01—Abstract
Summary
Summary of the 10-K filed February 14, 2005. Cited figures are marked; the original filing is the authoritative source.
SYNNEX Corporation, an information technology supply chain services company, reported fiscal 2004 (year ended November 30, 2004) revenue of $5.31 billiona, up 28.8% from $4.13 billion in fiscal 2003.
Growth came mainly from distribution revenue, which rose 21.6% to $4.74 billionb on market share gains, stronger North American demand and the EMJ Data Systems acquisition, while contract assembly revenue rose 150.3% to $577.0 million, driven largely by Sun Microsystems. Gross margin declined to 4.23% from 4.55%, but income from operations rose 36.5% to $78.98 million, and net income reached $46.6 million, or $1.55 per diluted share, versus $30.0 million in fiscal 2003. The company completed its initial public offering in December 2003, and cash and cash equivalents rose to $28.7 million at November 30, 2004.
Operating cash flow was only $0.2 millionc in fiscal 2004 because working capital consumed $58.1 million. Investors should note the heavy concentration in the business. HP accounted for 27.4% of fiscal 2004 revenue, Sun Microsystems for roughly 10%, and the contract assembly business depends on Sun for 92.9% of its revenue.
The company also relies on MiTAC International, which owned approximately 71%d of common stock at year-end, and its arrangements with MiTAC are informal and not governed by long-term commitments. Key risks include thin margins, the HP agreement's short term (through May 31, 2005 unless terminated earlier), reliance on the accounts receivable securitization program with General Electric Capital Corporation, and the pending legal actions, including a trademark suit and bankruptcy preference claims.
The filing also reports $88.1 million in borrowings at November 30, 2004, compared with $77.6 million a year earlier, and an increase in the securitization program's capacity to $275.0 million in December 2004. Management expects selling, general and administrative expenses to rise as public company compliance costs grow, and it has begun restructuring at EMJ, with total costs expected to be at least $2.2 million before tax.
02—Key points
Key Highlights
- Revenue increased 28.8% to $5.31 billion in fiscal 2004, with distribution revenue up 21.6% to $4.74 billion and contract assembly revenue up 150.3% to $577.0 million.
- Gross margin fell to 4.23% of revenue from 4.55% in fiscal 2003, mainly due to lower distribution margins from customer mix.
- Income from operations rose 36.5% to $78.98 million, and net income increased to $46.6 million, or $1.55 per diluted share, from $30.0 million.
- Operating cash flow was $0.2 million in fiscal 2004, reflecting a $58.1 million use of cash for working capital as receivables and inventory grew.
- HP accounted for 27.4% of fiscal 2004 revenue, and Sun Microsystems accounted for approximately 10% of total revenue and 92.9% of contract assembly revenue.
- MiTAC International and its affiliates held approximately 71% of common stock at November 30, 2004, and the company's dealings with MiTAC are informal and not governed by long-term commitments.
- Total borrowings were $88.1 million at November 30, 2004, and the accounts receivable securitization program with General Electric Capital Corporation was amended to allow sales of up to $275.0 million of receivables.
03—Questions
Frequently Asked Questions
How did SYNNEX perform financially in fiscal 2004?
Revenue rose 28.8% to $5,313,991 thousand, income from operations rose 36.5% to $78,980 thousand, and net income rose to $46,565 thousand, or $1.55 per diluted share, from $29,996 thousand in fiscal 2003. Gross margin declined to 4.23% from 4.55%.
How dependent is SYNNEX on its largest suppliers and customers?
Highly dependent. HP products represented 27.4% of fiscal 2004 revenue and 30.7% in fiscal 2003. Sun Microsystems accounted for about 10% of total revenue in fiscal 2004 and 92.9% of contract assembly revenue. The HP U.S. Business Development Partner Agreement remains in effect until May 31, 2005 unless terminated earlier, and either party may terminate on 30 days' notice.
What is the relationship with MiTAC International?
MiTAC International Corporation and its affiliates held approximately 71% of SYNNEX's common stock at November 30, 2004. The company relies on MiTAC for manufacturing and subassemblies for Sun Microsystems contract assembly work. The relationship is informal, with no long-term commitments on pricing, revenue or capacity, and the filing notes that these terms may not be arm's-length.
What are the main financing sources and debt obligations?
SYNNEX relies on accounts receivable securitization with General Electric Capital Corporation, flooring programs and bank credit lines. Total borrowings were $88.1 million at November 30, 2004. The securitization program had $196.3 million of receivables sold at year-end and was amended in December 2004 to allow up to $275.0 million. The company stated that its cash flows, current cash and credit facilities should be sufficient for the next 12 months.
What legal proceedings could affect SYNNEX?
The company is not currently party to any material legal proceedings. Pending matters include a Canadian trademark infringement action by Seanix Technology Inc., a civil suit by Acropolis Systems, Inc. and Tony Yeh related to eManage.com stock purchases seeking approximately $2,000,000, a judgment of $4,238,318 against Daisytek (Canada) Inc. under appeal, and several bankruptcy preference actions. The company believes these will not have a material adverse effect.
04—Continue