Business context and reporting period
This is SYNNEX Corporation’s Form 10-K for the fiscal year ended November 30, 2011, filed January 27, 2012. It is an annual report, not a standalone fourth-quarter filing; the filing also reports selected Q4 results. SYNNEX operated distribution services and global business services (GBS), providing IT and consumer-electronics distribution, contract assembly, and business-process outsourcing. The filing identifies the registrant as SYNNEX Corporation; it does not identify it as TD SYNNEX Corp.
Financial performance and liquidity
Dollar amounts below are in millions except per-share data. Fiscal-year comparisons are 2011 versus 2010 unless stated otherwise.
| Metric | FY 2011 | FY 2010 | Change / context |
|---|---|---|---|
| Revenue | $10,409.8 | $8,614.1 | Up 20.8% |
| Gross profit / gross margin | $630.5 / 6.06% | $491.6 / 5.71% | Gross profit up 28.3%; margin up 35 basis points |
| Income from continuing operations before non-operating items, taxes and noncontrolling interest | $256.2 / 2.46% of revenue | $199.2 / 2.31% | Up 28.7% |
| Net income attributable to SYNNEX | $150.3 | $127.9 | FY 2010 included an $11.4 gain on a discontinued-business sale |
| Diluted EPS | $4.08 | $3.58 | FY 2010 included discontinued operations; continuing-operations diluted EPS was $4.08 vs. $3.26 |
| Operating cash flow | $219.2 | $(65.9) | Improved $285.1 |
| Capital expenditures | $40.2 | $12.7 | Included $15.4 for an Illinois facility |
| Cash and working capital at year-end | $67.6 / $1,066.2 | $88.0 / $895.2 | Current assets were $2,438.4; current liabilities $1,372.3 |
| Total borrowings at year-end | $383.0 | $386.3 | Includes $143.8 principal of 4.0% convertible notes; $159.2 was current |
Q4 FY 2011 revenue was $2,841.0 million, compared with $2,468.2 million in Q4 FY 2010. Net income attributable to SYNNEX was $50.2 million versus $37.5 million, and diluted EPS was $1.37 versus $1.04.
Material changes versus the prior comparable period
- Distribution revenue rose 20.5% to $10,275.3 million; GBS revenue rose 45.4% to $163.4 million. Management attributed growth to the Infotec Japan acquisition, the full-year contribution from Jack of All Games, improved market conditions, GBS acquisitions, and organic service growth.
- Revenue from Japan was approximately 12% of FY 2011 total, reflecting the Infotec acquisition. North America accounted for approximately 87% of revenue, versus 98% in each of FY 2010 and FY 2009.
- Gross-margin improvement reflected product and service mix, higher distribution vendor rebates, GBS growth, supply-demand constraints in certain products, and a fourth-quarter transition of some customer revenue to fee-for-service arrangements.
- SG&A increased 28.0% to $374.3 million, largely due to acquisitions and organic growth; SG&A rose to 3.60% of revenue from 3.40%. Interest expense and finance charges increased 49.0% to $25.5 million, including costs associated with Infotec Japan and higher borrowings.
- Operating cash flow rebounded from use of cash in FY 2010. Receivables and inventory reductions contributed $38.9 million and $28.2 million, respectively, while lower accounts payable reduced cash flow by $50.0 million.
Outlook, risks and unusual items
- The filing provides no numerical revenue or earnings guidance. Management said it expected available resources and borrowing arrangements to meet working-capital needs for the next 12 months. Management also noted historical fourth-quarter seasonality, which may not recur.
- The business has low distribution margins and depends heavily on IT and consumer-electronics demand, pricing, inventory discipline, vendor rebates and supplier protections. HP represented approximately 35% of FY 2011 revenue; supplier agreements are generally short-term and may be terminable on short notice.
- Liquidity depends substantially on working-capital facilities, receivables financing and credit availability. Debt arrangements include financial covenants; the company reported compliance at year-end. The $143.8 million convertible notes carry a 4.0% coupon and may be put to the company for cash in May 2013. Variable-rate borrowings expose the company to interest-rate increases.
- Key operating risks include customer credit and collections, product obsolescence, supplier or shipping disruption, foreign-exchange movements, IT and telecommunications outages, and competition. Hard-drive shortages following Thailand floods affected supply in FY 2011. Japan earthquake and tsunami disruptions caused nominal damage to Infotec Japan, with operations substantially recovered.
- FY 2011 acquisitions included Infotec Japan and GBS businesses/assets from e4e, gem and VisionMAX. The GBS acquisitions involved preliminary purchase-price allocations. A $5.4 million reduction in estimated earn-out consideration benefited SG&A and GBS results.
- MiTAC International and affiliates beneficially owned approximately 29% of shares, creating potential influence and related-party conflict risks. SYNNEX reported $238.7 million of guarantees for subsidiary trade credit lines, loans and certain divestiture obligations. Management did not expect disclosed legal proceedings and contingencies to have a material adverse effect; it reported no material bankruptcy preference proceedings.
- The company paid no cash dividends and said it intended to retain future earnings. A board-authorized $65 million anti-dilution repurchase program had $63.3 million remaining at year-end; $1.7 million of shares had been repurchased in FY 2011.
Important facts for investors to verify
- Whether FY 2011 growth and the 35-basis-point gross-margin expansion persisted after acquisition contributions, vendor rebates and the Q4 fee-for-service transition.
- Infotec Japan’s ongoing contribution, including its working-capital borrowings, integration costs, and the impact of Japanese and regional supply conditions.
- Cash conversion and access to receivables securitization and revolving facilities, especially given the business’s substantial working-capital needs and upcoming facility maturities.
- The timing and funding of the convertible notes’ May 2013 holder put, alongside covenant and refinancing requirements.
- Exposure to HP concentration, changes in supplier terms, customer credit losses, and the realization of acquisition-related goodwill and intangible assets.
- The amount and possible cash impact of subsidiary guarantees, tax uncertainties and the contingent indemnification obligation related to the prior HiChina sale.