activity also contributed. GBS operating income fell 28.7% to $13.5 million, and its operating margin declined to 6.83% from 11.57%, partly because FY2011 included a $5.4 million benefit from remeasurement of acquisition-related contingent consideration.
- Gross margin improved on the fee-for-service transition, lower reserve requirements, more favorable vendor rebates and temporary hard-drive supply constraints. Higher SG&A and the normalization of the prior-year contingent-consideration benefit weighed on operating results.
- Q4 revenue was $2.765 billion versus $2.841 billion in Q4 FY2011. Q4 net income attributable to SYNNEX was $43.6 million versus $50.2 million; diluted EPS was $1.16 versus $1.37.
Outlook, risks and unusual items
The filing provides no quantitative revenue or earnings guidance. Management stated it believed available cash, cash flow and borrowing capacity were sufficient for current and expected working-capital needs over the next 12 months. It noted historically higher fourth-quarter sales but cautioned that seasonality may not recur.
- Convertible notes: $143.8 million principal of 4.0% notes had a May 15, 2013 holder put and a May 20, 2013 company call option. Management said it intended to settle the notes in cash; the settlement date was uncertain. The notes were classified as current debt.
- Funding and working capital: The distribution business requires substantial receivables and inventory financing. Availability and cost of the receivables securitization program, revolving facilities and customer floor-plan financing are important liquidity factors. The company reported compliance with material debt covenants.
- Concentration and competition: HP represented 36% of FY2012 revenue; supplier agreements are generally short-term and may be terminable on short notice. The company cited low margins, pricing pressure, product obsolescence, variable customer orders and supplier direct-sales strategies as risks.
- Other exposures: Risks include customer credit and collection, variable-rate borrowing, foreign exchange, international operations, IT-system disruption, BPO employee turnover, acquisitions, and potential tax changes or audits. Cash held by foreign subsidiaries was $92.8 million; repatriation could trigger U.S. tax and may be restricted by local laws.
- Ownership and related parties: MiTAC International and affiliates beneficially owned about 27% of the company’s common stock. The filing notes possible conflicts and potential competition from affiliated Synnex Technology International.
- Contingencies: The company reported $264.2 million of guarantees for subsidiaries’ trade credit and loans, among other obligations, and a $21.7 million reserve for unrecognized tax benefits. Management did not expect ordinary-course legal matters or disclosed contingencies to materially adversely affect results, financial position or cash flows. No goodwill impairment was recorded.
Important facts for investors to verify
- Confirm the issuer identity: this is a 2012 SYNNEX Corporation filing, not a filing under the name TD SYNNEX.
- Review the May 2013 convertible-note put/call terms, available liquidity and subsequent settlement or refinancing disclosures.
- Assess whether improved gross margin can persist as temporary supply constraints fade and whether SG&A growth is translating into durable returns.
- Track HP’s share of revenue, supplier agreement terms, and the continuing effect of the customer’s fee-for-service transition on reported sales and margins.
- Monitor receivables, inventory, customer credit quality, and access to securitization, revolver and floor-plan financing.
- Evaluate GBS profitability and acquisition performance, including the effect of contingent-consideration estimates and integration costs.