EX-99.2 4 dex992.htm PRO FORMA FINANCIAL INFORMATION AS OF FEBRUARY 28, 2007 Pro forma financial information as of February 28, 2007

EXHIBIT 99.2

SYNNEX CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of SYNNEX Corporation (the “Company” or “SYNNEX”) and Redmond Group of Companies, (“RGC”) after giving effect to the Company’s acquisition of RGC (the “Acquisition”) and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. SYNNEX Canada Limited (“SYNNEX Canada”), a Canadian subsidiary of SYNNEX, acquired substantially all of the assets of RGC on May 1, 2007.

The unaudited pro forma condensed combined balance sheet as of February 28, 2007 is presented as if the Acquisition occurred on February 28, 2007. The unaudited pro forma condensed combined statement of operations of SYNNEX and RGC for the year ended November 30, 2006 and first quarter ended February 28, 2007 are presented as if the Acquisition had taken place on December 1, 2005. The combined and consolidated financial statements of RGC are as of March 31, 2007 and for the three months then ended and the year ended December 31, 2006.

Pursuant to the purchase method of accounting, the total estimated purchase price, calculated as described in Note 2 to the unaudited pro forma combined condensed financial statements, has been allocated to the assets acquired and liabilities assumed, as applicable, based on their respective estimated fair values. SYNNEX’s management evaluated the excess of the estimated purchase price over the net tangible assets acquired and determined there were no separately identifiable acquired intangible assets, as RGC’s purchased operations consisted primarily of distributing products; accordingly, such excess was recorded as goodwill. In accordance with the acquisition agreement, $3.1 million of the purchase price was not distributed pending the finalization of the net tangible assets acquired. Changes to the net tangible assets acquired, primarily relating to inventory and accounts receivable, will result in a corresponding increase or decrease in the final purchase price.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of SYNNEX that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of SYNNEX. The unaudited pro forma financial statements do not reflect any operating efficiencies and cost savings that the Company may achieve with respect to the combined companies. The unaudited pro forma condensed combined financial statements should be read in conjunction with SYNNEX’s historical consolidated financial statements and accompanying notes in SYNNEX’s annual reports on Form 10-K and RGC’s combined and consolidated financial statements as of December 31, 2006 and for the two years then ended which are incorporated herein as Exhibit 99.2.


SYNNEX CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

(in thousands)

 

     Historical            
     February 28,
2007
   March 31,
2007
    Pro Forma
Adjustments
    Pro Forma
Combined
     SYNNEX Corporation    RGC      

Assets

         

Current assets:

         

Cash and cash equivalents

   $ 22,473    $ —       $ —       $ 22,473

Short-term investments

     14,986      —         —         14,986

Accounts receivable, net

     683,602      20,442       —         704,044

Inventories

     524,300      25,472       —         549,772

Other current assets

     42,365      1,441       (815 )(A),(C)     42,991
                             

Total current assets

     1,287,726      47,355       (815 )     1,334,266

Property and equipment, net

     40,182      1,544       (646 )(A)     41,080

Goodwill

     56,373      1,977       14,453 (B)     72,803

Intangible assets, net

     17,037      9,734       (9,734 )(B)     17,037

Long-term deferred assets

     126,244      —         —         126,244

Other assets

     22,715      9,175       (9,175 )(A),(C)     22,715
                             

Total assets

   $ 1,550,277    $ 69,785     $ (5,917 )   $ 1,614,145
                             

Liabilities and Stockholders’ Equity

         

Current liabilities:

            —  

Borrowings under securitization and lines of credit

   $ 243,973    $ 11,312     $ 26,247 (D)   $ 281,532

Accounts payable and accrued liabilities

     615,926      20,889       5,420 (E)     642,235

Current deferred liabilities

     28,389      —         —         28,389
                             

Total current liabilities

     888,288      32,201       31,667       952,156
            —  

Long-term borrowings

     41,715      —         —         41,715

Long-term liabilities

     11,048      —         —         11,048

Long-term deferred liabilities

     81,432      —         —         81,432

Deferred income taxes

     1,205      2,203       (2,203 )(C)     1,205
                             

Total liabilities

     1,023,688      34,404       29,464       1,087,556
                             

Stockholders’ equity:

         

Preferred stock

     —        —           —  

Common stock

     31      36,842       (36,842 )(F)     31

Additional paid-in-capital

     184,172      1,904       (1,904 )(F)     184,172

Accumulated other comprehensive income

     12,182      —         —   (F)     12,182

Retained earnings

     330,204      (3,365 )     3,365 (F)     330,204
                             

Total stockholders’ equity

     526,589      35,381       (35,381 )     526,589
                             

Total liabilities and stockholders’ equity

   $ 1,550,277    $ 69,785     $ (5,917 )   $ 1,614,145
                             

See accompanying notes to the unaudited pro forma condensed consolidated financial statements


SYNNEX CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

 

     Historical              
     Fiscal Year
Ended
November 30,
2006
    Fiscal Year
Ended
December 31,
2006
             
     SYNNEX     RGC     Pro Forma
Adjustments
    Pro Forma
Combined
 

Revenue

   $ 6,343,514     $ 249,107     $ —       $ 6,592,621  

Cost of revenue

     6,058,155       227,156       —         6,285,311  
                                

Gross profit

     285,359       21,951       —         307,310  

Selling, general and administrative expenses

     189,117       28,927       (5,197 )(G)     212,847  

Impairment of intangibles

     —         16,480       —         16,480  
                                

Income from operations before non-operating items, income taxes and minority interest

     96,242       (23,456 )     5,197       77,983  

Interest expense and finance charges, net

     16,659       1,193       1,543 (H)     19,395  

Other (income) expense, net

     (570 )     (775 )     775 (I)     (570 )
                                

Income from operations before income taxes and minority interest

     80,153       (23,874 )     2,879       59,158  

Provision for income taxes

     28,320       —         1,008 (J)     29,328  

Minority interest in subsidiary

     448       —         —         448  
                                

Net Income

   $ 51,385     $ (23,874 )   $ 1,871     $ 29,382  
                                
        

Basic earnings per share

   $ 1.73         $ 0.99  
                    
        

Diluted earnings per share

   $ 1.61         $ 0.92  
                    
        

Basic shares

     29,700           29,700  
                    
        

Diluted weighted average common shares outstanding

     32,014           32,014  
                    

See accompanying notes to the unaudited pro forma condensed consolidated financial statements


SYNNEX CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

 

     Historical              
     Three Months
Ended
February 28,
2007
    Three Months
Ended March 31,
2007
    Pro Forma
Adjustments
    Pro Forma
Combined
 
     SYNNEX     RGC      

Revenue

   $ 1,588,276     $ 34,907     $ —       $ 1,623,183  

Cost of revenue

     1,513,852       31,646       —         1,545,498  
                                

Gross profit

     74,424       3,261       —         77,685  

Selling, general and administrative expenses

     49,481       5,973       (782 )(G)     54,672  
                                

Income from operations before non-operating items and income taxes

     24,943       (2,712 )     782       23,013  

Interest expense and finance charges, net

     3,058       245       386 (H)     3,689  

Other (income) expense, net

     (158 )     (507 )     507 (I)     (158 )
                                

Income from operations before income taxes

     22,043       (2,450 )     (111 )     19,482  

Provision for income taxes

     8,168       —         (39 )(J)     8,129  
                                

Net income

   $ 13,875     $ (2,450 )   $ (72 )   $ 11,353  
                                
        

Basic earnings per share

   $ 0.45         $ 0.37  
                    
        

Diluted earnings per share

   $ 0.43         $ 0.35  
                    
        

Basic shares

     30,548           30,548  
                    
        

Diluted weighted average common shares outstanding

     32,372           32,372  
                    

See accompanying notes to the unaudited pro forma condensed consolidated financial statements


SYNNEX CORPORATION

NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except for per share amounts)

 

1. BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma condensed combined balance sheet as of February 28, 2007, the unaudited pro forma condensed combined statements of operations for the year ended November 30, 2006 and the quarter ended February 28, 2007 are based on the historical financial statements of SYNNEX Corporation (the “Company” or “SYNNEX”) and Redmond Group of Companies (“RGC”) after giving effect to the Company’s acquisition of RGC (the “Acquisition”) and the assumptions and adjustments described in the notes herein. RGC’s fiscal year ends on December 31 and SYNNEX’s fiscal year ends on November 30. No pro forma adjustments were required to conform RGC accounting policies to SYNNEX’s accounting policies. RGC’s historical financials were prepared in accordance with Canadian generally accepted accounting principles. No differences existed between Canadian generally accepted accounting principles for the acquired net assets of RGC and generally accepted accounting principles in the United States (“US GAAP”); accordingly, the accompanying unaudited pro forma combined consolidated financial statements do not include any adjustments to the historical financial statements of RGC to conform to US GAAP. The unaudited pro forma condensed combined balance sheet as of February 28, 2007 is presented as if the Acquisition occurred on February 28, 2007 and due to different fiscal period ends, combines the historical balance sheet for SYNNEX at February 28, 2007 and the historical balance sheet of RGC at March 31, 2007. RGC’s balance sheet was prepared in Canadian dollars and has been translated into U.S. dollars at the March 31, 2007 exchange rate.

The unaudited pro forma condensed combined statement of operations of SYNNEX and RGC for the year ended November 30, 2006 and the quarter ended February 28, 2007 are presented as if the Acquisition had taken place on December 1, 2005, and due to different fiscal period ends, combines the historical results of SYNNEX for the year ended November 30, 2006 and the historical results of RGC for the year ended December 31, 2006 and combines historical results of SYNNEX for the quarter ended February 28, 2007 and the historical results of RGC for the quarter ended March 31, 2007. The income and expense amounts in RGC’s historical statement of operations were recorded in Canadian dollars and are translated to US dollars at the average exchange rates for the period.


Pursuant to the purchase method of accounting, the total estimated purchase price, calculated as described in Note 2 to the unaudited pro forma combined condensed financial statements, has been allocated to the assets acquired and liabilities assumed, as applicable, based on their respective estimated fair values. SYNNEX’s management evaluated the excess of the estimated purchase price over the net tangible assets acquired and determined there were no separately identifiable acquired intangible assets; accordingly, such excess was recorded as goodwill. RGC’s purchased operations consisted primarily of distributing products to the consumer electronics’ industry. Based on the nature of these operations, there were no separately identifiable intangible assets identified. In accordance with the acquisition agreement, $3.1 million of the purchase price was not distributed pending the finalization of the net tangible assets acquired. Changes to the net tangible assets acquired, primarily relating to inventory and accounts receivable, will result in a corresponding increase or decrease in the final purchase price.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of SYNNEX that would have been reported had the Acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of SYNNEX. The unaudited pro forma financial statements do not reflect any operating efficiencies, synergies or cost savings that the Company may achieve with respect to the combined companies. The unaudited pro forma condensed combined financial statements should be read in conjunction with SYNNEX’s historical consolidated financial statements and accompanying notes to SYNNEX’s annual reports on Form 10-K and RGC’s combined consolidated financial statements as of December 31, 2006 and the two years then ended which are incorporated herein as Exhibit 99.2.

 

2. RGC Acquisition

On May 1, 2007, SYNNEX Canada Limited (“SYNNEX Canada”), a Canadian subsidiary of SYNNEX, acquired substantially all of the assets of RGC, an independent distributor of consumer electronics. Total consideration for the purchase was approximately $29,309 in cash and assumed debt of $11,851. Approximately $3,062 of the cash price payable is subject to confirmation of net tangible assets acquired, primarily related to accounts receivable and inventory. The acquisition agreement allows for an additional $440 to be paid if certain milestones are met in the first 13 months following the closing date. The acquisition of RGC further supports SYNNEX Canada’s expansion in its consumer electronics distribution business. The RGC business has been fully integrated within SYNNEX Canada.


The acquisition of substantially all of the assets of RGC has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of May 1, 2007. The total preliminary purchase price is comprised of:

 

Cash

   $ 26,247

Cash consideration payable

     3,062

Transaction Costs

     235
      

Total preliminary purchase price

   $ 29,544
      

The pro forma basic and diluted earnings per share are based on the weighted average number of shares of SYNNEX common stock outstanding. There were no shares exchanged as part of the Acquisition.


The total purchase price was allocated to RGC’s net tangible assets based on the fair values as of May 1, 2007. The excess of the purchase price over the net tangible assets was recorded as goodwill. The total preliminary purchase price was allocated as follows:

 

Accounts Receivable

   $ 20,492  

Inventory

     25,851  

Other assets

     602  

Accounts Payable

     (22,672 )

Property and equipment, net

     921  

Debt

     (11,851 )

Goodwill*

     16,201  
        

Total preliminary purchase price

   $ 29,544  
        

 

* Goodwill represents the excess of the purchase price over the fair value of tangible assets acquired. Goodwill amounts are not amortized, but rather are tested for impairment on an annual basis. The amount of impairment loss would be recognized as the excess of the asset’s carrying value over its fair value and would be recognized during the fiscal quarter in which such determination is made. Factors the Company considers the cause of impairment include: significant changes in the manner of use of acquired asset, negative industry or economic trends, and significant underperformance relative to historical or projected operating results. No impairment has been identified since the acquisition of RGC by the Company.

The Company accrued $2,358 in restructuring costs in accordance with Emerging Issues Task Force 95-3 “Recognition of Liabilities in Connection with a Purchase Business Combination” (“EITF 95-3”). These charges are primarily associated with facilities consolidation of $1,050, workforce reductions of $ 691 and contract termination costs of $ 617.

 

3. PRO FORMA ADJUSTMENTS

The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet:

 

  (A) Represents the differences between the fair value and the historical amount of assets acquired on the date of the acquisition, including $215 in other current assets and $484 in other assets.

 

  (B) To eliminate RGC’s historical goodwill of $1,977 and record the fair value of goodwill as a result of the Acquisition. The purchase date was May 1, 2007, however the Acquisition was assumed to occur on February 28, 2007 for purposes of the unaudited pro forma condensed combined balance sheet. Accordingly, the goodwill amount shown in the unaudited pro forma condensed consolidated balance sheet differs from the goodwill recorded on Acquisition as disclosed in the Company’s Annual Report on Form 10-K. To adjust RGC’s intangible assets due to the determination there were no separately identifiable intangible assets acquired.

 

  (C) Represents the assets and liabilities not acquired by SYNNEX, including $600 in other current assets and $8,691 in other assets.

 

  (D) The Company increased its borrowings under its asset securitization program to fund the Acquisition.

 

  (E) To record cash consideration payable to RGC of $3,062 and restructuring costs accrued in accordance with EITF 95-3 of $2,358.


  (F) To eliminate RGC’s equity.

The following pro forma adjustments are included in the unaudited pro forma condensed combined statement of operations:

 

  (G) No identifiable intangible assets were acquired as result of the Acquisition. Therefore, the Company adjusted the amortization expense of $5,197 for the year ended November 30, 2006 and $782 for the quarter ended February 28, 2007.

 

  (H) To record interest expense of $1,543 for the year ended November 30, 2006 and $386 for the quarter ended February 28, 2007 primarily related to the borrowings used by the Company to fund the Acquisition at an interest rate of 5.88% for the year ended December 31, 2006 and the quarter ended February 28, 2007.

Effect on Net Income of a 1/8% variance in interest rate:

 

     Net Income
given a 1/8%
decrease in
Interest Rate
   Net Income
Assuming No
change in
Interest Rate
   Net Income
given a 1/8%
increase in
Interest Rate

Annual Net Income

   $ 29,415    $ 29,382    $ 29,350

Quarterly Net Income

   $ 11,360    $ 11,353    $ 11,344

 

  (I) RGC had an equity investment in RLogistics with a carrying value of $7,527 as of March 31, 2007, which was not acquired by the Company. Therefore, related equity income of $775 for the year ended November 30, 2006 and $507 for first quarter ended February 28, 2007 was eliminated.

 

  (J) Income tax pro forma adjustment was calculated at the statutory tax rate 35%.