SEC Filing Summary: SYNNEX CORPORATION (Form 8-K)
Business Context and Reporting Period
Company: SYNNEX CORPORATION (TD SYNNEX CORP)
Filing Date: November 2, 2005
Reporting Period: Fiscal years ended November 30, 2002, 2003, and 2004 (restated).
Purpose: This Current Report on Form 8-K updates the Company's previously filed Form 10-K and Registration Statement (No. 333-128947) to reflect the sale of its Japan subsidiary, SYNNEX K.K., as discontinued operations in accordance with FASB No. 144. The sale occurred in the second quarter of fiscal 2005 (May 2005).
Key Financial Metrics (Fiscal Year Ended Nov 30, 2004)
Note: All figures in thousands, except per share data. Data is restated to exclude Japan operations from continuing operations.
| Metric | Fiscal 2004 | Fiscal 2003 | Fiscal 2002 |
|---|---|---|---|
| Revenue | $5,150,447 | $3,944,886 | $3,596,265 |
| Gross Profit | $215,372 | $178,368 | $164,176 |
| Gross Margin | 4.18% | 4.52% | 4.57% |
| Net Income | $46,565 | $29,996 | $28,032 |
| Diluted EPS | $1.55 | $1.22 | $1.16 |
| Cash & Equivalents | $28,726 | $22,079 | $15,503 |
| Working Capital | $316,935 | $217,397 | $200,021 |
| Total Debt (Current + Long-term) | $88,070 | $77,598 | $N/A |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 30.6% year-over-year to $5.15 billion, driven by a 23.1% increase in distribution revenue and a 150.3% surge in contract assembly revenue.
- Margin Compression: Despite revenue growth, gross margin percentage declined from 4.52% to 4.18%. Management attributed this to a shift in customer mix toward larger customers with lower margins and competitive pricing pressures.
- Operating Efficiency: Selling, General, and Administrative (SG&A) expenses increased 13.5% in absolute dollars but decreased as a percentage of revenue (from 3.08% to 2.67%) due to cost control efforts.
- Discontinued Operations: The Japan subsidiary (SYNNEX K.K.) was sold for MCJ Company Limited stock. Results for this unit are now classified as discontinued operations, removing approximately $163.5 million in revenue from the 2004 continuing operations total.
- Acquisitions: The acquisition of EMJ Data Systems Ltd. in September 2004 contributed approximately $48.0 million to 2004 revenue.
Outlook, Risks, and Management Commentary
- Strategic Shift: The company is focusing on North American distribution and assembly, divesting non-strategic international operations (Japan, EMJ America).
- Investment in MCJ: The company holds MCJ stock received for the Japan sale. These shares are classified as trading securities, meaning unrealized gains/losses based on MCJ's stock price will impact "Other income (expense)." The company has hedged 84% of these shares via forward contracts.
- Key Risks:
- Customer Concentration: Heavy reliance on HP (approx. 28% of revenue) and Sun Microsystems (approx. 93% of contract assembly revenue).
- Low Margins: The industry is characterized by low gross margins (4-5%), making the company highly sensitive to revenue fluctuations and cost increases.
- Inventory Risk: Rapid technological changes and price declines can lead to inventory obsolescence. The company experienced significant warehouse thefts in 2003 and 2005 (approx. $13.4 million total).
- Related Party Transactions: Significant reliance on MiTAC International for manufacturing and supply chain services; MiTAC owns approx. 71% of the company.
- Liquidity: The company relies heavily on debt, accounts receivable flooring, and a securitization program (up to $275 million) to fund working capital needs.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the specific financial impact of the Japan subsidiary sale on future earnings and the valuation of the MCJ stock received.
- Customer Concentration: Assess the risk associated with HP and Sun Microsystems representing a significant portion of total revenue and contract assembly volume.
- Inventory Valuation: Review inventory reserves and the adequacy of price protection agreements with OEMs given the history of theft and rapid product obsolescence.
- Debt Covenants: Confirm compliance with financial covenants in the accounts receivable securitization program and revolving credit facilities, specifically the fixed charge coverage ratio and minimum net worth requirements.
- Related Party Dependence: Evaluate the terms and stability of the relationship with MiTAC International, given its controlling ownership and role as a primary supplier.