01—Abstract
Summary
Summary of the 10-K filed January 27, 2014. Cited figures are marked; the original filing is the authoritative source.
SYNNEX Corporation reported fiscal 2013 (ended November 30, 2013) revenue of $10.85 billiona, up from $10.29 billion in fiscal 2012, with net income attributable to SYNNEX Corporation of $152.2 million and diluted EPS of $3.06, down from $3.99 a year earlier.
The company operates two segments: distribution services, which generated $10.66 billionb of revenue, and Global Business Services (GBS), a business process outsourcing unit that generated $223.6 million. Income before non-operating items fell to $240.8 million from $255.0 million, with gross margin lower year over year, and the company attributed the decline to changes in product and business mix and to $8.4 million of GBS acquisition and integration expenses. Diluted EPS was reduced by $0.97 from an adjustment tied to the conversion premium on its convertible notes, which were settled in cash during fiscal 2013 for $218.9 million.
The pending acquisition of IBM's customer care business for an aggregate purchase price of $505.0 millionc is the central strategic event in the filing. The initial closing is expected in the first calendar quarter of 2014, subject to regulatory approvals, and the company intends to offer employment to approximately 35,000 employees. The filing notes that the acquisition is funded partly with common stock (up to the lesser of $75.0 million or 5% of outstanding shares) and partly with cash.
Investors should weigh that integration risk against the company's dependence on HP, which represented approximately 31% of fiscal 2013 revenue, and on MiTAC Holdings, which owned approximately 26% of common stock. Liquidity was supported by a new $275.0 milliond revolving credit facility and a term loan of up to $225.0 million under a U.S. Credit Agreement entered into in November 2013, with no borrowings outstanding at fiscal year end.
Total borrowings were $317.9 million, and cash flow from operations was $35.7 million, reduced by $187.5 million of higher accounts receivable and $155.2 million of higher inventory. Total stockholders' equity was $1.41 billion.
02—Key points
Key Highlights
- Revenue rose 5.4% to $10.85 billion in fiscal 2013, while income before non-operating items declined 5.6% to $240.8 million.
- Diluted EPS was $3.06 versus $3.99 in fiscal 2012, and the filing states the conversion-premium adjustment reduced diluted EPS by $0.97.
- Pending acquisition of IBM's customer care business for $505.0 million, expected to close in Q1 calendar 2014, adds an estimated 35,000 employees to the GBS segment.
- HP products accounted for approximately 31% of total revenue in fiscal 2013 (36% in 2012), and no customer represented 10% or more of revenue.
- MiTAC Holdings and affiliates beneficially owned approximately 26% of common stock, giving it significant influence over stockholder matters.
- Convertible Senior Notes of $143.8 million principal were settled in August 2013 for a total cash payment of $218.9 million.
- Net cash provided by operating activities fell to $35.7 million from $242.8 million, driven by higher receivables and inventory balances.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, TD Synnex kept $0.01.
- Revenue$10.85B100.0%
- Cost of revenue−$10.19B94.0%
- Gross profit$655.0M6.0%
- Operating costs−$414.1M3.8%
- Operating income$240.8M2.2%
- Interest, other & tax−$88.6M0.8%
- Net income$152.2M1.4%
Where FY2013 revenue went
$10.85B- Cost of revenue: $10.19B, 94% of revenue
- Net income: $152.2M, 1.4% of revenue
- SG&A: $414.1M, 3.8% of revenue
- Interest, other & tax: $88.6M, 0.8% of revenue
Kept 1.4% as net incomeNet income $152.2M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed January 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $10.85B$10.29B | +5.4% |
| Cost of Revenue | $10.19B$9.63B | +5.8% |
| Gross Profit | $654.97M$656.74M | −0.3% |
| SG&A Expenses | $414.14M$401.73M | +3.1% |
| Operating Income | $240.83M$255.01M | −5.6% |
| Interest Expense | $20.44M$27.62M | −26.0% |
| Net Income | $152.24M$151.38M | +0.6% |
| EPS (Basic) | $4.06$4.08 | −0.5% |
| EPS (Diluted) | $3.02$3.96 | −23.7% |
| Shares Outstanding (Basic) | 36.89M36.58M | +0.8% |
| Shares Outstanding (Diluted) | 37.63M37.75M | −0.3% |
05—Questions
Frequently Asked Questions
What is driving the change in SYNNEX's profitability in fiscal 2013?
The company attributed the decline in operating margin to lower gross margins, driven by changes in product and business mix, partly offset by reductions in certain vendor-program reserves. GBS income before non-operating items fell to $7.96 million from $13.48 million, which the company tied in part to $8.4 million of acquisition and integration expenses.
What are the key terms and timing of the IBM customer care acquisition?
SYNNEX agreed in September 2013 to acquire IBM's customer care business for an aggregate purchase price of $505.0 million, subject to post-closing adjustments. Up to the lesser of $75.0 million or 5% of outstanding shares may be paid in stock, with the remainder in cash. The initial closing is expected in the first calendar quarter of 2014, subject to customary conditions and regulatory approvals.
How concentrated is SYNNEX's supplier and ownership base?
HP was the largest OEM supplier, representing approximately 31% of fiscal 2013 revenue, and its agreement is short-term and terminable on short notice. MiTAC Holdings and its affiliates owned approximately 26% of common stock as of November 30, 2013, and executive officers, directors and principal stockholders together owned approximately 28%.
How does SYNNEX finance its working capital and what debt does it carry?
Total borrowings were $317.9 million at November 30, 2013. The U.S. accounts receivable securitization program was increased to $500.0 million with $144.0 million outstanding. In November 2013 the company entered into a U.S. Credit Agreement with a $275.0 million revolver and a term loan of up to $225.0 million, with no borrowings outstanding at year end. The company stated it was in compliance with all material covenants.
Are there risks investors should watch in the filing?
Key risks include the possibility that the IBM acquisition does not close or is not integrated successfully, low gross margins that magnify the effect of revenue or cost variations, short-term OEM supplier agreements, and credit exposure to small and medium-sized business customers. The company also noted that $262.9 million of undistributed foreign earnings had not been provided for U.S. taxes, and that its foreign cash of $142.5 million could be subject to U.S. taxes if repatriated.
06—Continue