10-Q 1 snx-10q_20190531.htm 10-Q snx-10q_20190531.htm

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-31892

 

SYNNEX CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-2703333

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

44201 Nobel Drive

Fremont, California

 

94538

(Address of principal executive offices)

 

(Zip Code)

(510) 656-3333

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SNX

The New York Stock Exchange

 

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       No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No    

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of June 26, 2019

Common Stock, $0.001 par value

 

51,075,398

 

 


Table of Contents

 

SYNNEX CORPORATION

 

FORM 10-Q

INDEX

 

 

 

 

Page

PART I

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

 

Consolidated Balance Sheets (unaudited) as of May 31, 2019 and November 30, 2018

3

 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended May 31, 2019 and 2018

4

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended May 31, 2019 and 2018

5

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six Months Ended May 31, 2019 and 2018

6

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended May 31, 2019 and 2018

7

 

Notes to the Consolidated Financial Statements (unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

39

 

 

 

PART II

OTHER INFORMATION

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 6.

Exhibits

41

Signatures

 

42

 

2

 


Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SYNNEX CORPORATION  

CONSOLIDATED BALANCE SHEETS

(currency and share amounts in thousands, except par value)

(unaudited)

 

 

 

May 31, 2019

 

 

November 30, 2018

 

 

 

 

 

 

 

(As adjusted)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

271,491

 

 

$

454,694

 

Accounts receivable, net

 

 

3,457,110

 

 

 

3,640,496

 

Receivables from vendors, net

 

 

350,330

 

 

 

351,744

 

Inventories

 

 

2,608,453

 

 

 

2,392,559

 

Other current assets

 

 

327,730

 

 

 

323,323

 

Total current assets

 

 

7,015,116

 

 

 

7,162,817

 

Property and equipment, net

 

 

564,290

 

 

 

571,326

 

Goodwill

 

 

2,192,076

 

 

 

2,203,316

 

Intangible assets, net

 

 

1,266,671

 

 

 

1,377,305

 

Deferred tax assets

 

 

82,353

 

 

 

76,508

 

Other assets

 

 

155,452

 

 

 

152,227

 

Total assets

 

$

11,275,958

 

 

$

11,543,498

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Borrowings, current

 

$

728,962

 

 

$

833,216

 

Accounts payable

 

 

2,764,919

 

 

 

3,048,102

 

Accrued compensation and benefits

 

 

325,165

 

 

 

358,352

 

Other accrued liabilities

 

 

612,159

 

 

 

672,635

 

Income taxes payable

 

 

30,012

 

 

 

41,322

 

Total current liabilities

 

 

4,461,217

 

 

 

4,953,627

 

Long-term borrowings

 

 

2,792,649

 

 

 

2,622,782

 

Other long-term liabilities

 

 

305,019

 

 

 

325,119

 

Deferred tax liabilities

 

 

180,020

 

 

 

206,916

 

Total liabilities

 

 

7,738,905

 

 

 

8,108,444

 

Commitments and contingencies (Note 16-Commitments and Contingencies)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 100,000 shares authorized, 52,929 and 52,861 shares

   issued as of May 31, 2019 and November 30, 2018, respectively

 

 

53

 

 

 

53

 

Additional paid-in capital

 

 

1,527,383

 

 

 

1,512,201

 

Treasury stock, 2,336 and 2,167 shares as of May 31, 2019 and November 30, 2018,

   respectively

 

 

(165,601

)

 

 

(149,533

)

Accumulated other comprehensive income (loss)

 

 

(188,561

)

 

 

(126,288

)

Retained earnings

 

 

2,363,779

 

 

 

2,198,621

 

Total stockholders’ equity

 

 

3,537,053

 

 

 

3,435,054

 

Total liabilities and equity

 

$

11,275,958

 

 

$

11,543,498

 

 

(Amounts may not add due to rounding)

The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).

3

 


Table of Contents

 

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(currency and share amounts in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

May 31, 2019

 

 

May 31, 2018

 

 

May 31, 2019

 

 

May 31, 2018

 

 

 

 

 

 

 

(As adjusted)

 

 

 

 

 

 

(As adjusted)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

4,567,072

 

 

$

4,422,093

 

 

$

8,647,757

 

 

$

8,411,836

 

Services

 

 

1,155,816

 

 

 

486,188

 

 

 

2,324,585

 

 

 

989,795

 

Total revenue

 

 

5,722,889

 

 

 

4,908,281

 

 

 

10,972,341

 

 

 

9,401,631

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

(4,297,096

)

 

 

(4,174,771

)

 

 

(8,130,213

)

 

 

(7,940,283

)

Services

 

 

(727,324

)

 

 

(304,352

)

 

 

(1,464,739

)

 

 

(618,675

)

Gross profit

 

 

698,468

 

 

 

429,158

 

 

 

1,377,389

 

 

 

842,673

 

Selling, general and administrative expenses

 

 

(523,813

)

 

 

(305,156

)

 

 

(1,040,771

)

 

 

(607,175

)

Operating income

 

 

174,655

 

 

 

124,002

 

 

 

336,618

 

 

 

235,498

 

Interest expense and finance charges, net

 

 

(43,144

)

 

 

(16,375

)

 

 

(84,750

)

 

 

(33,826

)

Other income (expense), net

 

 

21,546

 

 

 

(1,446

)

 

 

20,851

 

 

 

(2,624

)

Income before income taxes

 

 

153,057

 

 

 

106,181

 

 

 

272,719

 

 

 

199,048

 

Provision for income taxes

 

 

(38,584

)

 

 

(12,439

)

 

 

(71,140

)

 

 

(81,208

)

Net income

 

$

114,473

 

 

$

93,742

 

 

$

201,579

 

 

$

117,840

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.24

 

 

$

2.35

 

 

$

3.94

 

 

$

2.95

 

Diluted

 

$

2.23

 

 

$

2.34

 

 

$

3.92

 

 

$

2.93

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

50,675

 

 

 

39,505

 

 

 

50,691

 

 

 

39,599

 

Diluted

 

 

50,939

 

 

 

39,742

 

 

 

50,933

 

 

 

39,859

 

 

(Amounts may not add due to rounding)

The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).

4

 


Table of Contents

 

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(currency in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

May 31, 2019

 

 

May 31, 2018

 

 

May 31, 2019

 

 

May 31, 2018

 

 

 

 

 

 

 

(As adjusted)

 

 

 

 

 

 

(As adjusted)

 

Net income

 

$

114,473

 

 

$

93,742

 

 

$

201,579

 

 

$

117,840

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains of defined benefit plans, net of taxes of $0 for the three and six months ended May 31, 2019 and 2018

 

 

 

 

 

 

 

 

307

 

 

 

 

Unrealized (losses) gains on cash flow hedges during the period, net of taxes of $10,288 and $15,884 for the three and six months ended May 31, 2019, respectively, and $(11) and $(1,925) for the three and six months ended May 31, 2018, respectively

 

 

(30,654

)

 

 

30

 

 

 

(47,670

)

 

 

5,416

 

Reclassification of net gains on cash flow hedges to net income, net of taxes of $1,231 and $2,120 for the three and six months ended May 31, 2019, respectively, and $778 and $715 for the three and six months ended May 31, 2018, respectively

 

 

(3,466

)

 

 

(1,917

)

 

 

(6,016

)

 

 

(1,740

)

Total change in unrealized gains (losses) on cash flow hedges, net of taxes

 

 

(34,119

)

 

 

(1,887

)

 

 

(53,686

)

 

 

3,676

 

Foreign currency translation adjustments, net of taxes of $174 and ($24) for the three and six months ended May 31, 2019, respectively, and $109 and $86 for the three and six months ended May 31, 2018, respectively

 

 

(27,042

)

 

 

(42,677

)

 

 

(6,939

)

 

 

(32,022

)

Other comprehensive income

 

 

(61,161

)

 

 

(44,564

)

 

 

(60,318

)

 

 

(28,346

)

Comprehensive income

 

$

53,312

 

 

$

49,178

 

 

$

141,261

 

 

$

89,494

 

 

(Amounts may not add due to rounding)

The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).

5

 


Table of Contents

 

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(currency in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

May 31, 2019

 

 

May 31, 2018

 

 

May 31, 2019

 

 

May 31, 2018

 

 

 

 

 

 

 

(As adjusted)

 

 

 

 

 

 

(As adjusted)

 

Total Stockholders' equity, beginning balance

 

$

3,510,442

 

 

$

2,318,705

 

 

$

3,435,054

 

 

$

2,287,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

1,519,576

 

 

 

474,694

 

 

 

1,512,254

 

 

 

467,989

 

Share-based compensation

 

 

6,478

 

 

 

5,624

 

 

 

13,085

 

 

 

10,725

 

Common stock issued for employee benefit plans

 

 

1,383

 

 

 

1,284

 

 

 

2,205

 

 

 

2,888

 

Stock issuance costs (related to the Convergys acquisition in fiscal year 2018)

 

 

 

 

 

 

 

 

(107

)

 

 

 

Ending balance

 

 

1,527,436

 

 

 

481,602

 

 

 

1,527,436

 

 

 

481,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(150,242

)

 

 

(78,775

)

 

 

(149,533

)

 

 

(77,133

)

Repurchases of common stock for tax withholdings on equity awards

 

 

(176

)

 

 

(195

)

 

 

(885

)

 

 

(1,683

)

Repurchases of common stock

 

 

(15,184

)

 

 

(45,831

)

 

 

(15,184

)

 

 

(45,985

)

Ending balance

 

 

(165,601

)

 

 

(124,801

)

 

 

(165,601

)

 

 

(124,801

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

2,268,508

 

 

 

1,968,487

 

 

 

2,198,621

 

 

 

1,958,360

 

Net income

 

 

114,473

 

 

 

93,742

 

 

 

201,579

 

 

 

117,840

 

Cash dividends declared

 

 

(19,202

)

 

 

(13,975

)

 

 

(38,376

)

 

 

(27,946

)

Cumulative effect of changes in accounting principles

 

 

 

 

 

 

 

 

1,955

 

 

 

 

Ending balance

 

 

2,363,779

 

 

 

2,048,255

 

 

 

2,363,779

 

 

 

2,048,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

(127,399

)

 

 

(45,701

)

 

 

(126,288

)

 

 

(61,919

)

Other comprehensive income (loss)

 

 

(61,161

)

 

 

(44,564

)

 

 

(60,318

)

 

 

(28,346

)

Cumulative effect of changes in accounting principles

 

 

 

 

 

 

 

 

(1,955

)

 

 

 

Ending balance

 

 

(188,561

)

 

 

(90,265

)

 

 

(188,561

)

 

 

(90,265

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity, ending balance

 

$

3,537,053

 

 

$

2,314,791

 

 

$

3,537,053

 

 

$

2,314,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.375

 

 

$

0.350

 

 

$

0.375

 

 

$

0.350

 

 

(Amounts may not add due to rounding)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

6

 


Table of Contents

 

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(currency in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

May 31, 2019

 

 

May 31, 2018

 

 

 

 

 

 

 

(As adjusted)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

201,579

 

 

$

117,840

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

189,839

 

 

 

97,506

 

Share-based compensation

 

 

13,085

 

 

 

10,725

 

Provision for doubtful accounts

 

 

9,813

 

 

 

3,852

 

Deferred income taxes

 

 

(14,222

)

 

 

(27,870

)

Contingent consideration

 

 

(19,034

)

 

 

 

Unrealized foreign exchange losses

 

 

3,552

 

 

 

1,665

 

Other

 

 

7,314

 

 

 

(3,639

)

Changes in operating assets and liabilities, net of acquisition of businesses:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

176,358

 

 

 

148,789

 

Receivables from vendors, net

 

 

1,525

 

 

 

(45,675

)

Inventories

 

 

(214,317

)

 

 

39,902

 

Accounts payable

 

 

(290,303

)

 

 

(342,083

)

Other operating assets and liabilities

 

 

(112,570

)

 

 

61,698

 

Net cash (used in) provided by operating activities

 

 

(47,380

)

 

 

62,710

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of held-to-maturity investments

 

 

 

 

 

(32

)

Proceeds from maturity of held-to-maturity investments

 

 

 

 

 

4,659

 

Purchases of property and equipment

 

 

(60,412

)

 

 

(50,020

)

Acquisition of businesses, net of refunds

 

 

(6,235

)

 

 

(5,922

)

Other

 

 

726

 

 

 

784

 

Net cash used in investing activities

 

 

(65,921

)

 

 

(50,531

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

3,877,963

 

 

 

4,924,632

 

Repayments of borrowings

 

 

(3,895,664

)

 

 

(5,052,890

)

Dividends paid

 

 

(38,376

)

 

 

(27,946

)

Decrease in book overdraft

 

 

(703

)

 

 

(5,203

)

Repurchases of common stock

 

 

(14,256

)

 

 

(45,985

)

Proceeds from issuance of common stock

 

 

2,206

 

 

 

2,888

 

Repurchases of common stock for tax withholdings on equity awards

 

 

(885

)

 

 

(1,683

)

Other

 

 

(107

)

 

 

 

Net cash used in financing activities

 

 

(69,820

)

 

 

(206,187

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(2,330

)

 

 

(2,176

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(185,450

)

 

 

(196,184

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

462,033

 

 

 

556,742

 

Cash, cash equivalents and restricted cash at end of period

 

$

276,583

 

 

$

360,558

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Accrued costs for property and equipment purchases

 

$

4,835

 

 

$

1,695

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

 

Unsettled common stock repurchases

 

$

928

 

 

$

 

 

(Amounts may not add due to rounding)

The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).

 

 

 

7

 


Table of Contents

 

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended May 31, 2019 and 2018

(currency and share 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 headquartered in Fremont, California and has operations in North and South America, Asia-Pacific, Europe and Africa.

The Company has two reportable segments: Technology Solutions and Concentrix. The Technology Solutions segment distributes a broad range of information technology (“IT”) systems and products and also provides systems design and integration solutions. The Concentrix segment offers a portfolio of technology-enabled strategic solutions and end-to-end global business outsourcing services focused on customer engagement, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten industry verticals.

The accompanying interim unaudited Consolidated Financial Statements as of May 31, 2019 and for the three and six months ended May 31, 2019 and 2018 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, 2018 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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2018.

Interim results of operations are not necessarily indicative of financial results for a full year, and the Company makes no representations related thereto. Certain columns and rows may not add due to the use of rounded numbers.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  

For a discussion of the Company's significant accounting policies, refer to the discussion in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2018. Accounting pronouncements adopted during the six months ended May 31, 2019 are discussed below.

Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, accounts receivable and derivative instruments.

The Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through May 31, 2019, the Company had not experienced any credit losses on such deposits and derivative instruments.  

Accounts receivable include amounts due from customers, including related party customers. Receivables from vendors, net, includes amounts due from original equipment manufacturer (“OEM”) vendors 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 its receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through May 31, 2019, such losses have been within management’s expectations.  

One customer accounted for 18% of the Company’s total revenue during both the three and six months ended May 31, 2019. The same customer accounted for 18% (as adjusted) of the Company's total revenue during both the three and six months ended May 31, 2018. Products purchased from the Company’s largest OEM supplier, HP Inc., accounted for approximately 12% and 11% of total revenue during the three and six months ended May 31, 2019 and approximately 13% (as adjusted) of total revenue during both the three and six months ended May 31, 2018.

As of May 31, 2019 and November 30, 2018, one customer comprised 15% and 11% (as adjusted), respectively, of the total accounts receivable balance.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is computed based on the weighted-average method. Inventories are comprised of finished goods and work-in-process. Finished goods include products purchased for resale, system components purchased for both resale and for use in the Company’s systems design and integration business and completed systems. Work-in-process inventories are not material to the Consolidated Financial Statements.

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SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and six months ended May 31, 2019 and 2018

(currency and share amounts in thousands, except per share amounts)

(unaudited)

 

Reclassifications

Certain reclassifications have been made to prior period amounts in the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and the notes thereto to conform to current period presentation. These reclassifications had no effect on total current assets, total assets, total current liabilities, total liabilities or cash flows from operating, investing or financing activities as previously reported. In addition, refer below for impact of reclassifications made due to adoption of new accounting pronouncements.

Recently adopted accounting pronouncements

In June 2018, the Financial Accounting Standard Board (the “FASB”) issued new guidance which simplifies the accounting for share-based compensation issued to non-employees by making the guidance substantially the same as the accounting for employee share-based compensation. The Company adopted the guidance during the first quarter ended February 28, 2019. The guidance did not have a material impact on the Company’s consolidated financial results for the three and six months ended May 31, 2019, nor is it likely to have a material impact for the remainder of the fiscal year.

In January 2016, the FASB issued new guidance which amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. With respect to the Company’s consolidated financial statements, the most significant impact relates to the accounting for equity investments (other than those that are consolidated or accounted under the equity method) which will be measured at fair value through earnings. The Company adopted the guidance as of December 1, 2018, by means of a cumulative-effect adjustment to the balance sheet, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. This resulted in a reclassification of net unrealized gains of $1,955 from accumulated other comprehensive income (loss) (“AOCI”) to opening retained earnings. The Company has elected to use the measurement alternative for non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The adoption of this guidance increases the volatility of the other income (expense), net, as a result of the remeasurement of the equity securities; however, the adoption did not have a material impact on the Company’s consolidated financial results for the three and six months ended May 31, 2019, nor is it likely to have a material impact for the remainder of the fiscal year.

In May 2014, the FASB issued a comprehensive new revenue recognition standard for contracts with customers with amendments in 2015 and 2016, codified as Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company adopted the guidance effective December 1, 2018 on a full retrospective basis to ensure a consistent basis of presentation within the Company’s consolidated financial statements for all periods reported. In addition, the Company elected the one year practical expedient for contract costs.

The primary impact of adoption in the Technology Solutions segment relates to the application of gross versus net indicators. In addition, the Company is recognizing revenue earlier on certain arrangements with acceptance provisions due to the determination of when transfer of control occurs. Additionally, the Company reclassified certain amounts on the consolidated balance sheet related to sales returns and allowances from a reduction of accounts receivable to other accrued liabilities as these amounts represent refund liabilities to customers. Similarly, the Company reclassified certain amounts for the Company's right to recover assets from customers related to sales returns from inventories to other current assets. The Company also presented receivables from customers separately from other receivables. The impact of adoption is not material to the Concentrix segment and relates primarily to the capitalization of certain sales commissions that are assessed to be incremental for obtaining new contracts. Such costs are amortized over the period of expected benefit rather than being expensed as incurred as was the Company’s prior practice. Prior periods were not adjusted as the amounts were not material to the Company’s consolidated financial statements.

The effects of adoption on the Company’s Consolidated Balance Sheet as of November 30, 2018, the Company’s Consolidated Statements of Operations for the three and six months ended May 31, 2018, and the Company’s Consolidated Statement of Cash Flows for the six months ended May 31, 2018 were as follows:

 

 

 

As of November 30, 2018

 

Consolidated Balance Sheet Caption

 

As reported

 

 

Adjustments for

ASC Topic 606

 

 

As adjusted

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net(1)

 

$

3,855,431

 

 

$

(215,000

)

 

$

3,640,431

 

Receivables from vendors, net

 

 

 

 

 

351,744

 

 

 

351,744

 

Inventories

 

 

2,518,319

 

 

 

(125,760

)

 

 

2,392,559

 

Other current assets(1)

 

 

261,536

 

 

 

52,080

 

 

 

313,616

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

Other accrued liabilities

 

$

613,449

 

 

$

59,186

 

 

$

672,635

 

Deferred tax liabilities

 

 

206,024

 

 

 

892

 

 

 

206,916

 

Retained earnings

 

 

2,195,635

 

 

 

2,986

 

 

 

2,198,621

 

 

 

(1)

Amounts “As adjusted” may not agree to the Consolidated Balance Sheet due to other reclassifications to conform to current period presentation.

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SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and six months ended May 31, 2019 and 2018

(currency and share amounts in thousands, except per share amounts)

(unaudited)

 

 

 

 

 

 

Three Months Ended May 31, 2018

 

 

Six Months Ended May 31, 2018

 

Consolidated Statement of Operations

 

As reported

 

 

Adjustments for

ASC Topic 606

 

 

As adjusted

 

 

As reported

 

 

Adjustments for

ASC Topic 606

 

 

As adjusted

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Products

 

$

4,486,395

 

 

$

(64,302

)

 

$

4,422,093

 

 

$

8,535,158

 

 

$

(123,322

)

 

$

8,411,836

 

    Services

 

 

486,188

 

 

 

 

 

 

486,188

 

 

 

989,795

 

 

 

 

 

 

989,795

 

Total revenue

 

 

4,972,583

 

 

 

(64,302

)

 

 

4,908,281

 

 

 

9,524,953

 

 

 

(123,322

)

 

 

9,401,631

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Products

 

 

(4,239,137

)

 

 

64,366

 

 

 

(4,174,771

)

 

 

(8,063,233

)

 

 

122,950

 

 

 

(7,940,283

)

    Services

 

 

(304,352

)

 

 

 

 

 

(304,352

)

 

 

(618,675

)

 

 

 

 

 

(618,675

)

Gross profit

 

 

429,094

 

 

 

64

 

 

 

429,158

 

 

 

843,045

 

 

 

(372

)

 

 

842,673

 

Selling, general and administrative expenses

 

 

(305,156

)

 

 

 

 

 

(305,156

)

 

 

(607,175

)

 

 

 

 

 

(607,175

)

Operating income

 

 

123,938

 

 

 

64

 

 

 

124,002

 

 

 

235,870

 

 

 

(372

)

 

 

235,498

 

Interest expense and finance charges, net

 

 

(16,375

)

 

 

 

 

 

(16,375

)

 

 

(33,826

)

 

 

 

 

 

(33,826

)

Other income (expense), net

 

 

(1,446

)

 

 

 

 

 

(1,446

)

 

 

(2,624

)

 

 

 

 

 

(2,624

)

Income before income taxes

 

 

106,117

 

 

 

64

 

 

 

106,181

 

 

 

199,420

 

 

 

(372

)

 

 

199,048

 

Provision for income taxes

 

 

(12,424

)

 

 

(15

)

 

 

(12,439

)

 

 

(81,293

)

 

 

85

 

 

 

(81,208

)

Net income

 

$

93,693

 

 

$

49

 

 

$

93,742