(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION:
SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX” or the “Company”) is a business process services company offering a comprehensive range of services to resellers, retailers, and original equipment manufacturers (“OEMs”) worldwide. SYNNEX’s business process services include distribution and business process outsourcing (“BPO”) services. SYNNEX is headquartered in Fremont, California and has operations in the United States, Canada, China, Costa Rica, India, Japan, Mexico, the Philippines and the United Kingdom (“UK”).
The accompanying interim unaudited Consolidated Financial Statements as of August 31, 2011 and for the three and nine month periods ended August 31, 2011 and 2010 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2010 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the year ended November 30, 2010, included in the Company’s Annual Report on Form 10-K for the fiscal year then ended.
The results of operations for the three and nine months ended August 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2011, or any future period and the Company makes no representations related thereto.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2010. There have been no material changes to these accounting policies, except as described below. For a discussion of the significant accounting policies, please see the discussion in the Annual Report on Form 10-K for the fiscal year ended November 30, 2010.
Restricted cash
As of August 31, 2011 and November 30, 2010, the Company had restricted cash in the amounts of $26,032 and $17,472, respectively. The primary portion of the restricted cash balance relates to temporary restrictions caused by the timing of lockbox collections under the Company’s borrowing arrangements, amounts held to cover outstanding letters of credit and miscellaneous deposits. The remaining amount of the restricted cash relates to future payments to contractors for the long-term projects at the Company’s Mexico operation.
The following table summarizes the restricted cash balances as of August 31, 2011 and November 30, 2010 and the location where these amounts are recorded on the Consolidated Balance Sheets.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of accounts receivable, cash and cash equivalents. The Company’s cash and cash equivalents are maintained with high quality institutions, the compositions and maturities of which are regularly monitored by management. Through August 31, 2011, the Company had not experienced any losses on such deposits.
Accounts receivable include amounts due from customers primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for potential credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of the receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer risks. Through August 31, 2011, such losses have been within management’s expectations.
In both the three and nine months ended August 31, 2011, no customer accounted for more than 10% of the Company’s total revenue. In the three and nine months ended August 31, 2010, one customer accounted for approximately 12% and 11%, respectively, of the Company’s total revenue.
As of August 31, 2011, no customer accounted for more than 10% of the Company’s total accounts receivable balance. As of November 30, 2010, one customer accounted for approximately 16% of the total consolidated accounts receivable balance.
Products purchased from the Company’s largest OEM supplier, Hewlett-Packard Company (“HP”), accounted for approximately 37% and 35% of the total revenue for the three and nine months ended August 31, 2011, respectively, and approximately 37% of the total revenue for both the three and nine months ended August 31, 2010.
Revenue recognition
The Company generally recognizes revenue on hardware and software products when they are shipped and on services when they are performed, if a purchase order exists, the sale price is fixed or determinable, collection of resulting accounts receivable is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. The Company recognizes revenue on certain service contracts, post-contract software support services, and extended warranty contracts, where it is not the primary obligor, on a net basis.
The Company’s Mexico operation primarily focuses on projects with the Mexican government and other local agencies that are long-term in nature. Under the agreements, the Company sells computers and equipment to contractors that provide services to the Mexican government. The payments are due on a monthly basis and contingent upon the contractors performing certain services, fulfillment of certain obligations and meeting certain conditions. The Company recognizes product revenue and cost of revenue on a straight-line basis over the term of the contract, which coincides with payments no longer being contingent.
The Company provides services to its customers under contracts that typically consist of a master services agreement or statement of work, which contains the terms and conditions of each program and service it offers. These agreements are usually short-term in nature and subject to early termination by the customers or the Company for any reason, typically with 30 to 90 days notice. Typically the contracts are time-based or transactions based. Revenue is generally recognized over the term of the contract if the service has already been rendered, the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured.
Net income per common share
Net income per common share-basic is computed by dividing the net income attributable to SYNNEX Corporation for the period by the basic weighted-average number of outstanding common shares.
Net income per common share-diluted is computed by adding the dilutive effect of in-the-money employee stock options, restricted stock awards, restricted stock units and similar equity instruments granted by the Company to the basic weighted-
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
average number of outstanding common shares. The Company uses the treasury stock method, under which the amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded in “Additional paid-in capital” when the award becomes deductible are assumed to be used to repurchase shares.
With respect to the Company’s convertible debt, the Company intends to settle its conversion spread (i.e., the intrinsic value of convertible debt based on the conversion price and current market price) in shares. The Company accounts for its conversion spread using the treasury stock method. It is the Company’s intent to cash-settle the principal amount of the convertible debt; accordingly, the principal amount has been excluded from the determination of diluted earnings per share.
The calculation of net income per common share attributable to SYNNEX Corporation is presented in Note 10.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported.
Recent accounting pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting update that amends existing guidance regarding fair value measurements and disclosure requirements. The amendments are effective during interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. The accounting update will be applicable to the Company beginning in the second quarter of fiscal year 2012. The Company will update its fair value disclosures to comply with the updated disclosure requirements.
In June 2011, the FASB issued an accounting update that amends the presentation of “Comprehensive income” in the financial statements. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The accounting update will be applicable to the Company beginning in the first quarter of fiscal year 2013. The Company will update its presentation of “Comprehensive income” to comply with the updated disclosure requirements.
In September 2011, the FASB issued an accounting update that gives companies the option to make a qualitative evaluation about the likelihood of goodwill impairment. Companies will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not, less than its carrying value. The accounting update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company will adopt the accounting update for its goodwill impairment test to be performed for the fiscal year ending November 30, 2012.
In September 2011, the FASB issued an accounting update that requires additional qualitative and quantitative disclosures by employers that participate in multi-employer pension plans. The amendments are effective for annual periods for the fiscal years ending after December 15, 2011, with early adoption permitted. The Company will adopt the new disclosure requirements in the fiscal year ending November 30, 2012. The Company is currently assessing the impact of this accounting update on its Consolidated Financial Statements.
During the fiscal year 2011, the Company adopted the following accounting standards:
In October 2009, the FASB issued an update to the existing multiple-element revenue arrangements guidance. This revised guidance primarily provides two significant changes: (1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and (2) eliminates the residual method to allocate the arrangement consideration. This accounting update was effective for the first annual reporting period beginning on or after June 15, 2010 with early adoption permitted, provided that the revised guidance is retroactively applied to the beginning of the year of adoption. This standard was adopted by the Company beginning December 1, 2010 and did not have a material impact to its Consolidated Financial Statements.
In October 2009, the FASB issued an accounting standard addressing how entities account for revenue arrangements that contain both hardware and software elements. Due to the significant difference in the level of evidence required for separation of multiple deliverables within different accounting standards, this particular accounting standard modified the scope of
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
accounting guidance for software revenue recognition. Many tangible products containing software and non-software components that function together to deliver the tangible products’ essential functionality will be accounted for under the revised multiple-element arrangement revenue recognition guidance disclosed above. This accounting standard was effective for the first annual reporting period beginning on or after June 15, 2010 with early adoption permitted, provided that the revised guidance is retroactively applied to the beginning of the year of adoption. This standard was applicable to the Company beginning December 1, 2010 and did not have a material impact on its Consolidated Financial Statements.
NOTE 3—SHARE-BASED COMPENSATION:
The Company recognizes share-based compensation expenses for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units and employee stock purchases, based on estimated fair values.
The Company uses the Black-Scholes valuation model to estimate fair value of share-based awards. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock.
The following table summarizes the number of share-based awards granted under the Company’s Amended and Restated 2003 Stock Incentive Plan, as amended, during the three and nine months ended August 31, 2011 and 2010 and the grant-date fair value of the awards:
Three Months Ended
Three Months Ended
August 31, 2011
August 31, 2010
Number of
grants
Fair value
of grants
Number of
grants
Fair value
of grants
Stock options
—
$
—
—
$
—
Restricted stock awards
16
520
4
98
Restricted stock units
—
—
—
—
16
$
520
4
$
98
Nine Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
Number of
grants
Fair value
of grants
Number of
grants
Fair value
of grants
Stock options
—
$
—
60
$
769
Restricted stock awards
44
1,406
53
1,514
Restricted stock units
10
324
100
2,306
54
$
1,730
213
$
4,589
The Company recorded share-based compensation expenses of $1,953 and $5,869 for the three and nine months ended August 31, 2011, respectively, and $2,706 and $6,372 for the three and nine months ended August 31, 2010, respectively.
NOTE 4—BALANCE SHEET COMPONENTS:
Inventories
The Company’s inventories substantially consist of finished goods.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
As of
August 31, 2011
November 30, 2010
Short-term investments
Trading securities
$
6,330
$
7,909
Available-for-sale securities
40
102
Held-to-maturity securities
—
910
Cost-method securities
2,412
2,498
$
8,782
$
11,419
Accounts receivable, net
Trade accounts receivable
$
1,065,057
$
1,039,850
Less: Allowance for doubtful accounts
(18,043
)
(20,408
)
Less: Allowance for sales returns
(29,424
)
(32,525
)
$
1,017,590
$
986,917
Receivable from vendors, net
Receivable from vendors
$
131,335
$
137,887
Less: Allowance for doubtful accounts
(4,615
)
(5,478
)
$
126,720
$
132,409
Property and equipment, net
Land
$
17,246
$
14,246
Equipment and computers
86,261
61,842
Furniture and fixtures
16,961
9,746
Buildings and leasehold improvements
92,296
81,119
Construction in progress
1,533
151
Total property and equipment, gross
214,297
167,104
Less: Accumulated depreciation
(98,052
)
(75,109
)
$
116,245
$
91,995
During the first quarter of fiscal year 2011, the Company entered into a capital lease with the option to purchase at the end of the two-year lease period, a distribution and warehouse facility in the United States. The capital lease asset recorded was $8,342 and the long-term capital lease obligation as of August 31, 2011 was $7,476. As of August 31, 2011, the Company had long-term capital lease obligations of $987 pertaining to its acquisition of SYNNEX Infotec Corporation (“Infotec Japan”).
Goodwill
Distribution
GBS
Total
Balance as of November 30, 2010
$
89,031
$
50,549
$
139,580
Changes during the period
16,290
16,183
32,473
Foreign currency translation
3,843
571
4,414
Balance as of August 31, 2011
$
109,164
$
67,303
$
176,467
Goodwill recorded in the distribution segment during the nine months ended August 31, 2011, primarily relates to the acquisition of Infotec Japan. The increase in goodwill in the global business services (“GBS”) segment is due to the acquisition of certain businesses of e4e, Inc.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
Intangible assets, net
As of August 31, 2011
As of November 30, 2010
Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
Vendor lists
$
36,815
$
(26,719
)
$
10,096
$
36,815
$
(25,564
)
$
11,251
Customer lists
45,854
(22,676
)
23,178
32,196
(18,005
)
14,191
Other intangible assets
4,482
(3,796
)
686
6,453
(3,624
)
2,829
$
87,151
$
(53,191
)
$
33,960
$
75,464
$
(47,193
)
$
28,271
Amortization expenses for the three and nine months ended August 31, 2011 were $1,776 and $5,586, respectively, and for the three and nine months ended August 31, 2010 were $1,278 and $3,858, respectively. The increase in intangible assets as of August 31, 2011 compared to November 30, 2010 is due to the acquisition of Infotec Japan within the distribution segment and the acquisition of certain businesses of e4e, Inc. in the GBS segment.
NOTE 5—INVESTMENTS:
The carrying amount of the Company’s investments is shown in the table below:
As of August 31, 2011
As of November 30, 2010
Cost Basis
Unrealized
(Losses)/Gains
Carrying
Value
Cost Basis
Unrealized
(Losses)/Gains
Carrying
Value
Short-term investments
Trading securities
$
9,384
$
(3,054
)
$
6,330
$
9,324
$
(1,415
)
$
7,909
Available-for-sale securities
1
39
40
55
47
102
Held-to-maturity securities
—
—
—
910
—
910
Cost-method securities
2,412
—
2,412
2,498
—
2,498
$
11,797
$
(3,015
)
$
8,782
$
12,787
$
(1,368
)
$
11,419
Long-term investments in other assets
Available-for-sale securities
$
944
$
190
$
1,134
$
—
$
—
$
—
Short-term trading securities generally consist of equity securities relating to the Company’s deferred compensation plan. Short-term and long-term available-for-sale securities primarily consist of investments in other companies’ equity securities. Held-to-maturity investments primarily consist of term deposits with maturities from the date of purchase greater than three months and less than one year. These term deposits are held until the maturity date and are not traded. Cost-method securities primarily consist of investments in a hedge fund and a private equity fund under the Company’s deferred compensation plan.
Trading securities and available-for-sale securities are recorded at fair value in each reporting period and therefore the carrying value of these securities equals their fair value. For cost-method securities, the Company records an impairment charge when the decline in fair value is determined to be other-than-temporary.
The following table summarizes the total realized and unrealized gains and losses recorded on the Company’s trading investments and the other-than-temporary losses recorded on cost-method securities during the three and nine months ended August 31, 2011 and 2010:
Three Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
August 31, 2011
August 31, 2010
Realized and unrealized gain (loss) on trading investments
$
(1,288
)
$
(548
)
$
(816
)
$
(369
)
Other-than-temporary loss on cost-method securities
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
NOTE 6—DERIVATIVE INSTRUMENTS:
In the ordinary course of business, the Company is exposed to foreign currency risk, interest risk, equity risk and credit risk. The Company’s transactions in its foreign operations are denominated in the British Pound, Canadian Dollar, Chinese Renminbi, Costa Rican Colon, Indian Rupee, Japanese Yen, Mexican Peso, and Philippine Peso. The Company’s foreign locations enter into transactions and own monetary assets and liabilities that are denominated in currencies other than their functional currency. As part of its risk management strategy, the Company uses short-term forward contracts in most of the above mentioned currencies to minimize its balance sheet exposure to foreign currency risk. These derivatives are not designated as hedging instruments as the Company uses forward contracts to hedge foreign currency balance sheet exposures. The forward exchange contracts are recorded at fair value in each reporting period and any gains or losses resulting from the changes in fair value, are recorded in earnings in the period of change. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s policy is not to allow the use of derivatives for trading or speculative purposes. The fair value of the Company’s forward exchange contracts are also disclosed in Note 14. The following table summarizes the fair value of the Company’s foreign exchange forward contracts as of August 31, 2011 and November 30, 2010:
Fair Value as of
Location
August 31, 2011
November 30, 2010
Accrued liabilities
$
(85
)
$
(170
)
Other current assets
370
537
$
285
$
367
The notional amounts of the foreign exchange forward contracts that were outstanding as of August 31, 2011 and November 30, 2010 were $92,902 and $118,596, respectively. The notional amounts represent the gross amounts of foreign currency that will be bought or sold at maturity. During the three and nine months ended August 31, 2011, in relation to its forward contracts, the Company recorded in “Other income, net” total realized and unrealized gains of $437 and losses of $3,442, respectively. During the three and nine months ended August 31, 2010, the Company recorded in “Other income, net” total realized and unrealized gains related to its forward contracts of $1,737 and $790, respectively.
NOTE 7—ACCOUNTS RECEIVABLE ARRANGEMENTS:
The Company primarily finances its U.S. operations with an accounts receivable securitization program (the “U.S. Arrangement”). In November 2010, the Company amended and restated the U.S. Arrangement (“Amended and Restated U.S. Arrangement”) replacing the lenders and the lead agent. The Company can now pledge up to a maximum of $400,000 in U.S. trade accounts receivable (“U.S. Receivables”) as compared to a maximum of $350,000 under the previous U.S. Arrangement. The maturity date of the Amended and Restated U.S. Arrangement is November 12, 2013. The effective borrowing cost under the Amended and Restated U.S. Arrangement is a blend of the prevailing dealer commercial paper rates plus a program fee of 0.60% per annum based on the used portion of the commitment, and a facility fee of 0.60% per annum payable on the aggregate commitment of the lenders. Prior to the amendment, the effective borrowing cost was a blend of the prevailing dealer commercial paper rates, plus a program fee of 0.65% per annum based on the used portion of the commitment and a facility fee of 0.65% per annum payable on the aggregate commitment. The balances outstanding on the Amended and Restated U.S. Arrangement as of August 31, 2011 and November 30, 2010 were $147,000 and $209,100, respectively.
Under the terms of the Amended and Restated U.S. Arrangement, the Company sells, on a revolving basis, its U.S. Receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in and to the U.S. Receivables as security. Any borrowings under the Amended and Restated U.S. Arrangement are recorded as debt on the Company’s Consolidated Balance Sheets. As is customary in trade accounts receivable securitization arrangements, a credit rating agency’s downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an increase in the Company’s cost of borrowing or loss of the Company’s financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on the Company’s financial condition and results of operations.
The Company also has other financing agreements in North America with various financial institutions (“Flooring
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay to the Company the selling price of products sold to various customers, less a discount, within approximately 15 to 30 days from the date of sale. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. Please see Note 15 for further information. The following table summarizes the net sales financed through the flooring agreements and the flooring fees incurred:
Three Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
August 31, 2011
August 31, 2010
Net sales financed
$
201,700
$
172,273
$
532,515
$
472,275
Flooring fees(1)
1,034
917
2,068
2,394
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of August 31, 2011 and November 30, 2010, accounts receivable subject to flooring agreements were $51,896 and $53,985, respectively.
Infotec Japan has arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amount outstanding under these arrangements that was sold but not collected as of August 31, 2011 was $45,300.
NOTE 8—BORROWINGS:
Borrowings consist of the following:
As of
August 31, 2011
November 30, 2010
Convertible debt
$
134,912
$
131,289
SYNNEX U.S. securitization
147,000
209,100
SYNNEX Canada revolving line of credit
13,431
36,240
SYNNEX Canada term loan
9,662
9,677
Infotec Japan credit facility
130,446
—
Infotec Japan term loans & other borrowings
16,229
—
Total borrowings
451,680
386,306
Less: Current portion
(228,626
)
(245,973
)
Non-current portion
$
223,054
$
140,333
Convertible debt
In May 2008, the Company issued $143,750 of aggregate principal amount of its 4.0% Convertible Senior Notes due 2018 (the “Notes”) in a private placement. The carrying amount of the convertible debt, net of the unamortized debt discount, was $134,912 and $131,289 as of August 31, 2011 and November 30, 2010, respectively. The Notes are senior unsecured obligations of the Company and have a cash coupon interest rate of 4.0% per annum. The Company may redeem the Notes, in whole or in part, for cash on or after May 20, 2013, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the redemption date. See Note 9. Also, the Notes contain various features which under certain circumstances could allow the holders to convert the Notes into shares before their ten-year maturity.
SYNNEX U.S. securitization
The Company can pledge up to a maximum of $400,000 in U.S. Receivables under its Amended and Restated U.S. Arrangement. See Note 7—Accounts Receivable Arrangements. The effective borrowing costs under the Amended and Restated U.S. Arrangement is a blend of the prevailing dealer commercial paper rates, plus a program fee on the used portion of the commitment and a facility fee payable on the aggregate commitment.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
SYNNEX U.S. senior secured revolving line of credit
The Company has a senior secured revolving line of credit arrangement (the “Revolver”) with a financial institution. In November 2010, the Company amended and restated the Revolver (the “Amended and Restated Revolver”) to remove one of the lenders and increase the maximum commitment of the remaining lender from $80,000 to $100,000. The Amended and Restated Revolver retains an accordion feature to increase the maximum commitment by an additional $50,000 to $150,000 at the Company’s request, in the event the current lender consents to such increase or another lender participates in the Amended and Restated Revolver. Interest on borrowings under the Amended and Restated Revolver is based on a base rate or London Interbank Offered Rate (“LIBOR”), at the Company’s option. The margin on the LIBOR is determined in accordance with its fixed charge coverage ratio under the Amended and Restated Revolver and is currently 2.25%. The Company’s base rate is determined based on the higher of (i) the financial institution’s prime rate, (ii) the overnight federal funds rate plus 0.50% or (iii) one month LIBOR plus 1.00%. An unused line fee of 0.50% per annum is payable if the outstanding principal amount of the Amended and Restated Revolver is less than half of the lenders’ commitments; however, that fee is reduced to 0.35% if the outstanding principal amount of the Amended and Restated Revolver is greater than half of the lenders’ commitments. The Amended and Restated Revolver is secured by the Company’s inventory and other assets and expires in November 2013. It would be an event of default under the Amended and Restated Revolver if (1) a lender under the Amended and Restated U.S. Arrangement declines to extend the maturity date at any point within sixty days prior to the maturity date of the Amended and Restated U.S. Arrangement, unless availability under the Amended and Restated Revolver exceeds $60,000 or the Company has a binding commitment in place to renew or replace the Amended and Restated U.S. Arrangement or (2) at least twenty days prior to the maturity date of the Amended and Restated U.S. Arrangement, the Company does not have in place a binding commitment to renew or replace the Amended and Restated U.S. Arrangement on substantially similar terms and conditions, unless the Company has no amounts outstanding under the Amended and Restated Revolver at such time. There was no borrowing outstanding as of August 31, 2011 and November 30, 2010.
SYNNEX U.S. unsecured revolving line of credit
In February 2011, the Company entered into an arrangement with a financial institution to provide an unsecured revolving line of credit for general corporate purposes. The maximum commitment under the arrangement is $25,000. The arrangement includes an unused line fee of 0.50% per annum. Interest on borrowings under the line of credit is determined by either a base rate or LIBOR, at the Company’s option. The margin on the LIBOR is 2.00%. The Company’s base rate is the financial institution’s prime rate minus 0.25%. The agreement expires in February 2014. As of August 31, 2011, there were no borrowings outstanding under this arrangement.
SYNNEX Canada revolving line of credit
SYNNEX Canada Limited (“SYNNEX Canada”) has a revolving line of credit arrangement with a financial institution for a maximum commitment of C$125,000 (“Canadian Revolving Arrangement”). The Canadian Revolving Arrangement also provides a sublimit of $5,000 for the issuance of standby letters of credit. As of August 31, 2011, outstanding standby letters of credit totaled $3,354. SYNNEX Canada has granted a security interest on substantially all of its assets in favor of the lender under this revolving credit facility. In addition, the Company pledged its stock in SYNNEX Canada as collateral for the Canadian Revolving Arrangement. The Canadian Revolving Arrangement expires in May 2012. The interest rate applicable is equal to (i) a minimum rate of 2.50% plus a margin of 1.25% for a Base Rate Loan in Canadian Dollars, (ii) a minimum rate of 3.25% plus a margin of 2.50% for a Base Rate Loan in U.S. Dollars, and (iii) a minimum rate of 1.00% plus a margin of 2.75% for a BA (Bankers Acceptance) Rate Loan. A fee of 0.375% per annum is payable with respect to the unused portion of the commitment.
SYNNEX Canada term loan
SYNNEX Canada has a term loan associated with the purchase of its logistics facility in Guelph, Canada. The interest rate for the unpaid principal amount is a fixed rate of 5.374% per annum. The final maturity date for repayment of the unpaid principal is April 1, 2017.
Infotec Japan credit facility
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JP¥
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
10,000,000. The credit agreement is comprised of a JP¥ 6,000,000 long-term loan and a JP¥ 4,000,000 short-term revolving credit facility. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate plus a margin of 2.25% per annum. The credit facility expires in November 2013. The long-term loan can be repaid at any time prior to maturity without penalty. The Company has issued a guarantee of JP¥ 7,000,000 under this credit facility.
Infotec Japan term loans and other borrowings
Infotec Japan has two term loans from financial institutions which include a short-term loan of JP¥ 1,000,000, which expires in January 2012 and bears a fixed interest rate of 2.00%, and a term loan of JP¥ 210,000, which expires in December 2012 and bears a fixed interest rate of 1.50%. In addition, as of August 31, 2011, there was $445 outstanding under arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable with recourse provisions to Infotec Japan.
Others
The Company had outstanding letters of credit amounting to $750 under a letter of credit facility as of November 30, 2010. This letter of credit facility was terminated in March 2011.
Future principal payments
Future principal payments as of August 31, 2011 under the above loans are as follows:
Fiscal Years Ending November 30,
As of August 31, 2011
2011
$
213,680
2012
15,572
2013
79,463
2014
779
2015
822
Thereafter
6,452
$
316,768
Due to the uncertainty of the timing and amount that may be settled in cash, the principal amount of $143,750 of the Notes described in Note 9 is not included in the table above.
Interest expense and finance charges
For the three and nine months ended August 31, 2011, the total interest expense and finance charges for accounts receivable securitization, the revolving lines of credit, the Notes and all other debt were $7,348 and $21,295, respectively, including non-cash debt accretion expenses of $1,234 and $3,623, respectively, for the Notes. For the three and nine months ended August 31, 2010, the total interest expense and finance charges for accounts receivable securitization, the revolving lines of credit, the Notes and all other debt were $5,722 and $16,858, respectively, including non-cash debt accretion expenses of $1,141 and $3,349, respectively, for the Notes. The variable interest rates ranged between 0.82% and 4.90% in both the three and nine months ended August 31, 2011. The variable interest rates ranged between 0.98% and 3.75% and between 0.90% and 3.75% in the three and nine months ended August 31, 2010.
Covenants compliance
In relation to the Notes, Amended and Restated U.S. Arrangement, the Amended and Restated Revolver, the Infotec Japan credit facility, the Canadian Revolving Arrangement and the U.S. unsecured revolving line of credit, the Company has a number of covenants and restrictions that, among other things, require the Company to comply with certain financial and other covenants. These covenants require the Company to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratios. They also limit the Company’s ability to incur additional debt, make or forgive intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase the Company’s stock, create liens, cancel debt owed to the Company, enter into agreements with affiliates, modify
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
the nature of the Company’s business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. The covenants also limit the Company’s ability to pay cash upon conversion, redemption or repurchase of the Notes subject to certain liquidity tests.
As of August 31, 2011, the Company was in compliance with all material covenants for the above arrangements.
Guarantees
The Company has issued guarantees to certain vendors and lenders of its subsidiaries’ for trade credit lines and loans, totaling $240,452 and $108,497 as of August 31, 2011 and November 30, 2010, respectively. The Company is obligated under these guarantees to pay amounts due should its subsidiaries not pay valid amounts owed to their vendors or lenders.
NOTE 9—CONVERTIBLE DEBT:
As of
Convertible debt
August 31, 2011
November 30, 2010
Principal amount
$
143,750
$
143,750
Less: Unamortized debt discount
(8,838
)
(12,461
)
Net carrying amount
$
134,912
$
131,289
In May 2008, the Company issued $143,750 of aggregate principal amount of the Notes in a private placement. The Notes have a cash coupon interest rate of 4.0% per annum. Interest on the Notes is payable in cash semi-annually in arrears on May 15 and November 15 of each year, and commenced on November 15, 2008. In addition, the Company will pay contingent interest in respect of any six-month period from May 15 to November 14 or from November 15 to May 14, with the initial six-month period commencing May 15, 2013, if the trading price of the Notes for each of the ten trading days immediately preceding the first day of the applicable six-month period equals 120% or more of the principal amount of the Notes. During any interest period when contingent interest is payable, the contingent interest payable per Note is equal to 0.55% of the average trading price of the Notes during the ten trading days immediately preceding the first day of the applicable six-month interest period. The Notes mature on May 15, 2018, subject to earlier redemption, repurchase or conversion.
Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date for such Notes under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ended August 31, 2008 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least twenty trading days in the period of thirty consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is equal to or more than 130% of the conversion price of the Notes on the last day of such preceding fiscal quarter; (2) during the five business-day period after any five consecutive trading-day period (the “Measurement Period”) in which the trading price per $1 principal amount of the Notes for each day of that Measurement Period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate of the Notes on each such day; (3) if the Company has called the particular Notes for redemption, until the close of business on the business day prior to the redemption date; or (4) upon the occurrence of certain corporate transactions. In addition, holders may also convert their Notes at their option at any time beginning on November 15, 2017, and ending at the close of business on the business day immediately preceding the maturity date for the Notes, without regard to the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the common stock or a combination thereof at the Company’s election. The initial conversion rate for the Notes will be 33.9945 shares of common stock per $1 principal amount of Notes, equivalent to an initial conversion price of $29.42 per share of common stock. Such conversion rate will be subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest and any contingent interest. The above mentioned contingencies were not triggered as of August 31, 2011.
The Company may not redeem the Notes prior to May 20, 2013. The Company may redeem the Notes, in whole or in part, for cash on or after May 20, 2013, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to (including any additional interest and any contingent interest), but excluding, the redemption date.
Holders may require the Company to repurchase all or a portion of their Notes for cash on May 15, 2013 at a purchase
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the repurchase date. If the Company undergoes a fundamental change, holders may require it to purchase all or a portion of their Notes for cash at a price equal to 100% of the principal amount of the Notes to be purchased, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the fundamental change repurchase date.
The Notes are senior unsecured obligations of the Company and rank equally in right of payment with other senior unsecured debt and rank senior to subordinated notes, if any. The Notes effectively rank junior to any of the Company’s secured indebtedness to the extent of the assets securing such indebtedness. The Notes are also structurally subordinated in right of payment to all indebtedness and other liabilities and commitments (including trade payables) of the Company’s subsidiaries. The net proceeds from the Notes were used for general corporate purposes and to reduce outstanding balances under the U.S. Arrangement and the Revolver.
The Notes are governed by an indenture, dated as of May 12, 2008, between the Company and U.S. Bank National Association, as trustee, which contains customary events of default.
The Notes as hybrid instruments are accounted as convertible debt and are recorded at carrying value. The right of the holders of the Notes to require the Company to repurchase the Notes in the event of a fundamental change and the contingent interest feature would require separate measurement from the Notes; however, the amount is insignificant. The additional shares issuable following certain corporate transactions do not require bifurcation and separate measurement from the Notes.
In accordance with the provisions of the standards for accounting for convertible debt, the Company recognized both a liability and an equity component of the Notes in a manner that reflects its non-convertible debt borrowing rate at the date of issuance of 8.0%. The value assigned to the debt component, which is the estimated fair value, as of the issuance date, of a similar note without the conversion feature, was determined to be $120,332. The difference between the Note cash proceeds and this estimated fair value was estimated to be $23,418 and was retroactively recorded as a debt discount and will be amortized to “Interest expense and finance charges, net” over the five-year period to the first put date, utilizing the effective interest method.
As of August 31, 2011, the remaining amortization period is approximately twenty months assuming the redemption of the Notes at the first purchase date of May 20, 2013. Based on a cash coupon interest rate of 4.0%, the Company recorded contractual interest expenses of $1,624 and $4,871, during the three and nine months ended August 31, 2011, respectively, and $1,625 and $4,872 during the three and nine months ended August 31, 2010, respectively. Based on an effective rate of 8.0%, the Company recorded non-cash interest expenses of $1,234 and $3,623 during the three and nine months ended August 31, 2011, respectively, and $1,141 and $3,349 during the three and nine months ended August 31, 2010, respectively. As of both August 31, 2011 and November 30, 2010, the carrying value of the equity component of the Notes, net of allocated issuance costs, was $22,836. As of August 31, 2011, the if-converted value of the Notes did not exceed the principal balance.
The Notes contain various features that under certain circumstances could allow the holders to convert the Notes into shares before their ten-year maturity. Further, the date of settlement of the Notes is uncertain due to the various features of the Notes including put and call features. Because the Company currently intends to settle the Notes using cash at some future date, the Company maintains within its Amended and Restated U.S. Arrangement, the Amended and Restated Revolver and the U.S. unsecured revolving line of credit ongoing features that allow the Company to utilize cash from these facilities to cash settle the Notes, if desired.
NOTE 10—NET INCOME PER COMMON SHARE:
The following table sets forth the computation of basic and diluted net income per common share for the periods indicated:
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
Three Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
August 31, 2011
August 31, 2010
Amounts attributable to SYNNEX Corporation:
Income from continuing operations, net of tax
$
39,036
$
30,914
$
100,158
$
79,007
Discontinued operations:
Income from discontinued operations, net of tax
—
—
—
59
Gain on sale of discontinued operations, net of tax
—
—
—
11,351
Net income attributable to SYNNEX Corporation
$
39,036
$
30,914
$
100,158
$
90,417
Weighted-average common shares - basic
35,882
35,083
35,726
34,534
Effect of dilutive securities:
Stock options, restricted stock awards and restricted stock units
712
827
803
1,094
Conversion spread of convertible debt
—
—
357
—
Weighted-average common shares - diluted
36,594
35,910
36,886
35,628
Earnings per share attributable to SYNNEX Corporation:
Basic:
Income from continuing operations
$
1.09
$
0.88
$
2.80
$
2.29
Discontinued operations
—
—
—
0.33
Net income per common share - basic
$
1.09
$
0.88
$
2.80
$
2.62
Diluted:
Income from continuing operations
$
1.07
$
0.86
$
2.72
$
2.22
Discontinued operations
—
—
—
0.32
Net income per common share - diluted
$
1.07
$
0.86
$
2.72
$
2.54
Options to purchase 62 and 35 shares of common stock for the three and nine months ended August 31, 2011, respectively, and 67 and 50 shares of common stock for the three and nine months ended August 31, 2010, respectively, have not been included in the computation of diluted net income per share as their effect would have been anti-dilutive.
NOTE 11—RELATED PARTY TRANSACTIONS:
The Company has a business relationship with MiTAC International Corporation (“MiTAC International”), a publicly-traded company in Taiwan that began in 1992 when it became its primary investor through its affiliates. As of both August 31, 2011 and November 30, 2010, MiTAC International and its affiliates beneficially owned approximately 29% of the Company’s common stock. In addition, Matthew Miau, the Company’s Chairman Emeritus of the Board of Directors, is the Chairman of MiTAC International and a director or officer of MiTAC International’s affiliates. As a result, MiTAC International generally has significant influence over the Company and over the outcome of all matters submitted to stockholders for consideration, including any merger or acquisition of the Company. Among other things, this could have the effect of delaying, deterring or preventing a change of control over the Company.
Until July 31, 2010, the Company worked with MiTAC International on OEM outsourcing and jointly marketed MiTAC International’s design and electronic manufacturing services and its contract assembly capabilities. This relationship enabled the Company to build relationships with MiTAC International’s customers. On July 31, 2010, MiTAC International purchased certain assets related to the Company’s contract assembly business, including inventory and customer contracts, primarily related to customers then being jointly serviced by MiTAC International and the Company. As part of this transaction, the Company provided MiTAC International certain transition services for the business for a monthly fee over a period of twelve months. The sale agreement also included earn-out and profit sharing provisions, which were based on operating performance metrics achieved over twelve to eighteen months from the closing date for the defined customers included in this transaction. During the three and nine months ended August 31, 2011, the Company recorded $1,266 and $5,362, respectively, for service fees earned, reimbursements for facilities and overhead costs and the fully achieved earn-out condition.
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
The Company purchased inventories, including notebook computers, motherboards and other peripherals, from MiTAC International and its affiliates totaling $540 and $2,868 during the three and nine months ended August 31, 2011, respectively, and $39,622 and $154,545 for the three and nine months ended August 31, 2010, respectively. The Company’s sales to MiTAC International and its affiliates during the three and nine months ended August 31, 2011 totaled $1,645 and $2,726, respectively, and during the three and nine months ended August 31, 2010, totaled $391 and $1,626, respectively. Most of the purchases and sales in the three and nine months ended August 31, 2010 were pursuant to the Master Supply Agreement with MiTAC International and the Company’s former contract assembly customer Sun Microsystems, which was acquired by Oracle Corporation in 2010.
The Company’s business relationship with MiTAC International had been informal and was not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments.
During the period of time that the Company worked with MiTAC International, the Company negotiated manufacturing, pricing and other material terms on a case-by-case basis with MiTAC International and its contract assembly customers for a given project. While MiTAC International is a related party and a controlling stockholder, the Company believes that the significant terms under its arrangements with MiTAC International, including pricing, will not materially differ from the terms it could have negotiated with unaffiliated third parties, and it has adopted a policy requiring that material transactions with MiTAC International or its related parties be approved by its Audit Committee, which is composed solely of independent directors. In addition, Matthew Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors.
Beneficial ownership of the Company’s common stock by MiTAC International
As noted above, MiTAC International and its affiliates in the aggregate beneficially owned approximately 29% of the Company’s common stock as of August 31, 2011. These shares are owned by the following entities:
As of August 31, 2011
(shares in thousands)
MiTAC International(1)
6,158
Synnex Technology International Corp.(2)
4,427
Total
10,585
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC International. Excludes 589 thousand shares (of which 379 thousand shares are directly held and 210 thousand shares are subject to exercisable options) held by Matthew Miau.
(2)
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd, a wholly-owned subsidiary of Synnex Technology International. MiTAC International owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 14.0% in Synnex Technology International. Neither MiTAC International, nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
While the ownership structure of MiTAC International and its affiliates is complex, it has not had a material adverse effect on the Company’s business in the past, and it does not expect it to do so in the future.
The Company owns shares of MiTAC International and one of its affiliates related to the deferred compensation plan of Robert Huang, the Company’s founder and former Chairman. As of August 31, 2011, the value of the investment was $783. Except as described herein, none of the Company’s officers or directors has an interest in MiTAC International or its affiliates.
Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also a potential competitor of the Company. Neither MiTAC International, nor Synnex Technology International is restricted from competing with the Company.
Others
On August 31, 2010, the Company acquired a 33.3% noncontrolling interest in SB Pacific Corporation Limited (“SB Pacific”). The Company is not the primary beneficiary in SB Pacific. The controlling shareholder of SB Pacific is Robert Huang, who is the Company’s founder and former Chairman. The Company’s 33.3% investment in SB Pacific is
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
accounted for as an equity-method investment and is included in “Other assets.” The balances of the investment as of August 31, 2011 and November 30, 2010 were $6,043 and $1,095, respectively. The Company regards SB Pacific to be a variable interest entity and as of August 31, 2011, its maximum exposure to loss was limited to $6,043. During the nine months ended August 31, 2011, the Company paid $150 in management fees to SB Pacific. SB Pacific owns a 30.0% noncontrolling interest in Infotec Japan.
NOTE 12—SEGMENT INFORMATION:
Description of segments
Operating segments are based on products and services provided by each segment, internal organization structure, the manner in which operations are managed, the criteria used by the Chief Operating Decision Maker (“CODM”) to assess the segment performance as well as resources allocation and the availability of discrete financial information.
The distribution services segment distributes IT systems, peripherals, system components, software, networking equipment, consumer electronics, and complementary products and video games to a variety of customers, including value-added resellers, system integrators, and retailers, as well as provides assembly services to OEMs, including integrated supply chain management, build-to-order and configure-to-order system configurations, materials management, refurbishment and logistics.
The GBS services segment offers a range of services to the Company’s customers that include customer management, renewals management, back office processing and information technology outsourcing on a global platform. The Company delivers these services through various methods including voice, chat, web, email, and digital print. The Company also sells products complementary to these service offerings.
Summarized financial information related to the Company’s reportable business segments for the three and nine months ended August 31, 2011 and 2010, and as of August 31, 2011 and November 30, 2010 is shown below:
Distribution
GBS
Inter-Segment
Elimination
Consolidated
Three months ended August 31, 2011
Revenue
$
2,538,792
$
40,480
$
(7,139
)
$
2,572,133
Income from continuing operations before non-operating items, income taxes and noncontrolling interest
58,592
7,926
—
66,518
Three months ended August 31, 2010
Revenue
$
2,152,537
$
30,968
$
(6,439
)
$
2,177,066
Income from continuing operations before non-operating items, income taxes and noncontrolling interest
47,928
4,226
—
52,154
Nine months ended August 31, 2011
Revenue
$
7,471,196
$
118,470
$
(20,797
)
$
7,568,869
Income from continuing operations before non-operating items, income taxes and noncontrolling interest
156,266
15,265
—
171,531
Nine months ended August 31, 2010
Revenue
$
6,079,088
$
84,685
$
(17,857
)
$
6,145,916
Income from continuing operations before non-operating items, income taxes and noncontrolling interest
124,374
10,167
—
134,541
Total assets as of August 31, 2011
$
2,582,344
$
270,100
$
(196,505
)
$
2,655,939
Total assets as of November 30, 2010
$
2,409,998
$
224,677
$
(134,814
)
$
2,499,861
The inter-segment eliminations relate to the inter-segment back-office support services provided by the GBS segment to
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
the distribution segment, inter-segment investments and inter-segment accounts receivable.
Segment by geography
The Company primarily operates in North America. The United States and Canada are included in the “North America” operations. China, India, Japan and the Philippines are included in “Asia-Pacific” operations and Costa Rica, Mexico and the UK are included in “Other” operations. The revenues attributable to countries are based on geography of entities from where the products are distributed or services are provided. Shown below is summarized financial information related to the geographic areas in which the Company operated in the three and nine months ended August 31, 2011 and 2010:
Three Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
August 31, 2011
August 31, 2010
Revenue
North America
$
2,248,957
$
2,140,886
$
6,526,172
$
6,027,570
Asia-Pacific
312,759
19,380
962,477
52,083
Other
10,417
16,800
80,220
66,263
$
2,572,133
$
2,177,066
$
7,568,869
$
6,145,916
As of
August 31, 2011
November 30, 2010
Long-lived assets
North America
$
98,100
$
84,666
Asia-Pacific
35,477
15,602
Other
19,419
11,885
$
152,996
$
112,153
Revenue in the United States was approximately 74% and 72% of the total revenue for the three and nine months ended August 31, 2011, respectively, and 83% of the total revenue for both the three and nine months ended August 31, 2010. Revenue in Canada was approximately 14% for both the three and nine months ended August 31, 2011 and 15% and 16% of total revenue for the three and nine months ended August 31, 2010, respectively. Revenue in Japan was approximately 12% of the total revenue for both the three and nine months ended August 31, 2011.
Long-lived assets in the United States were approximately 52% and 58% of total long-lived assets as of August 31, 2011 and November, 30 2010, respectively. Long-lived assets in Canada were approximately 12% and 17% of total long-lived assets as of August 31, 2011 and November 30, 2010, respectively. Long-lived assets in Japan were approximately 12% of total long-lived assets as of August 31, 2011.
NOTE 13—ACQUISITIONS AND DIVESTITURES:
Fiscal year 2011 acquisitions
On December 1, 2010, the Company acquired 70% of the capital stock of Marubeni Infotec Corporation, a subsidiary of Marubeni Corporation. SB Pacific, the Company’s equity-method investee, acquired the remaining 30% noncontrolling interest. The Company’s total direct and indirect ownership of Marubeni Infotec Corporation is 80%. Marubeni Infotec Corporation, now known as SYNNEX Infotec Corporation (“Infotec Japan”) is a distributor of IT equipment, electronic components and software in Japan. The aggregate consideration for the transaction was JP¥ 700,000, or approximately $8,392, of which the Company’s direct share was $5,888. This acquisition is in the distribution segment and enabled the Company’s expansion into Japan.
The preliminary purchase price allocation based on the estimated fair value of the assets acquired and liabilities assumed is as follows:
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)
Fair Value
Purchase consideration:
Cash payment
$
5,888
Contribution from noncontrolling interest
2,504
$
8,392
Allocation:
Cash
$
1,371
Accounts receivable
178,384
Receivable from vendors
8,525
Inventories
84,553
Other current assets
2,119
Property, plant and equipment
5,521
Goodwill
18,100
Intangible assets(1)
9,103
Other long-term assets
4,751
Short-term borrowings
(103,646
)
Accounts payable
(161,228
)
Accrued liabilities
(15,151
)
Long-term borrowings
(2,088
)
Other long-term liabilities
(21,922
)
$
8,392
(1)
Intangibles will be amortized over a period of 3-10 years.
The Company expects to finalize the purchase price allocation upon the completion of further detailed analysis.
In addition, the Company has acquired $24,037 of net operating losses of Infotec Japan and the Company has recorded a valuation allowance of $13,155 and a reserve of $10,882 for uncertain tax positions.
Subsequent to the acquisition, the Company and SB Pacific invested $14,980 and $6,420, respectively, in additional capitalization of Infotec Japan.
The following unaudited pro forma financial information combines the Consolidated Results of Operations as if the acquisition of Infotec Japan had occurred on December 1, 2009. Pro forma adjustments include only the effects of events directly attributable to transactions that are factually supportable and expected to have a continuing impact. The pro forma results contained in the table below include pro forma adjustments for amortization of acquired intangibles and depreciation expenses.
Three Months Ended
Nine Months Ended
August 31, 2011
August 31, 2010
August 31, 2011
August 31, 2010
Revenue
$
2,572,133
$
2,428,579
$
7,568,869
$
7,036,428
Income from continuing operations, attributable to SYNNEX Corporation
39,036
30,154
100,158
79,637
Net income from continuing operations per share - basic
