TD SYNNEX CORP - Quarter Report: 2019 August (Form 10-Q)

As of August 31, 2019

MiTAC Holdings⁽¹⁾

Synnex Technology International Corp.⁽²⁾

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 August 31, 2019

☐

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 September 27, 2019
Common Stock, $0.001 par value		51,075,206

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 August 31, 2019 and November 30, 2018	3
	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended August 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended August 31, 2019 and 2018	5
	Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended August 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended August 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	41
Item 1A.	Risk Factors	41
Item 6.	Exhibits	42
Signatures		43

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)

	August 31, 2019			November 30, 2018
				(As adjusted)
ASSETS
Current assets:
Cash and cash equivalents	$	262,279		$	454,694
Accounts receivable, net		3,452,976			3,640,496
Receivables from vendors, net		338,315			351,744
Inventories		2,787,159			2,392,559
Other current assets		361,759			323,323
Total current assets		7,202,488			7,162,817
Property and equipment, net		552,904			571,326
Goodwill		2,214,115			2,203,316
Intangible assets, net		1,208,308			1,377,305
Deferred tax assets		89,692			76,508
Other assets		158,819			152,227
Total assets	$	11,426,327		$	11,543,498

LIABILITIES AND EQUITY
Current liabilities:
Borrowings, current	$	571,718		$	833,216
Accounts payable		2,932,046			3,048,102
Accrued compensation and benefits		366,761			358,352
Other accrued liabilities		694,778			672,635
Income taxes payable		13,379			41,322
Total current liabilities		4,578,681			4,953,627
Long-term borrowings		2,757,021			2,622,782
Other long-term liabilities		299,311			325,119
Deferred tax liabilities		189,504			206,916
Total liabilities		7,824,517			8,108,444
Commitments and contingencies (Note 16)
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, 52,942 and 52,861 shares issued as of August 31, 2019 and November 30, 2018, respectively		53			53
Additional paid-in capital		1,534,743			1,512,201
Treasury stock, 2,337 and 2,167 shares as of August 31, 2019 and November 30, 2018, respectively		(165,710	)		(149,533	)
Accumulated other comprehensive income (loss)		(235,070	)		(126,288	)
Retained earnings		2,467,795			2,198,621
Total stockholders’ equity		3,601,810			3,435,054
Total liabilities and equity	$	11,426,327		$	11,543,498

(Amounts may not add due to rounding)

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

Table of Contents

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(unaudited)

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
				(As adjusted)						(As adjusted)
Revenue:
Products	$	5,047,968		$	4,334,755		$	13,695,725		$	12,746,591
Services		1,155,690			487,513			3,480,275			1,477,308
Total revenue		6,203,659			4,822,268			17,176,000			14,223,898
Cost of revenue:
Products		(4,746,197	)		(4,083,829	)		(12,876,410	)		(12,024,111	)
Services		(731,472	)		(308,322	)		(2,196,212	)		(926,998	)
Gross profit		725,990			430,117			2,103,379			1,272,790
Selling, general and administrative expenses		(517,135	)		(316,274	)		(1,557,906	)		(923,449	)
Operating income		208,855			113,843			545,473			349,341
Interest expense and finance charges, net		(42,945	)		(20,058	)		(127,695	)		(53,884	)
Other income (expense), net		(1,087	)		(872	)		19,764			(3,497	)
Income before income taxes		164,823			92,913			437,542			291,960
Provision for income taxes		(41,691	)		(25,973	)		(112,831	)		(107,181	)
Net income	$	123,132		$	66,940		$	324,711		$	184,779
Earnings per common share:
Basic	$	2.41		$	1.69		$	6.35		$	4.64
Diluted	$	2.40		$	1.68		$	6.32		$	4.61
Weighted-average common shares outstanding:
Basic		50,601			39,254			50,661			39,483
Diluted		50,845			39,475			50,903			39,730

(Amounts may not add due to rounding)

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

Table of Contents

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(currency in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
				(As adjusted)						(As adjusted)
Net income	$	123,132		$	66,940		$	324,711		$	184,779
Other comprehensive income (loss):
Change in unrealized (losses) gains of defined benefit plans, net of taxes of $0 for the three and nine months ended August 31, 2019 and 2018		—			(224	)		307			(224	)
Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $8,722 and $24,605 for the three and nine months ended August 31, 2019, respectively, and $(275) and $(2,200) for the three and nine months ended August 31, 2018, respectively		(23,744	)		770			(71,414	)		6,186
Reclassification of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of $1,121 and $3,241 for the three and nine months ended August 31, 2019, respectively, and $(6) and $709 for the three and nine months ended August 31, 2018, respectively		(3,371	)		16			(9,387	)		(1,724	)
Total change in unrealized gains (losses) on cash flow hedges, net of taxes		(27,115	)		786			(80,801	)		4,462
Foreign currency translation adjustments, net of taxes of $(31) and $(55) for the three and nine months ended August 31, 2019, respectively, and $12 and $98 for the three and nine months ended August 31, 2018, respectively		(19,395	)		(37,018	)		(26,334	)		(69,040	)
Other comprehensive income (loss)		(46,510	)		(36,456	)		(106,828	)		(64,802	)
Comprehensive income	$	76,622		$	30,484		$	217,883		$	119,977

(Amounts may not add due to rounding)

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

Table of Contents

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(currency in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
				(As adjusted)						(As adjusted)
Total Stockholders' equity, beginning balance	$	3,537,053		$	2,314,791		$	3,435,054		$	2,287,297

Common stock and additional paid-in capital:
Beginning balance		1,527,436			481,602			1,512,254			467,989
Share-based compensation		6,430			5,791			19,515			16,516
Common stock issued for employee benefit plans		929			1,186			3,134			4,074
Stock issuance costs (related to the Convergys acquisition in fiscal year 2018)		—			—			(107	)		—
Ending balance		1,534,796			488,579			1,534,796			488,579

Treasury stock:
Beginning balance		(165,601	)		(124,801	)		(149,533	)		(77,133	)
Repurchases of common stock for tax withholdings on equity awards		(109	)		(39	)		(994	)		(1,722	)
Repurchases of common stock		—			(10,000	)		(15,184	)		(55,985	)
Ending balance		(165,710	)		(134,841	)		(165,710	)		(134,841	)

Retained earnings:
Beginning balance		2,363,779			2,048,255			2,198,621			1,958,360
Net income		123,132			66,940			324,711			184,779
Cash dividends declared		(19,116	)		(13,886	)		(57,491	)		(41,832	)
Cumulative effect of changes in accounting principles		—			—			1,955			—
Ending balance		2,467,795			2,101,309			2,467,795			2,101,309

Accumulated other comprehensive income (loss):
Beginning balance		(188,561	)		(90,265	)		(126,288	)		(61,919	)
Other comprehensive income (loss)		(46,510	)		(36,456	)		(106,828	)		(64,802	)
Cumulative effect of changes in accounting principles		—			—			(1,955	)		—
Ending balance		(235,070	)		(126,721	)		(235,070	)		(126,721	)

Total stockholders' equity, ending balance	$	3,601,810		$	2,328,326		$	3,601,810		$	2,328,326

Cash dividends declared per share	$	0.375		$	0.350		$	1.125		$	1.050

(Amounts may not add due to rounding)

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

Table of Contents

SYNNEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(currency in thousands)

(unaudited)

	Nine Months Ended
	August 31, 2019			August 31, 2018
				(As adjusted)
Cash flows from operating activities:
Net income	$	324,711		$	184,779
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		281,392			146,214
Share-based compensation		19,515			16,516
Provision for doubtful accounts		25,496			6,434
Deferred income taxes		(16,789	)		(28,573	)
Contingent consideration		(19,034	)		—
Unrealized foreign exchange (gains) losses		(4,115	)		3,279
Other		8,595			(3,363	)
Changes in operating assets and liabilities, net of acquisition of businesses:
Accounts receivable, net		148,128			(83,267	)
Receivables from vendors, net		13,322			(55,829	)
Inventories		(390,018	)		103,382
Accounts payable		(119,599	)		(387,512	)
Other operating assets and liabilities		(69,131	)		57,555
Net cash provided by (used in) operating activities		202,473			(40,385	)
Cash flows from investing activities:
Purchases of held-to-maturity investments		—			(58	)
Proceeds from maturity of held-to-maturity investments		—			5,680
Purchases of property and equipment		(93,432	)		(75,473	)
Acquisition of businesses, net of refunds		(8,647	)		(5,922	)
Other		(199	)		1,342
Net cash used in investing activities		(102,279	)		(74,431	)
Cash flows from financing activities:
Proceeds from borrowings		5,620,134			6,930,712
Repayments of borrowings		(5,834,258	)		(7,045,471	)
Dividends paid		(57,491	)		(41,832	)
Decrease in book overdraft		336			(4,711	)
Repurchases of common stock		(15,184	)		(55,985	)
Proceeds from issuance of common stock		3,134			4,074
Repurchases of common stock for tax withholdings on equity awards		(994	)		(1,722	)
Lender fees for term loan drawn subsequent to period end		—			(7,963	)
Settlement of contingent consideration		(13,966	)		—
Other		(107	)		(164	)
Net cash used in financing activities		(298,397	)		(223,062	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		3,575			(7,802	)
Net decrease in cash, cash equivalents and restricted cash		(194,628	)		(345,680	)
Cash, cash equivalents and restricted cash at beginning of period		462,033			556,742
Cash, cash equivalents and restricted cash at end of period	$	267,405		$	211,062
Supplemental disclosure of non-cash investing activities:
Accrued costs for property and equipment purchases	$	2,905		$	3,439

(Amounts may not add due to rounding)

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

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine months ended August 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 August 31, 2019 and for the three and nine months ended August 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 nine months ended August 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, receivables from vendors 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 August 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 August 31, 2019, such losses have been within management’s expectations.

One customer accounted for 21% and 19% of the Company’s total revenue during the three and nine months ended August 31, 2019. The same customer accounted for 16% and 17% (as adjusted) of the Company's total revenue during the three and nine months ended August 31, 2018, respectively. Products purchased from the Company’s largest OEM supplier, HP Inc., accounted for approximately 12% of total revenue during both the three and nine months ended August 31, 2019 and approximately 13% (as adjusted) of total revenue during both the three and nine months ended August 31, 2018.

As of August 31, 2019 and November 30, 2018, one customer comprised 21% 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.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 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 the 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 its 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 nine months ended August 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 are 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 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 other income (expense), net, as a result of the remeasurement of equity securities; however, the adoption did not have a material impact on the Company’s consolidated financial results for the three and nine months ended August 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. The Company also 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 nine months ended August 31, 2018, and the Company’s Consolidated Statement of Cash Flows for the nine months ended August 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.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

	Three Months Ended August 31, 2018									Nine Months Ended August 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	$	4,419,097		$	(84,342	)	$	4,334,755		$	12,954,255		$	(207,664	)	$	12,746,591
Services		487,513			—			487,513			1,477,308			—			1,477,308
Total revenue		4,906,610			(84,342	)		4,822,268			14,431,562			(207,664	)		14,223,898
Cost of revenue:
Products		(4,165,118	)		81,289			(4,083,829	)		(12,228,350	)		204,239			(12,024,111	)
Services		(308,322	)		—			(308,322	)		(926,998	)		—			(926,998	)
Gross profit		433,170			(3,053	)		430,117			1,276,215			(3,425	)		1,272,790
Selling, general and administrative expenses		(316,274	)		—			(316,274	)		(923,449	)		—			(923,449	)
Operating income		116,896			(3,053	)		113,843			352,766			(3,425	)		349,341
Interest expense and finance charges, net		(20,058	)		—			(20,058	)		(53,884	)		—			(53,884	)
Other income (expense), net		(872	)		—			(872	)		(3,497	)		—			(3,497	)
Income before income taxes		95,966			(3,053	)		92,913			295,385			(3,425	)		291,960
Provision for income taxes		(26,675	)		702			(25,973	)		(107,968	)		787			(107,181	)
Net income	$	69,291		$	(2,351	)	$	66,940		$	187,417		$	(2,638	)	$	184,779
Earnings per common share:
Basic	$	1.75		$	(0.06	)	$	1.69		$	4.70		$	(0.06	)	$	4.64
Diluted	$	1.74		$	(0.06	)	$	1.68		$	4.67		$	(0.06	)	$	4.61

	Nine Months Ended August 31, 2018
Consolidated Statement of Cash Flows Caption	As reported			Adjustments for ASC Topic 606			As adjusted
Cash flows from operating activities:
Net income	$	187,417		$	(2,638	)	$	184,779
Adjustments to reconcile net income to cash used in operating activities:
Deferred income taxes		(27,785	)		(788	)		(28,573	)
Changes in operating assets and liabilities, net of acquisition of businesses:
Accounts receivables, net		(153,462	)		70,195			(83,267	)
Receivables from vendors, net		—			(55,829	)		(55,829	)
Inventories		115,245			(11,863	)		103,382
Other operating assets and liabilities		56,632			923			57,555
Net cash used in operating activities		(40,385	)		—			(40,385	)

Refer to Note 3 for additional information, including changes in accounting policies relating to revenue recognition.

Recently issued accounting pronouncements

In August 2018, the FASB issued new guidance to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendment requires the Company to disclose the weighted-average interest crediting rates used in cash balance pension plans. It also requires the Company to disclose the reasons for significant changes in the benefit obligation or plan assets including significant gains and losses affecting the benefit obligation for the period. This standard is effective for fiscal years ending after December 15, 2020, on a retrospective basis, and early adoption is permitted. The adoption is not expected to have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

In February 2018, the FASB issued guidance that permits the Company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new guidance.

In June 2016, the FASB issued a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued a new standard which revises various aspects of accounting for leases. The most significant impact to the Company’s Consolidated Financial Statements relates to the recognition by a lessee of a right-of-use asset and a lease liability for virtually all of its leases other than short-term leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will primarily depend on its classification. For income statement purposes, operating leases will result in a straight-line expense while finance leases will result in a front-loaded expense pattern. This accounting standard will be applicable to the Company at the beginning of its first quarter of fiscal year 2020 using a modified retrospective approach and early adoption is permitted. The Company expects that most of its operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company is currently evaluating the impact of the adoption of this new standard on its Consolidated Financial Statements.

NOTE 3—REVENUE FROM CONTRACTS WITH CUSTOMERS:

Revenue Recognition

The Company generates revenue primarily from (i) the sale of various IT products through its Technology Solutions business unit and (ii) the provision of business outsourcing services focused on customer engagement through its Concentrix business unit. The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. The Company generally invoices a customer upon shipment, after performance of services or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Revenue is presented net of taxes collected from customers and remitted to government authorities. All revenue is generated from contracts with customers.

Products revenue represents revenue from the Company’s Technology Solutions segment and services revenue represents revenue from the Company’s Concentrix segment.

Technology Solutions

The Company recognizes revenues from the sale of IT hardware and software as control is transferred to customers, which is at the point in time when the product is shipped or delivered. Products sold by the Company are delivered via shipment from the Company’s facilities, drop-shipment directly from the vendor, or by electronic delivery of keys for software products. Binding purchase orders from customers together with agreement to the Company's terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer. In situations where arrangements include customer acceptance provisions, revenue is recognized when the Company can objectively verify the products comply with specifications underlying acceptance and the customer has control of the goods.

Provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers, which are considered variable consideration, at the time of sale based on an evaluation of the contract terms and historical experience.

The Company recognizes revenue on a net basis on certain contracts, where the Company’s performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which the Company does not assume the risks and rewards of ownership, by recognizing the margins earned in revenue with no associated cost of revenue. Such arrangements, which are not material to the Company’s consolidated revenue or its “Products” or “Services” revenue, include supplier service contracts, post-contract software support services and extended warranty contracts.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

The Company considers shipping and handling activities as costs to fulfill the sale of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of products sold.

Concentrix

The Company recognizes revenue from services contracts over time as the promised services are delivered to customers for an amount that reflects the consideration to which the Company is entitled in exchange for those services. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. The Company determines whether the services performed during the initial phases of an arrangement, such as setup activities, are distinct. In most cases, the arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company records deferred revenue attributable to certain process transition, setup activities where such activities do not represent separate performance obligations. Billings related to such transition activities are classified under contract liabilities and subsequently recognized ratably over the period in which the related services are performed. The Company applies a measure of progress (typically time-based) to any fixed consideration and allocates variable consideration to the distinct periods of service based on usage. As a result, revenue is generally recognized over the period the services are provided on a usage basis. This results in revenue recognition that corresponds with the benefit to the customer of the services transferred to date relative to the remaining services promised. Revenue on fixed price contracts is recognized on a straight-line basis over the term of the contract as services are provided. Revenue on unit-price transactions is recognized using an objective measure of output including staffing hours or the number of transactions processed by service agents. Customer contract terms can range from less than one year to more than five years.

Certain customer contracts include incentive payments from the customer upon achieving certain agreed-upon service levels and performance metrics or service level agreements that could result in credits or refunds to the customer. Revenue relating to such arrangements is accounted for as variable consideration when the likely amount of revenue to be recognized can be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur.

Deferred revenue contract liabilities and deferred costs to obtain or fulfill a contract are not material.

Refer to Note 12 – Segment Information for disaggregated revenue disclosure.

NOTE 4—ACQUISITION:

Fiscal Year 2018 acquisition

On October 5, 2018, the Company acquired 100% of Convergys Corporation ("Convergys"), an Ohio corporation, a customer experience outsourcing company, for a purchase price of $2,269,527, pursuant to a merger agreement dated June 28, 2018. The acquisition is related to the Company's Concentrix segment and the Company believes the acquisition adds scale, diversifies the revenue base, expands the Company's service delivery footprint and strengthens the Company’s leadership position as a top global provider of customer engagement services.

During the nine months ended August 31, 2019, the Company recorded measurement period adjustments of $9,496 to goodwill. These adjustments comprised an increase of $26,962 in tax liabilities and an increase of $17,466 to the fair value of other acquired net tangible assets.

To date, acquisition-related and integration expenses were $89,921, of which $9,200 and $52,431 were incurred during the three and nine months ended August 31, 2019. Substantially all acquisition-related and integration expenses were recorded in "Selling, general and administrative expenses." The charges during the three and nine months ended August 31, 2019 comprised of legal and professional services, severance and lease termination payments, accelerated depreciation and other costs incurred to complete the acquisition and retention payments to integrate the business.

NOTE 5—SHARE-BASED COMPENSATION:

The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units, performance-based restricted stock units and employee stock purchases, based on estimated fair values.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

The following table summarizes the number of share-based awards granted under the Company’s 2013 Stock Incentive Plan, as amended, during the three and nine months ended August 31, 2019 and 2018, and the measurement-date fair value of those awards:

	Three Months Ended								Nine Months Ended
	August 31, 2019				August 31, 2018				August 31, 2019				August 31, 2018
	Shares awarded		Fair value of grants		Shares awarded		Fair value of grants		Shares awarded		Fair value of grants		Shares awarded		Fair value of grants
Stock options		—	$	—		—	$	—		17	$	500		38	$	1,050
Restricted stock awards		1		90		27		2,713		27		2,699		49		4,819
Restricted stock units		107		9,852		6		572		158		14,617		28		3,126
		108	$	9,942		33	$	3,285		202	$	17,816		115	$	8,995

The Company recorded share-based compensation expense in the Consolidated Statements of Operations for the three and nine months ended August 31, 2019 and 2018 as follows:

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
Total share-based compensation (recorded in selling, general and administrative expenses)	$	6,461		$	5,810		$	19,616		$	16,590
Tax benefit recorded in the provision for income taxes		(1,653	)		(1,615	)		(5,146	)		(4,727	)
Effect on net income	$	4,808		$	4,195		$	14,470		$	11,863

NOTE 6—BALANCE SHEET COMPONENTS:

Cash, cash equivalents and restricted cash:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:

	As of
	August 31, 2019		November 30, 2018
Cash and cash equivalents	$	262,279	$	454,694
Restricted cash included in other current assets		5,126		7,126
Restricted cash included in other assets		—		213
Cash, cash equivalents and restricted cash	$	267,405	$	462,033

Restricted cash balances relate primarily to temporary restrictions caused by the timing of lockbox collections under borrowing arrangements, the issuance of bank guarantees and a government grant.

Accounts receivable, net:

	As of
	August 31, 2019			November 30, 2018
				(As adjusted)
Accounts receivable	$	3,477,932		$	3,648,975
Less: Allowance for doubtful accounts		(24,956	)		(8,479	)
Accounts receivable, net	$	3,452,976		$	3,640,496

Receivables from vendors, net:

	As of
	August 31, 2019			November 30, 2018
				(As adjusted)
Receivables from vendors	$	341,760		$	357,930
Less: Allowance for doubtful accounts		(3,445	)		(6,186	)
Receivables from vendors, net	$	338,315		$	351,744

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

Property and equipment, net:

	As of
	August 31, 2019			November 30, 2018
Land	$	40,732		$	31,102
Equipment, computers and software		488,223			423,467
Furniture and fixtures		111,028			104,474
Buildings, building improvements and leasehold improvements		413,013			368,107
Construction-in-progress		8,191			29,021
Total property and equipment, gross	$	1,061,188			956,170
Less: Accumulated depreciation		(508,284	)		(384,844	)
Property and equipment, net	$	552,904		$	571,326

Depreciation expense was $39,124 and $123,242 for the three and nine months ended August 31, 2019, respectively, and $22,511 and $67,031 for the three and nine months ended August 31, 2018, respectively.

Goodwill:

	Technology Solutions			Concentrix		Total
Balance as of November 30, 2018	$	427,775		$	1,775,541	$	2,203,316
Additions/adjustments from acquisitions (See Note 4)		—			9,496		9,496
Foreign exchange translation		(2,125	)		3,429		1,304
Balance as of August 31, 2019	$	425,650		$	1,788,465	$	2,214,115

Intangible assets, net:

	As of August 31, 2019							As of November 30, 2018
	Gross Amounts		Accumulated Amortization			Net Amounts		Gross Amounts		Accumulated Amortization			Net Amounts
Customer relationships and lists	$	1,536,327	$	(470,927	)	$	1,065,400	$	1,552,322	$	(333,266	)	$	1,219,056
Vendor lists		178,524		(63,539	)		114,985		179,019		(53,318	)		125,701
Technology		14,707		(8,506	)		6,200		14,767		(7,064	)		7,704
Other intangible assets		35,266		(13,543	)		21,723		35,559		(10,715	)		24,844
	$	1,764,824	$	(556,515	)	$	1,208,308	$	1,781,667	$	(404,363	)	$	1,377,305

Amortization expense was $52,428 and $158,150, for the three and nine months ended August 31, 2019, respectively, and $26,197 and $79,183 for the three and nine months ended August 31, 2018, respectively.

Estimated future amortization expense of the Company's intangible assets is as follows:

Fiscal years ending November 30,
2019 (remaining three months)	$	41,946
2020		188,570
2021		173,532
2022		150,213
2023		131,762
Thereafter		522,286
Total	$	1,208,308

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

Accumulated other comprehensive income (loss):

The components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, are as follows:

	Unrecognized gains (losses) on defined benefit plan, net of taxes			Unrealized gains (losses) on cash flow hedges, net of taxes			Foreign currency translation adjustment and other, net of taxes			Total
Balance as of November 30, 2018	$	(3,263	)	$	16,920		$	(139,945	)	$	(126,288	)
Opening balance adjustment for the adoption of new accounting guidance		—			—			(1,955	)		(1,955	)
Other comprehensive income (loss) before reclassification		307			(71,414	)		(26,334	)		(97,441	)
Reclassification of (gains) losses from Other comprehensive income (loss)		—			(9,387	)		—			(9,387	)
Balance as of August 31, 2019	$	(2,956	)	$	(63,881	)	$	(168,234	)	$	(235,070	)

Refer to Note 7 for the location of gains and losses reclassified from other comprehensive income (loss) to the Consolidated Statements of Operations.

Foreign currency translation adjustment and other, net of taxes, is comprised of foreign currency translation adjustment and unrealized gains and losses on available-for-sale debt securities. Substantially, all of the balance at both November 30, 2018 and August 31, 2019 represents foreign currency translation adjustment.

NOTE 7—DERIVATIVE INSTRUMENTS:

In the ordinary course of business, the Company is exposed to foreign currency risk, interest rate risk, equity risk, commodity price changes and credit risk. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity’s functional currency. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset a portion of the risk on expected future cash flows, earnings, net investments in certain foreign subsidiaries and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s hedging program is not used for trading or speculative purposes.

All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded in the Consolidated Statements of Operations, or as a component of AOCI in the Consolidated Balance Sheets, as discussed below.

Cash Flow Hedges

To protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries with functional currencies that are not in U.S. dollars may hedge a portion of forecasted revenue or costs not denominated in the subsidiaries’ functional currencies. These instruments mature at various dates through September 2021. The Company also uses interest rate derivative contracts to economically convert a portion of its variable-rate debt to fixed-rate debt. The swaps have maturities at various dates through October 31, 2023. Gains and losses on cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of foreign currency revenue are recognized as a component of Revenue from Services in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of costs are recognized as a component of "Cost of revenue" for "services" and/or "Selling, general and administrative expenses" in the same period as the related costs are recognized. Deferred gains and losses associated with cash flow hedges of interest payments are recognized in "Interest expense and Finance charges, net" in the same period as the related expense is recognized. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into earnings in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are recorded in earnings unless they are re-designated as hedges of other transactions.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

Non-Designated Derivatives

The Company uses short-term forward contracts to offset the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency of the respective entities. These contracts, which are not designated as hedging instruments, mature or settle within twelve months. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets

The fair values of the Company’s derivative instruments are disclosed in Note 8 — Fair Value Measurements and summarized in the table below:

	Value as of
Balance Sheet Line Item	August 31, 2019		November 30, 2018
Derivative instruments not designated as hedging instruments:
Foreign exchange forward contracts (notional value)	$	1,132,328	$	1,008,895
Other current assets		11,495		12,651
Other accrued liabilities		9,107		1,856
Interest rate swap (notional value)	$	100,000	$	100,000
Other assets		535		3,519
Derivative instruments designated as cash flow hedges:
Foreign exchange forward contracts (notional value)	$	441,435	$	624,014
Other current assets and other assets		5,794		3,834
Other accrued liabilities and other long-term liabilities		3,801		12,306
Interest rate swaps (notional value)	$	1,900,000	$	1,900,000
Other current assets and other assets		—		5,869
Other accrued liabilities and other long-term liabilities	$	103,032	$	9,004

Volume of Activity

The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Philippine Peso, the Indian Rupee, the Euro, the British Pound, the Chinese Yuan, the Canadian Dollar and the Brazilian Real that will be bought or sold at maturity. The term and notional amount of interest rate swaps are determined based on management’s assessment of future interest rates and other factors such as debt maturities. The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations

The following table shows the gains and losses, before taxes, of the Company's derivative instruments designated as cash flow hedges and not designated as hedging instruments in Other Comprehensive Income (“OCI”), and the Consolidated Statements of Operations for the periods presented:

	Location of Gain (Loss)	Three Months Ended August 31,						Nine Months Ended August 31,
	in Income	2019			2018			2019			2018

Revenue for services		$	1,155,690		$	487,513		$	3,480,275		$	1,477,308
Cost of revenue for services			(731,472	)		(308,322	)		(2,196,212	)		(926,998	)
Selling, general and administrative expenses			(517,135	)		(316,274	)		(1,557,906	)		(923,449	)
Interest expense and finance charges, net			(42,945	)		(20,058	)		(127,695	)		(53,884	)
Other income (expense), net			(1,087	)		(872	)		19,764			(3,497	)

Derivative instruments designated as cash flow hedges:
Gains (losses) recognized in OCI:
Foreign exchange forward contracts		$	1,592		$	—		$	8,304		$	—
Interest rate swaps			(34,058	)		1,045			(104,323	)		8,386
Total		$	(32,466	)	$	1,045		$	(96,020	)	$	8,386

Gains (losses) reclassified from AOCI into income:
Foreign exchange forward contracts
Loss reclassified from AOCI into income	Revenue for services	$	73		$	—		$	89		$	—
Gain (loss) reclassified from AOCI into income	Cost of revenue for services		4,586			—			12,034			—
Gain (loss) reclassified from AOCI into income	Selling, general and administrative expenses		1,888			—			5,041			—
Gain (loss) reclassified from AOCI into income	Other income (expense), net		10			—			10			—
Interest rate swaps
Gain (loss) reclassified from AOCI into income	Interest expense and finance charges, net		(2,065	)		(22	)		(4,545	)		2,433
Total		$	4,492		$	(22	)	$	12,629		$	2,433

Derivative instruments not designated as hedging instruments:
Gains (losses) recognized from foreign exchange forward contracts, net⁽¹⁾	Other income (expense), net	$	(1,286	)	$	(8,469	)	$	8,657		$	(2,794	)
Gains (losses) recognized from interest rate swaps, net	Interest expense and finance charges, net		(807	)		23			(2,984	)		23
Total		$	(2,093	)	$	(8,446	)	$	5,673		$	(2,771	)

(1)

The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies.

There were no material gain or loss amounts excluded from the assessment of effectiveness. Existing net losses in AOCI that are expected to be reclassified into earnings in the normal course of business within the next twelve months are $13,021.

Offsetting of Derivatives

In the Consolidated Balance Sheets, the Company does not offset derivative assets against liabilities in master netting arrangements. If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statements of Financial Position, the total derivative asset and liability positions would have been reduced by $6,998 each as of August 31, 2019 and $6,850 each as of November 30, 2018.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s obligations to the counterparties. The Company manages the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions.

NOTE 8—FAIR VALUE MEASUREMENTS:

The Company’s fair value measurements are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:

	As of August 31, 2019								As of November 30, 2018
			Fair value measurement category								Fair value measurement category
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	48,482	$	48,482	$	—	$	—	$	108,785	$	108,785	$	—	$	—
Marketable equity securities		2,465		2,465		—		—		5,492		5,492		—		—
Foreign government bond		1,123		1,123		—		—		1,104		1,104		—		—
Forward foreign currency exchange contracts		17,289		—		17,289		—		16,485		—		16,485		—
Interest rate swaps		535		—		535		—		9,388		—		9,388		—
Liabilities:
Contingent consideration payable	$	—	$	—	$	—	$	—	$	33,098	$	—	$	—	$	33,098
Forward foreign currency exchange contracts		12,908		—		12,908		—		14,162		—		14,162		—
Interest rate swaps		103,032		—		103,032		—		9,004		—		9,004		—
Convertible debentures conversion option		32		—		—		32		77,238		—		—		77,238

The Company’s cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying values of cash equivalents approximate fair value since they are near their maturity. Investments in marketable equity securities, primarily comprising investments in other companies’ equity securities as per local customary business practice, are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of long-term foreign currency exchange contracts are measured using valuations based upon quoted prices for similar assets and liabilities in active markets and are valued by reference to similar financial instruments, adjusted for terms specific to the contracts. Fair values of interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market transactions, including London Interbank Offered Rate (“LIBOR”) spot and forward rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of August 31, 2019 and November 30, 2018.

Contingent consideration payable represents future potential earn-out payments related to the Westcon-Comstor Americas acquisition in fiscal year 2017. The fair value of the contingent consideration liability was based on a probabilistic analysis using an option pricing model as implemented via a Monte Carlo simulation. During the nine months ended August 31, 2019, the fair value of the contingent consideration liability was remeasured and the resulting decrease of $19,034 recorded as a benefit to "other income (expense), net" in the Consolidated Statements of Operations. The change in the fair value was due to final settlement of the gross profit related to the achievement of the established earn-out target with the sellers. The settled amount was paid during the three months ended August 31, 2019.

The fair value of the Convertible Debentures conversion option was based on a probabilistic analysis using the Monte Carlo simulation approach. The model considered simulated movements in the Company's stock price until the conversion date using estimated stock volatility of 35%, a risk free rate of 2.7%, discount and dividend yields of 4.6% and $0.35 per share each quarter, respectively, over the estimated period until September 2019, when the Company would become entitled to redeem the debentures. During the nine months ended August 31, 2019,

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

the Company settled substantially all the outstanding convertible debentures and recorded a loss of $1,559 upon settlement in other income (expense), net. The remaining convertible debentures were redeemed subsequent to August 31, 2019.

The carrying values of term deposits with maturities less than one year, accounts receivable, accounts payable and short-term debt approximate fair value due to their short maturities and interest rates which are variable in nature. Long-term non-marketable equity securities consist primarily of investments in equity securities of private entities. The fair value of non-marketable equity investments is based on an internal valuation of the investees based on the best available information at the measurement date. The carrying value of the Company’s term loans approximate their fair value since they bear interest rates that are similar to existing market rates.

During the nine months ended August 31, 2019, there were no transfers between the fair value measurement category levels.

NOTE 9—ACCOUNTS RECEIVABLE ARRANGEMENTS:

The Company has an uncommitted supply-chain financing program with a global financial institution under which trade accounts receivable of certain customers and their affiliates may be acquired, without recourse, by the financial institution. Available capacity under this program is dependent on the level of the Company’s trade accounts receivable with these customers and the financial institution’s willingness to purchase such receivables. As of August 31, 2019 and November 30, 2018, accounts receivable sold to and held by the financial institution under this program were $39,765 and $33,677, respectively. Discount fees related to the sale of trade accounts receivable under this facility are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. During the three and nine months ended August 31, 2019 and 2018, discount fees were not material to the Company's results of operations.

SYNNEX Japan, the Company's Japanese Technology Solutions subsidiary, has arrangements with financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amounts outstanding under these arrangements that were sold, but not collected, as of August 31, 2019 and November 30, 2018 were $3,035 and $2,848, respectively.

The Company also has other financing agreements in North America with financial institutions (“Flooring 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. See Note 16 for further information.

The following table summarizes the net sales financed through flooring agreements and the flooring fees incurred:

	Three Months Ended				Nine Months Ended
	August 31, 2019		August 31, 2018		August 31, 2019		August 31, 2018
Net sales financed	$	521,341	$	385,277	$	1,424,081	$	1,105,481
Flooring fees⁽¹⁾		3,584		3,376		9,410		7,581

(1)

Flooring fees are included within “Interest expense and finance charges, net.”

As of August 31, 2019 and November 30, 2018, accounts receivable subject to flooring agreements were $84,703 and $84,668, respectively.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

NOTE 10—BORROWINGS:

Borrowings consist of the following:

	As of
	August 31, 2019			November 30, 2018
SYNNEX United States accounts receivable securitization arrangement	$	379,700		$	615,000
SYNNEX Japan credit facility - revolving line of credit component		32,461			20,268
SYNNEX United States credit agreement - current portion of term loan component		60,000			60,000
SYNNEX United States term loan credit agreement - current portion		90,000			58,125
Convertible debentures		24			69,762
Other borrowings		9,533			10,061
Borrowings, current	$	571,718		$	833,216

SYNNEX Japan credit facility - term loan component	$	65,864		$	61,685
SYNNEX United States credit agreement - term loan component		1,035,000			1,080,000
SYNNEX United States term loan credit agreement		1,665,000			1,491,875
Other term debt		316			541
Long-term borrowings, before unamortized debt discount and issuance costs	$	2,766,180		$	2,634,101
Less: unamortized debt discount and issuance costs		(9,159	)		(11,319	)
Long-term borrowings	$	2,757,021		$	2,622,782

SYNNEX United States accounts receivable securitization arrangement

In the United States, the Company has an accounts receivable securitization program to provide additional capital for its operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, which expires in fiscal year 2020, the Company’s subsidiary that is the borrower under this facility can borrow up to a maximum of $850,000 based upon eligible trade accounts receivable. In addition, the U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $150,000. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders, that includes prevailing dealer commercial paper rates and a rate based upon LIBOR, provided that LIBOR shall not be less than zero. In addition, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum, is payable on the commitment of the lenders.

Under the terms of the U.S. AR Arrangement, the Company and two of its U.S. subsidiaries sell, on a revolving basis, their eligible receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by the Company's bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets.

SYNNEX Canada accounts receivable securitization arrangement

In Canada, the Company has an accounts receivable securitization program with a bank to provide additional capital for its operations. Under the terms of this program, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to CAD100,000, or $75,120, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 10, 2020. The program includes an accordion feature that allows SYNNEX Canada to request an increase in the bank's commitment by an additional CAD50,000, or $37,560. Any amounts received under this arrangement are recorded as debt on the Company's Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables to the bank. The effective borrowing cost is based on the weighted average of the Canadian Dollar Offered Rate plus a margin of 2.00% per annum and the prevailing lender commercial paper rates. In addition, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up to CAD60,000, or $45,072, and when the unused portion exceeds CAD60,000, or $45,072, a fee of 0.40% on the first CAD25,000, or $18,780, of the unused portion and a fee of 0.55% per annum on the remaining unused commitment. As of both August 31, 2019 and November 30, 2018, there was no outstanding balance under this arrangement.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

SYNNEX Japan credit facility

SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15,000,000 or $141,137. The credit agreement is comprised of a JPY7,000,000, or $65,864, term loan and a JPY8,000,000, or $75,273, revolving credit facility and expires in November 2021. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on the Company’s consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on the Company's consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. The Company has guaranteed the obligations of SYNNEX Japan under this facility.

Latin America revolving line of credit facility

One of the Company’s subsidiaries in Mexico maintains a United States Dollar denominated $40,000 revolving credit facility with a financial institution (the “LATAM facility”). The revolving credit facility matures in February 2020. The Company guarantees the obligations under this credit facility. The interest rate on this facility ranges from 10.51% to 10.74%.

There were no borrowings outstanding under the LATAM facility as of either August 31, 2019 or November 30, 2018.

Concentrix India revolving lines of credit facilities

The Company's Indian subsidiaries have credit facilities with a financial institution to borrow up to an aggregate amount of $22,000. The interest rate under these facilities is the higher of the bank's minimum lending rate or LIBOR, plus a margin of 0.9% per annum. The Company guarantees the obligations under these credit facilities. These credit facilities can be terminated at any time by the Company’s Indian subsidiaries or the financial institution.

There were no borrowings outstanding under these credit facilities as of either August 31, 2019 or November 30, 2018.

SYNNEX United States credit agreement

In the United States, the Company has a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement includes a $600,000 commitment for a revolving credit facility and a term loan in the original principal amount of $1,200,000. The Company may request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $500,000, plus an additional amount which is dependent upon the Company's pro forma first lien leverage ratio, as calculated under the U.S. Credit Agreement. The U.S. Credit Agreement matures in September 2022. The outstanding principal amount of the term loan is repayable in quarterly installments of $15,000, with the unpaid balance due in full on the September 2022 maturity date. The term loan can be repaid at any time prior to the expiration date without penalty. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at the Company's option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.5%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus 1.0%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on the Company’s consolidated leverage ratio, as calculated under the U.S. Credit Agreement. The Company’s obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of the Company's United States domestic subsidiaries.

There were no borrowings outstanding under the revolving line of credit under the U.S. Credit Agreement as of either August 31, 2019 or November 30, 2018.

SYNNEX United States term loan credit agreement

In order to fund the Convergys acquisition (See Note 4), the related refinancing or settlement of Convergys' debt and payment of related fees and expenses, the Company entered into a secured term loan credit agreement on August 9, 2018 (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, which provided for the extension of one or more term loans in an aggregate principal amount not to exceed $1,800,000. The U.S. Term Loan Credit Agreement matures in October 2023. Until November 30, 2018, the Company had drawn $1,550,000 of term loans. During the nine months ended August 31, 2019, the Company borrowed the remaining available amount of $250,000 under the facility to settle part of Convergys' outstanding Convertible Debentures. The outstanding principal amount of the term loans is payable in quarterly installments of $22,500, with the unpaid balance due in full on the maturity date. The term loan can be repaid at any time prior to the expiration date without penalty. Interest on borrowings under the U.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at the Company’s option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loans ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. During the period in which the term loans were available to be drawn, the Company paid term loan commitment fees. The margins above the Company's applicable interest rates are, and the term loan commitment fee were, based on the Company's consolidated leverage ratio as calculated under the U.S. Term Loan Credit Agreement. The Company's obligations under the U.S. Term Loan Credit Agreement are secured

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

by substantially all of the Company’s and certain of its domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of its domestic subsidiaries.

Convertible Debentures

In connection with the Convergys acquisition, Convergys was merged into Concentrix CVG and Concentrix CVG became the obligor under Convergys' $124,963 aggregate principal amount of 5.75% Junior Subordinated Convertible Debentures due September 2029. The Company determined that the embedded conversion feature included in the convertible debentures required liability treatment because a portion was convertible into a fixed dollar amount based on a variable conversion rate, and was recorded at fair value in other accrued liabilities in the Consolidated Balance Sheets. Subsequent to the acquisition, the Company settled substantially the entire principal amount and conversion obligation in excess of the aggregate principal amount in cash, of which $69,258 of the principal amount was settled in cash for $148,023 during the nine months ended August 31, 2019. The remaining amount of the convertible debentures were redeemed subsequent to August 31, 2019.

SYNNEX Canada revolving line of credit

SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50,000, or $37,560. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S. Base Rate. As of both August 31, 2019 and November 30, 2018, there were no borrowings outstanding under this credit facility.

Other borrowings and term debt

Other borrowings and term debt include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As of August 31, 2019, commitments for these revolving credit facilities aggregated $27,877. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are guaranteed by the Company or secured by accounts receivable.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at August 31, 2019 exchange rates.

Future principal payments

As of August 31, 2019, future principal payments under the above loans are as follows:

Fiscal Years Ending November 30,
2019 (remaining three months)	$	459,164
2020		150,242
2021		215,987
2022		1,050,005
2023		1,462,500
	$	3,337,898

Interest expense and finance charges

The total interest expense and finance charges for the Company's borrowings were $44,401 and $ 132,111, respectively, for the three and nine months ended August 31, 2019, and $21,338 and $48,978, respectively, for the three and nine months ended August 31, 2018. The variable interest rates ranged between 0.87% and 10.74% during the three months ended August 31, 2019, and between 0.70% and 11.38% during the nine months ended August 31, 2019. The variable interest rates ranged between 0.58% and 11.38% during the three months ended August 31, 2018, and between 0.58% and 12.74% during the nine months ended August 31, 2018.

Covenant compliance

The Company's credit facilities have a number of covenants and restrictions that, among other things, require the Company to maintain specified financial ratios and satisfy certain financial condition tests. The covenants 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 the nature of the Company’s business, enter into sale-leaseback transactions, make certain investments, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of August 31, 2019, the Company was in compliance with all material covenants for the above arrangements.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

NOTE 11—EARNINGS PER COMMON SHARE:

The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated:

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
				(As adjusted)						(As adjusted)
Basic earnings per common share:
Net income	$	123,132		$	66,940		$	324,711		$	184,779
Less: net income allocated to participating securities⁽¹⁾		(1,070	)		(645	)		(2,894	)		(1,725	)
Net income attributable to common stockholders	$	122,062		$	66,295		$	321,817		$	183,054

Weighted-average number of common shares - basic		50,601			39,254			50,661			39,483

Basic earnings per common share	$	2.41		$	1.69		$	6.35		$	4.64

Diluted earnings per common share:
Net income	$	123,132		$	66,940		$	324,711		$	184,779
Less: net income allocated to participating securities⁽¹⁾		(1,066	)		(643	)		(2,883	)		(1,717	)
Net income attributable to common stockholders	$	122,066		$	66,297		$	321,828		$	183,063

Weighted average number of common shares - basic		50,601			39,254			50,661			39,483
Effect of dilutive securities:
Stock options and restricted stock units		244			221			242			247
Weighted-average number of common shares - diluted		50,845			39,475			50,903			39,730

Diluted earnings per common share	$	2.40		$	1.68		$	6.32		$	4.61
Anti-dilutive shares excluded from diluted earnings per share calculation		121			89			120			61

(1)

Restricted stock awards granted to employees by the Company are considered participating securities.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

NOTE 12—SEGMENT INFORMATION:

Summarized financial information related to the Company’s reportable business segments for the periods presented is shown below:

	Technology Solutions		Concentrix		Inter-Segment Elimination			Consolidated
Three months ended August 31, 2019
Revenue	$	5,047,970	$	1,160,928	$	(5,240	)	$	6,203,659
External revenue		5,047,968		1,155,690		—			6,203,659
Operating income		138,830		70,025		—			208,855
Three months ended August 31, 2018
Revenue (as adjusted)	$	4,334,767	$	491,882	$	(4,382	)	$	4,822,268
External revenue (as adjusted)		4,334,755		487,513		—			4,822,268
Operating income (as adjusted)		101,775		12,068		—			113,843
Nine months ended August 31, 2019
Revenue	$	13,695,729	$	3,495,076	$	(14,805	)	$	17,176,000
External revenue		13,695,725		3,480,275		—			17,176,000
Operating income		352,594		192,879		—			545,473
Nine months ended August 31, 2018
Revenue (as adjusted)	$	12,746,673	$	1,490,865	$	(13,639	)	$	14,223,898
External revenue (as adjusted)		12,746,591		1,477,308		—			14,223,898
Operating income (as adjusted)		279,926		69,415		—			349,341
Total assets as of August 31, 2019	$	10,187,806	$	4,597,296	$	(3,358,775	)	$	11,426,327
Total assets as of November 30, 2018 (as adjusted)	$	10,207,964	$	4,776,313	$	(3,440,779	)	$	11,543,498

Inter-segment elimination represents services and other transactions, principally intercompany investments and loans, between the Company's reportable segments that are eliminated on consolidation.

Geographic information

The Company attributes revenues from external customers to the country from where Technology Solutions products are delivered and the country of domicile of the Concentrix legal entity that is party to the customer contract. Shown below are the countries that accounted for 10% or more of the Company’s revenue and property and equipment, net, for the periods presented:

	Three Months Ended				Nine Months Ended
	August 31, 2019		August 31, 2018		August 31, 2019		August 31, 2018
			(As adjusted)				(As adjusted)
Revenue:
United States	$	4,181,667	$	3,552,534	$	11,327,961	$	10,254,834
Others		2,021,992		1,269,734		5,848,039		3,969,064
Total	$	6,203,659	$	4,822,268	$	17,176,000	$	14,223,898

	As of
	August 31, 2019		November 30, 2018
Property and equipment, net:
United States	$	284,838	$	287,498
Philippines		59,112		75,770
Others		208,954		208,058
Total	$	552,904	$	571,326

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

NOTE 13—RELATED PARTY TRANSACTIONS:

The Company has a business relationship with MiTAC Holdings Corporation (“MiTAC Holdings”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became the Company's primary investor through its affiliates. As of both August 31, 2019 and November 30, 2018, MiTAC Holdings and its affiliates beneficially owned approximately 18% of the Company’s outstanding common stock. Mr. Matthew Miau, Chairman Emeritus of the Company’s Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.

Beneficial ownership of the Company’s common stock by MiTAC Holdings

As noted above, MiTAC Holdings and its affiliates in the aggregate beneficially owned approximately 18% of the Company’s outstanding common stock as of August 31, 2019. These shares are owned by the following entities:

	(1	)		Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 366 shares held directly by Mr. Miau, 217 shares indirectly held by Mr. Miau through a charitable remainder trust, and 9 shares held by his spouse.
	(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 Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 14.4% in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.

MiTAC Holdings generally has significant influence over the Company regarding 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.

The following table presents the Company's transactions with MiTAC Holdings and its affiliates for the periods indicated:

	Three Months Ended				Nine Months Ended
	August 31, 2019		August 31, 2018		August 31, 2019		August 31, 2018
Purchases of inventories	$	41,989	$	62,722	$	120,093	$	164,789
Sale of products to MiTAC Holdings and affiliates		142		1,430		546		2,291
Reimbursements received for rent and overhead costs for use of facilities by MiTAC Holdings and affiliates		—		—		—		71

The following table presents the Company’s receivable from and payable to MiTAC Holdings and its affiliates for the periods presented:

	August 31, 2019		November 30, 2018
Receivable from related parties (included in Accounts receivable, net)	$	330	$	65
Payable to related parties (included in Accounts payable)		17,176		22,905

The Company’s business relationship with MiTAC Holdings and its affiliates has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. The Company negotiates pricing and other material terms on a case-by-case basis with MiTAC Holdings and affiliates. The Company has adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by its Audit Committee, which is composed solely of independent directors. In addition, Mr. Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors.

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 Holdings nor Synnex Technology International is restricted from competing with the Company.

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

NOTE 14—PENSION AND EMPLOYEE BENEFITS PLANS:

The Company has 401(k) plans in the United States under which eligible employees may contribute up to the maximum amount as provided by law. Employees become eligible to participate in these plans on the first day of the month after their employment date. The Company may make discretionary contributions under the plans. Employees in most of the Company's foreign subsidiaries are covered by government-mandated defined contribution plans. During the three and nine months ended August 31, 2019, the Company contributed $11,052 and $34,596, respectively, to defined contribution plans. During the three and nine months ended August 31, 2018, the Company contributed $10,574 and $29,939, respectively, to defined contribution plans.

The Company has a deferred compensation plan for certain directors and officers. Distributions under the plan are subject to Section 409A of the United States Tax Code. The Company may invest balances in the plan in trading securities reported on recognized exchanges. As of August 31, 2019 and November 30, 2018, the deferred compensation liability balance was $6,240 and $6,146, respectively.

Defined Benefit Plans

The Company has defined benefit pension or retirement plans for eligible employees in certain foreign subsidiaries. Benefits under these plans are primarily based on years of service and compensation during the years immediately preceding retirement or termination of participation in the plans. In addition, as part of the Convergys acquisition, the Company acquired a frozen defined benefit pension plan, which includes both a qualified and non-qualified portion, for all eligible employees in the United States (“the cash balance plan”) and unfunded defined benefit plans for certain eligible employees in the Philippines, Malaysia and France. The pension benefit formula for the cash balance plan is determined by a combination of compensation, age-based credits and annual guaranteed interest credits. The plan assumptions are evaluated annually and are updated as deemed necessary.

During the three and nine months ended August 31, 2019, net periodic pension costs were $6,204 and $11,678, respectively, and the Company’s contribution was $2,225 and $5,437, respectively. During the three and nine months ended August 31, 2018, net periodic pension costs were $1,473 and $4,268, respectively, and the Company’s contribution was $766 and $2,881, respectively. The plans were underfunded by $85,722 and $89,001 as of August 31, 2019 and November 30, 2018.

NOTE 15—EQUITY:

Share repurchase program

In June 2017, the Board of Directors authorized a three-year $300,000 share repurchase program, effective July 1, 2017, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions. During the three months ended August 31, 2019, the Company did not repurchase any shares. During the nine months ended August 31, 2019, the Company repurchased 160 shares for a total cost of $15,184. As of August 31, 2019, the Company had repurchased 840 shares for a total cost of $81,172. The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes.

Dividends

On September 24, 2019, the Company announced a cash dividend of $0.375 per share payable on October 25, 2019 to stockholders of record as of October 11, 2019. Future dividends are subject to continued capital availability, compliance with the covenants and conditions in some of the Company's credit facilities and declaration by the Board of Directors in the best interest of the Company’s stockholders.

NOTE 16—COMMITMENTS AND CONTINGENCIES:

The Company leases certain of its facilities, equipment, and automobiles under operating lease agreements, which expire in various periods through 2029. Future minimum contractually required cash payment obligations under non-cancellable lease agreements as of August 31, 2019 were as follows:

Fiscal Years Ending November 30,
2019 (remaining three months)	$	55,403
2020		198,627
2021		158,847
2022		118,613
2023		82,579
Thereafter		116,853
Total minimum lease payments	$	730,922

Table of Contents

SYNNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)

For the three and nine months ended August 31, 2019 and 2018

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

(unaudited)

During the three and nine months ended August 31, 2019, rent expense was $66,749 and $197,646, respectively. During the three and nine months ended August 31, 2018, rent expense was $26,943 and $88,258, respectively. Sublease income was immaterial for each of the periods presented and is immaterial for the amounts entitled to be received in future periods under non-cancellable sublease arrangements.

The Company was contingently liable as of August 31, 2019 under agreements to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by the Company's customers. These arrangements are described in Note 9 and do not have expiration dates. As the Company does not have access to information regarding the amount of inventory purchased from the Company, still on hand with the customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably estimated. Losses, if any, would be the difference between the repossession cost and the resale value of the inventory. There have been no repurchases through August 31, 2019 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to these inventory repurchase obligations is remote.

From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, from time to time, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company evaluates these claims and records the related liabilities. It is possible that the ultimate liabilities could differ from the amounts recorded.

The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.

Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. Amounts in certain tables may not add or compute due to rounding. Prior period amounts have been adjusted to reflect the adoption of ASC Topic 606.

When used in this Quarterly Report on Form 10-Q, or this "Report", the words “believes,” “estimates,” “expects,” “allows,” “can,” “may,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about market trends, our business model and our services, our market strategy, including expansion of our product lines, our infrastructure, our investment in information technology, or IT, systems, our employee hiring, retention and turnover, the ownership interest of MiTAC Holdings Corporation, or MiTAC Holdings, in us and its impact, our revenue, our gross margins, our operating costs and results, the value of our inventory, competition with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, market acceptance of our customers’ products, concentration of customers, our international operations, foreign currency exchange rates, expansion and scaling of our operations and related effects, including our Concentrix business, our strategic acquisitions and divestitures of businesses and assets, including our acquisition of Convergys Corporation (“Convergys”) and the impact of the acquisition on our business, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, adequacy of our capital resources to meet our capital needs, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of economic and industry trends, impact of our accounting policies and recently issued accounting pronouncements, our belief regarding the impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, our share repurchase and dividend program, our securitization programs and revolving credit lines, our succession planning, our investments in working capital, personnel, facilities and operations. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT, and consumer electronics, or CE, industries, fluctuations in general economic conditions and other risk factors contained herein under Item 1A, if any, and in our Annual Report on Form 10-K for the year ended November 30, 2018. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

We are a Fortune 200 corporation and a leading business process services company, providing a comprehensive range of distribution, logistics and integration services for the technology industry and providing outsourced services focused on customer engagement to a broad range of enterprises. We are organized to provide our products and services through two reportable business segments: Technology Solutions and Concentrix. Our Technology Solutions segment distributes peripherals, IT systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics (“CE”) and complementary products. Within our Technology Solutions segment, we also provide systems design and integration solutions. Our Concentrix segment offers a portfolio of technology-enabled strategic solutions and end-to-end business services focused on customer engagement, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten identified industry verticals.

In our Technology Solutions segment, we distribute more than 30,000 technology products (as measured by active SKUs) from more than 400 IT, CE and original equipment manufacturers (“OEM”) suppliers, to more than 25,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Central and South America. We purchase peripherals, IT systems, system components, software, networking, communications, security equipment, CE and complementary products from our suppliers and sell them to our reseller and retail customers. We perform a similar function for our distribution of licensed software products. Our reseller customers include value-added resellers (“VARs”), corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. We combine our core strengths in distribution with demand generation, supply chain management and design and integration solutions to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and after-market product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of print management, renewals, networking, logistics services and supply chain management. Additionally, we provide our customers with systems design and integration solutions for data center servers and networking solutions built specific to our customers' workloads and data center environments.

Our Technology Solutions business is characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. The market for IT and CE products is generally characterized by declining unit prices and short product life cycles. We set our sales price based on the market supply and demand characteristics for each product or bundle of products we distribute and services we provide.

In our Concentrix segment, we provide a comprehensive range of strategic services and solutions to enhance our clients' customer life cycles to acquire, support and renew customer relationships, to automate and optimize processes, to maximize the value of every customer interaction and to improve business outcomes. Our portfolio of services includes end-to-end process outsourcing to customers in various industry vertical markets delivered through omni-channels that include both voice and non-voice mediums in more than 70 languages.

Our Concentrix segment generates revenue from performing services that are generally tied to our clients’ products and services and how they are received in the marketplace. Any shift in business or size of the market for our customers’ products, any failure of technology or failure of acceptance of our customers’ products in the market may impact our business. The employee turnover rate in this business and the risk of losing experienced employees is high. Higher turnover rates can increase costs and decrease operating efficiencies and productivity.

Table of Contents

We have been in business since 1980 and are headquartered in Fremont, California. We have significant operations in North and South America, Asia-Pacific and Europe. We were originally incorporated in the State of California as COMPAC Microelectronics, Inc. in November 1980, and we changed our name to SYNNEX Information Technologies, Inc. in February 1994. We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003. As of August 31, 2019, we had over 238,000 full-time and temporary employees worldwide.

Critical Accounting Policies and Estimates

On December 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606 applying the full retrospective method. See Note 2 to the Consolidated Financial Statements for information regarding the impact of adopting this new revenue standard and Note 3 for our revised revenue recognition critical accounting policy. Except for the above, there have been no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2018.

During the nine months ended August 31, 2019, we adopted certain other new accounting pronouncements. The impact of adoption of these pronouncements was not material to our consolidated financial statements. See Note 2 to the Consolidated Financial Statements for further information.

Acquisitions

We continually seek to augment organic growth in both our business segments with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. In our Technology Solutions business, we seek to acquire new OEM relationships, enhance our supply chain and integration capabilities and the services we provide to our customers and OEM suppliers, and expand our geographic footprint. In our Concentrix segment, we seek to further enhance our capabilities and domain expertise in our key verticals, expand our geographic footprint and further expand into higher value service offerings. We are also strategically focused on further increasing our scale to support our customers.

Convergys acquisition

On October 5, 2018, we acquired 100% of Convergys, a customer experience outsourcing company, for a purchase price of approximately $2.3 billion. The acquisition is related to our Concentrix segment and we believe the acquisition adds scale, diversifies our revenue base, expands our service delivery footprint and strengthens our leadership position as a top global provider of customer engagement services.

Results of Operations

The following table sets forth, for the indicated periods, data as percentages of total revenue:

	Three Months Ended						Nine Months Ended
Statements of Operations Data:	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
Products revenue		81.37	%		89.89	%		79.74	%		89.61	%
Services revenue		18.63			10.11			20.26			10.39
Total revenue		100.00			100.00			100.00			100.00
Cost of products revenue		(76.51	)		(84.69	)		(74.97	)		(84.53	)
Cost of services revenue		(11.79	)		(6.39	)		(12.79	)		(6.52	)
Gross profit		11.70			8.92			12.25			8.95
Selling, general and administrative expenses		(8.34	)		(6.56	)		(9.07	)		(6.49	)
Operating income		3.37			2.36			3.18			2.46
Interest expense and finance charges, net		(0.69	)		(0.42	)		(0.74	)		(0.38	)
Other income (expense), net		(0.02	)		(0.02	)		0.12			(0.02	)
Income before income taxes		2.66			1.93			2.55			2.05
Provision for income taxes		(0.67	)		(0.54	)		(0.66	)		(0.75	)
Net income		1.98	%		1.39	%		1.89	%		1.30	%

Table of Contents

Certain non-GAAP financial information

In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), we also disclose certain non-GAAP financial information, including:

•

Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue for the three and nine months ended August 31, 2019 in the billing currency using their comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.

•

Non-GAAP operating income, which is operating income as adjusted to exclude acquisition-related and integration expenses, and the amortization of intangible assets.

•

Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.

•

Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation.

•

Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of (i) acquisition-related and integration expenses, (ii) amortization of intangible assets, and (iii) acquisition related contingent consideration and the per share amount of the net impact of the adjustments related to the Tax Cuts and Jobs Act of 2017.

We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used only as a complement to, and in conjunction with data presented in accordance with GAAP.

Table of Contents

Non-GAAP Financial Information:

The following table provides the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented:

	Three Months Ended						Nine Months Ended
	August 31, 2019			August 31, 2018			August 31, 2019			August 31, 2018
	(in thousands, except per share amounts)
Consolidated
Revenue	$	6,203,659		$	4,822,268		$	17,176,000		$	14,223,898
Foreign currency translation		19,243						127,181
Revenue in constant currency	$	6,222,902		$	4,822,268		$	17,303,181		$	14,223,898

Operating income	$	208,855		$	113,843		$	545,473		$	349,341
Acquisition-related and integration expenses		9,200			19,568			53,582			23,419
Amortization of intangibles		52,428			26,197			158,149			79,183
Non-GAAP operating income	$	270,483		$	159,608		$	757,204		$	451,943
Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses above)		38,597			22,511			119,004			67,031
Adjusted EBITDA	$	309,080		$	182,119		$	876,208		$	518,974

Operating margin		3.37	%		2.36	%		3.18	%		2.46	%
Non-GAAP operating margin		4.36	%		3.31	%		4.41	%		3.18	%

Diluted EPS	$	2.40		$	1.68		$	6.32		$	4.61
Acquisition-related and integration expenses		0.18			0.49			1.04			0.52
Amortization of intangibles		1.02			0.66			3.08			1.97
Contingent consideration		—			—			(0.37	)		—
Income taxes related to the above⁽¹⁾		(0.30	)		(0.32	)		(1.08	)		(0.70	)
U.S. tax reform adjustment		—			—			—			0.62
Non-GAAP diluted EPS	$	3.30		$	2.51		$	8.99		$	7.01

Technology Solutions
Revenue	$	5,047,970		$	4,334,767		$	13,695,729		$	12,746,673
Foreign currency translation		5,006						84,120
Revenue in constant currency	$	5,052,976		$	4,334,767		$	13,779,849		$	12,746,673

Operating income	$	138,830		$	101,775		$	352,594		$	279,926
Acquisition-related and integration expenses		—			2,498			981			6,349
Amortization of intangibles		10,999			12,524			32,968			37,802
Non-GAAP operating income	$	149,829		$	116,797		$	386,543		$	324,077
Depreciation		5,875			5,212			16,719			15,056
Adjusted EBITDA	$	155,704		$	122,009		$	403,262		$	339,133

Operating margin		2.75	%		2.35	%		2.57	%		2.20	%
Non-GAAP operating margin		2.97	%		2.69	%		2.82	%		2.54	%

Concentrix
Revenue	$	1,160,928		$	491,882		$	3,495,076		$	1,490,865
Foreign currency translation		14,237						43,061
Revenue in constant currency	$	1,175,165		$	491,882		$	3,538,137		$	1,490,865

Operating income	$	70,025		$	12,068		$	192,879		$	69,415
Acquisition-related and integration expenses		9,200			17,070			52,601			17,070
Amortization of intangibles		41,429			13,673			125,181			41,381
Non-GAAP operating income	$	120,654		$	42,811		$	370,661		$	127,866
Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses above)		32,722			17,299			102,285			51,975
Adjusted EBITDA	$	153,376		$	60,110		$	472,946		$	179,841

Operating margin		6.03	%		2.45	%		5.52	%		4.66	%
Non-GAAP operating margin		10.39	%		8.70	%		10.61	%		8.58	%

Table of Contents

(1)

The tax effect of taxable and deductible non-GAAP adjustments was calculated using the effective year-to-date tax rate during the respective periods. The effective tax rate for fiscal year 2018 excludes the impact of the transition tax on accumulated overseas profits and the remeasurement of deferred tax assets and liabilities to the new U.S. tax rate related to the enactment of the Tax Cuts and Jobs Act of 2017.

Three and Nine Months Ended August 31, 2019 and 2018

Revenue

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Revenue	$	6,203,659		$	4,822,268			28.6	%	$	17,176,000		$	14,223,898			20.8	%
Technology Solutions revenue		5,047,970			4,334,767			16.5	%		13,695,729			12,746,673			7.4	%
Concentrix revenue		1,160,928			491,882			136.0	%		3,495,076			1,490,865			134.4	%
Inter-segment elimination		(5,240	)		(4,382	)					(14,805	)		(13,639	)

Our revenue includes sales of products and services. In our Technology Solutions segment, we distribute a comprehensive range of products for the technology industry and design and integrate data center servers. The prices of our products are highly dependent on the volumes purchased within a product category. The products we sell from one period to the next are often not comparable due to changes in product models, features and customer demand requirements. As our software and security OEM vendors transition to “as-a-Service” type product offerings, more of our revenue is being recorded on a net basis, which impacts our revenue growth and gross margin trends. Accounting guidance generally requires the invoiced value of such transactions to be offset against cost of revenue. Consequently, the margin earned on such transactions is recorded as our revenue, with no associated cost of revenue, resulting in lower revenue and higher gross margins. The revenue generated by our Concentrix segment relates to business outsourcing services focused on process optimization, customer engagement and back office automation. Inter-segment elimination represents services generated between our reportable segments that are eliminated on consolidation. Substantially all of the inter-segment revenue represents services provided by the Concentrix segment to the Technology Solutions segment.

Revenue in our Technology Solutions segment increased during the three and nine months ended August 31, 2019 compared to the prior year periods, due to broad-based growth across our product portfolio, primarily in the United States and larger project and integration based transactions. This increase was partially offset by the adverse impact of foreign currency translation.

Revenue in our Concentrix segment increased during the three and nine months ended August 31, 2019 compared to the prior year periods, primarily due to the impact of the Convergys acquisition in October 2018 and the growth in technology, banking and financial services and travel and transportation industries, partially offset by the unfavorable impact of currency translation.

Gross Profit

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Gross profit	$	725,990		$	430,117			68.8	%	$	2,103,379		$	1,272,790			65.3	%
Gross margin		11.70	%		8.92	%					12.25	%		8.95	%
Technology Solutions gross profit	$	301,774		$	250,938			20.3	%	$	819,319		$	722,556			13.4	%
Technology Solutions gross margin		5.98	%		5.79	%					5.98	%		5.67	%
Concentrix gross profit	$	426,181		$	181,053			135.4	%	$	1,290,017		$	555,536			132.2	%
Concentrix gross margin		36.71	%		36.81	%					36.91	%		37.26	%
Inter-segment elimination	$	(1,964	)	$	(1,874	)				$	(5,957	)	$	(5,302	)

Our Technology Solutions gross margin is affected by a variety of factors, including competition, selling prices, mix of products and services, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses, acquisition of business units and fluctuations in revenue. Concentrix margins, which are higher than those in our Technology Solutions segment, can be impacted by resource location, customer mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.

Technology Solutions gross profit and margin, during the three and nine months ended August 31, 2019, increased compared to the prior periods primarily due to product mix, including larger project and integration based transactions, and broad-based growth across our product portfolio, primarily in the United States. The increase in gross margin during the nine months ended August 31, 2019 was also attributable to a higher proportion of our revenue generated from sales of products and services where revenue is reported on a net basis by recognizing the margins earned in revenue with no associated cost of revenue.

Table of Contents

Concentrix gross profit during the three and nine months ended August 31, 2019 increased compared to the prior year periods mainly due to the Convergys acquisition. Concentrix gross margin during the three and nine months ended August 31, 2019 decreased compared to the prior year periods primarily due to customer mix.

Selling, General and Administrative Expenses

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Selling, general and administrative expenses	$	517,135		$	316,274			63.5	%	$	1,557,906		$	923,449			68.7	%
Percentage of revenue		8.34	%		6.56	%					9.07	%		6.49	%
Technology Solutions selling, general and administrative expenses	$	162,944		$	149,163			9.2	%	$	466,725		$	442,630			5.4	%
Technology Solutions percentage of revenue		3.23	%		3.44	%					3.41	%		3.47	%
Concentrix selling, general and administrative expenses	$	356,155		$	168,984			110.8	%	$	1,097,139		$	486,120			125.7	%
Concentrix percentage of revenue		30.68	%		34.35	%					31.39	%		32.61	%
Inter-segment elimination	$	(1,964	)	$	(1,874	)				$	(5,957	)	$	(5,302	)

Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our non-technology related intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.

During the three and nine months ended August 31, 2019, selling, general and administrative expenses in our Technology Solutions segment increased compared to the prior year periods, primarily due to additional investments in infrastructure and associates to support our growth, partially offset by a decrease in amortization of intangible assets and acquisition-related and integration expenses.

Concentrix selling, general and administrative expenses increased during the three months ended August 31, 2019, compared to the prior year period, primarily due to the Convergys acquisition in October 2018 and an increase in the amortization of intangible assets by $27.8 million. This increase was partially offset by lower acquisition-related and integration costs of $7.9 million and favorable foreign currency translation. Concentrix selling, general and administrative expenses increased during the nine months ended August 31, 2019, compared to the prior year period, primarily due to the Convergys acquisition in October 2018, increases in the amortization of intangible assets by $83.9 million and acquisition-related and integration expenses by $35.3 million. These increases were partially offset by favorable foreign currency translation.

Operating income

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Operating income	$	208,855		$	113,843			83.5	%	$	545,473		$	349,341			56.1	%
Operating margin		3.37	%		2.36	%					3.18	%		2.46	%
Technology Solutions operating income	$	138,830		$	101,775			36.4	%	$	352,594		$	279,926			26.0	%
Technology Solutions operating margin		2.75	%		2.35	%					2.57	%		2.20	%
Concentrix operating income	$	70,025		$	12,068			480.3	%	$	192,879		$	69,415			177.9	%
Concentrix operating margin		6.03	%		2.45	%					5.52	%		4.66	%

Operating income and margin in our Technology Solutions segment increased during the three and nine months ended August 31, 2019, compared to the prior year periods, due to broad-based growth across our product portfolio, primarily in the United States, and scale efficiencies. Operating margin also increased due to the impact of a higher proportion of our revenue being reported on a net revenue basis.

Operating income and margin in our Concentrix segment increased during the three and nine months ended August 31, 2019, compared to the prior year periods, due to the Convergys acquisition, integration synergies and net favorable impact of foreign currency translation.

Interest Expense and Finance Charges, Net

Table of Contents

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Interest expense and finance charges, net	$	42,945		$	20,058			114.1	%	$	127,695		$	53,884			137.0	%
Percentage of revenue		0.69	%		0.42	%					0.74	%		0.38	%

Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit and term loans, fees associated with third party accounts receivable flooring arrangements and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments.

During the three and nine months ended August 31, 2019, our interest expense and finance charges, net, increased compared to the prior year periods, primarily due to additional borrowings to fund the Convergys acquisition and support growth in our Technology Solutions segment. $2.0 billion of our outstanding borrowings of $3.3 billion at August 31, 2019 have been economically converted to fixed-rate debt through interest rate swaps, resulting in an average borrowing cost of approximately 4.5% for the nine months ended August 31, 2019.

Other Income (Expense), Net

	Three Months Ended August 31,						Percent			Nine Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Other income (expense), net	$	(1,087	)	$	(872	)		(24.7	)%	$	19,764		$	(3,497	)		665.2	%
Percentage of revenue		(0.02	)%		(0.02	)%					0.12	%		(0.02	)%

Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, investment gains and losses, non-service component of pension costs, debt extinguishment gains and losses and other non-operating gains and losses, such as changes in the fair value of convertible debt conversion spread, and settlements received from class actions lawsuits.

During the three months ended August 31, 2019, other income (expense), net was consistent with the comparative prior year period. During the nine months ended August 31, 2019, net other income (expense) increased from net other (expense) of $3.5 million in the prior year period to a net other income of $19.8 million primarily due to a $19.0 million gain upon the settlement of contingent consideration related to our acquisition of Westcon-Comstor Americas in fiscal year 2017 and net foreign currency exchange gains in the current period compared to net foreign currency exchange losses in the prior year period.

Provision for Income Taxes

	Three Months Ended August 31,						Percent			Three Months Ended August 31,						Percent
	2019			2018			Change			2019			2018			Change
	(in thousands)									(in thousands)
Provision for income taxes	$	41,691		$	25,973			60.5	%	$	112,831		$	107,181			5.3	%
Percentage of income before income taxes		25.29	%		27.95	%					25.79	%		36.71	%

Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Income taxes for the interim periods presented have been included in the accompanying consolidated financial statements on the basis of an estimated annual effective tax rate.

During the three and nine months ended August 31, 2019, our income tax expense increased compared to the prior year periods, due to the increase in our income before taxes. The effective tax rate for the three and nine months ended August 31, 2019 decreased, compared to the respective prior year periods, primarily due to the Tax Cuts and Jobs Act of 2017 (“TCJA”) and the mix of income earned in different tax jurisdictions. The decrease during the nine months ended August 31, 2019 was also due to the favorable impact of the nontaxable contingent consideration gain related to the Westcon-Comstor Americas acquisition and the discrete impact of a provisional net tax charge of $24.7 million related to the TCJA recorded in the prior year period.

Table of Contents

Liquidity and Capital Resources

Cash Conversion Cycle

		Three Months Ended
		August 31, 2019		August 31, 2018
		(Amounts in thousands)
Days sales outstanding
Revenue (products and services)	(a)	$	6,203,659	$	4,822,268
Accounts receivable, net	(b)		3,452,976		2,727,276
Days sales outstanding	(c) = (b)/((a)/the number of days during the period)		51		52

Days inventory outstanding
Cost of revenue (products and services)	(d)	$	5,477,669	$	4,392,151
Inventories	(e)		2,787,159		1,927,713
Days inventory outstanding	(f) = (e)/((d)/the number of days during the period)		47		40

Days payable outstanding
Cost of revenue (products and services)	(g)	$	5,477,669	$	4,392,151
Accounts payable	(h)		2,932,046		2,235,139
Days payable outstanding	(i) = (h)/((g)/the number of days during the period)		49		47

Cash conversion cycle	(j) = (c)+(f)-(i)		49		45

Cash Flows

Our Technology Solutions business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, accounts receivable arrangements, our securitization programs, and our revolver programs for our working capital needs. We have financed our growth and cash needs to date primarily through cash generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. Concentrix working capital is primarily comprised of accounts receivable. Our cash conversion cycle was 49 days and 45 days as of August 31, 2019 and 2018, respectively. The increase was due to higher inventory levels, primarily because the accounting for certain shipments was deferred in accordance with revenue recognition rules, as well as higher business volumes in fiscal year 2019 compared to fiscal year 2018. The increase was partially offset by the favorable impact of the Convergys acquisition and timing of collections of accounts receivable and payments of accounts payable.

To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.

Net cash provided by operating activities was $202.5 million during the nine months ended August 31, 2019, primarily due to net income of $324.7 million, adjustments for non-cash items of $295.1 million, and a decrease in accounts receivable of $148.1 million. These cash inflows were partially offset by an increase in inventories of $390.0 million, a decrease in accounts payable of $119.6 million, and a net change in other operating assets and liabilities of $69.1 million. The decrease in accounts receivable and payable was primarily due to timing of collections and payments, respectively. Accounts receivable was also lower due to lower days sales outstanding compared to the fourth quarter of fiscal year 2018. The increase in inventories was primarily due to strong demand for our systems design and integration solutions business, where we carry higher levels of inventories, and higher anticipated seasonal demand in the fourth quarter. The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, stock-based compensation expense, a $19.0 million gain recorded upon the settlement of contingent consideration related to our Westcon-Comstor Americas acquisition in fiscal year 2017, and deferred tax benefit.

Net cash used in operating activities was $40.4 million during the nine months ended August 31, 2018, primarily due to a decrease in accounts payable of $387.5 million, an increase in accounts receivable of $83.3 million and an increase in vendor receivable of $55.8 million, partially offset by net income of $184.8 million, adjustments for non-cash items of $140.5 million, a decrease in inventories of $103.4 million and a net change in other assets and liabilities of $57.6 million. The increase in accounts receivable and vendor receivable was primarily due to timing and higher days sales outstanding compared to the fourth quarter of fiscal year 2017. The decrease in inventories and accounts payable was primarily due to lower revenue in the Technology Solutions segment during the three months ended August 31, 2018 compared to a seasonally high fourth quarter of fiscal year 2017. In addition, inventories were lower in our systems design and integration solutions business due to higher stocking requirements in the prior year due to component shortages. The decrease in accounts payable was also impacted by timing of

Table of Contents

payments. The adjustments for non-cash items consist primarily of amortization and depreciation, stock-based compensation expense and the deferred tax benefit related to the remeasurement of deferred tax assets and liabilities to the new U.S. tax rate due to the enactment of the TCJA.

Net cash used in investing activities during the nine months ended August 31, 2019 was $102.3 million, primarily due to capital expenditures of $93.4 million related to infrastructure investments to support growth in both of our business segments and $8.6 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition.

Net cash used in investing activities during the nine months ended August 31, 2018 was $74.4 million, primarily due to capital expenditures of $75.5 million, related substantially to our Concentrix segment. In addition, we made a final payment of $8.2 million for the acquisition of Tigerspike and received a refund of $2.3 million from Datatec towards the settlement of certain pre-acquisition intra-Datatec group transactions related to our acquisition of Westcon-Comstor Americas.

Net cash used in financing activities during the nine months ended August 31, 2019 was $298.4 million primarily due to net repayments under our borrowing arrangements of $214.1 million. Cash generated from operations was used to pay down revolving lines of credit. During the nine months ended August 31, 2019, the Company drew the last tranche of $250.0 million under a term loan facility obtained in fiscal year 2018 for the Convergys acquisition for the settlement of the remaining amount of convertible debentures assumed as part of the acquisition and the remainder was used for working capital. The Company also returned cash to stockholders in the form of $57.5 million of dividend payments, $15.2 million of repurchases of our common stock. $14.0 million of cash was used to pay the contingent consideration related to our Westcon-Comstor Americas acquisition.

Net cash used in financing activities during the nine months ended August 31, 2018 was $223.1 million, consisting primarily of $114.8 million of net repayments under our borrowing arrangements and a return of cash to stockholders in the form of $56.0 million of repurchases of common stock and $41.8 million of dividend payments. In addition, we paid $8.0 million in fees to lenders to secure term loan commitments to fund the Convergys acquisition.

Capital Resources

Our cash and cash equivalents totaled $262.3 million and $454.7 million as of August 31, 2019 and November 30, 2018, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $193.8 million and $301.1 million as of August 31, 2019 and November 30, 2018, respectively. Our cash and cash equivalents held by foreign subsidiaries are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our consolidated financial statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.

We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations and our existing sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies, including for operations of the acquired Convergys business. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.

Historically, we have renewed our accounts receivable securitization program and our U.S. credit facility agreement described below on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.

On-Balance Sheet Arrangements

In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, which expires in fiscal year 2020, our subsidiary, which is the borrower under this facility, can borrow up to a maximum of $850.0 million based upon eligible trade accounts receivable. In addition, the U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $150.0 million. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders that includes prevailing dealer commercial paper rates and a rate based upon LIBOR, provided that LIBOR shall not be less than zero. In addition, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum is payable on the adjusted commitment of the lenders.

Under the terms of the U.S. AR Arrangement, we and two of our U.S. subsidiaries sell, on a revolving basis, our eligible receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by our bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. As of August 31, 2019 and November 30, 2018, $379.7 million and $615.0 million, respectively, was outstanding under the U.S. AR Arrangement.

Table of Contents

In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to 100.0 million, or $75.1 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 10, 2020. The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additional 50.0 million, or $37.6 million. Any amounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables to the bank. The effective borrowing cost is based on the weighted average of the Canadian Dollar Offered Rate plus a margin of 2.00% per annum and the prevailing lender commercial paper rates. In addition, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up to CAD60.0 million, or $45.1 million, and when the unused portion exceeds CAD60.0 million, or $45.1 million, a fee of 0.40% on the first CAD25.0 million, or $18.8 million, of the unused portion and a fee of 0.55% per annum on the remaining unused commitment. As of both August 31, 2019 and November 30, 2018, there was no outstanding balance under this arrangement.

SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or $141.1 million. The credit agreement is comprised of a JPY7.0 billion, or $65.9 million, term loan and a JPY8.0 billion, or $75.3 million, revolving credit facility and expires in November 2021. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on our consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on our consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations of SYNNEX Japan under this facility. As of August 31, 2019 and November 30, 2018, the balances outstanding under the term loan component of these facilities were $65.9 million and $61.7 million, respectively. Balances outstanding under the revolving credit facilities were $32.5 million and $20.3 million as of August 31, 2019 and November 30, 2018, respectively.

One of our subsidiaries in Mexico maintains a United States Dollars denominated $40.0 million revolving credit facility with a financial institution (the “LATAM facility”). The facility matures in February 2020. We guarantee the obligations under this credit facility. The interest rate on this facility ranges from 10.51% to 10.74%.

There were no borrowings outstanding under the LATAM facility as of either August 31, 2019 or November 30, 2018.

Our Indian subsidiaries have credit facilities with a financial institution to borrow up to an aggregate amount of $22.0 million. The interest rate under these facilities is the higher of the bank's minimum lending rate or LIBOR, plus a margin of 0.9% per annum. We guarantee the obligations under these credit facilities. These credit facilities can be terminated at any time by our Indian subsidiaries or the financial institution.

There were no borrowings outstanding under these credit facilities as of either August 31, 2019 or November 30, 2018.

In the United States, we have a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement includes a $600.0 million commitment for a revolving credit facility and a term loan in the original principal amount of $1.2 billion. We may request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $500.0 million, plus an additional amount which is dependent upon our pro forma first lien leverage ratio, as calculated under the U.S. Credit Agreement. The U.S. Credit Agreement matures in September 2022. The outstanding principal amount of the term loan is repayable in quarterly installments of $15.0 million, with the unpaid balance due in full on the September 2022 maturity date. The term loan can be repaid at any time prior to the expiration date without penalty. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.50%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus 1.00%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio, as calculated under the U.S. Credit Agreement. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of our United States domestic subsidiaries. As of both August 31, 2019 and November 30, 2018, the balance outstanding under the term loan component of the U.S. Credit Agreement was $1.1 billion. There were no borrowings outstanding under the revolving line of credit under the U.S. Credit Agreement as of either August 31, 2019 or November 30, 2018.

In order to fund the Convergys acquisition, the related refinancing or settlement of Convergys' debt and payment of related fees and expenses, we entered into a secured term loan credit agreement on August 9, 2018 (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, which provided for the extension of one or more term loans in an aggregate principal amount not to exceed $1.8 billion. The U.S. Term Loan Credit Agreement matures in October 2023. Until November 30, 2018, we had drawn $1.6 billion of term loans. During the nine months ended August 31, 2019, we borrowed the remaining available amount of $250.0 million under this facility, to settle part of Convergys' outstanding Convertible Debentures. The outstanding principal amount of the term loans is payable in quarterly installments of $22.5 million, with the unpaid balance due in full on the maturity date. The term loan can be repaid at any time prior to the expiration date without penalty. Interest on borrowings under the U.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loan ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and

Table of Contents

(c) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. During the period in which the term loans were available to be drawn, we paid term loan commitment fees. The margins above our applicable interest rates are, and the term loan commitment fee were, based on our consolidated leverage ratio as calculated under the U.S. Term Loan Credit Agreement. Our obligations under the U.S. Term Loan Credit Agreement are secured by substantially all of the parent company and certain of its domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. As of August 31, 2019 and November 30, 2018, the balances outstanding under the U.S. Term Loan Credit Agreement were $1.8 billion and $1.6 billion, respectively.

SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to 50.0 million, or $37.6 million. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S. Base Rate. As of both August 31, 2019 and November 30, 2018, there were no borrowings outstanding under this credit facility.

Other borrowings and term debt include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As of August 31, 2019 commitments for these revolving credit facilities aggregated $27.9 million. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are guaranteed by us or secured by eligible accounts receivable. As of August 31, 2019 and November 30, 2018, the balances outstanding under these revolving credit facilities were $4.1 million and $5.0 million, respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at August 31, 2019 exchange rates.

Off-Balance Sheet Arrangements

We have financing programs in the United States and Japan under which trade accounts receivable of certain customers may be sold to financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. At August 31, 2019 and November 30, 2018, we had a total of $29.5 million and $36.5 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.

Covenant Compliance

Our credit facilities have a number of covenants and restrictions that, among other things, require us to maintain specified financial ratios and satisfy certain financial condition tests. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our 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. As of August 31, 2019, we were in compliance with all material covenants for the above arrangements.

Contractual Obligations

Our contractual obligations consist of future payments due under our loans, and repatriation tax under the TCJA which are already recorded on our Consolidated Balance Sheet. In addition, our contractual obligations include interest on our debt and payments for our operating lease arrangements. As of August 31, 2019, there have been no material changes from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2018. For more information on our future minimum rental obligations under non-cancellable lease agreements as of August 31, 2019, see Note 16 to the Consolidated Financial Statements.

Guarantees

We are contingently liable under agreements, without expiration dates, to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by our customers. There have been no repurchases through August 31, 2019 under these agreements and we are not aware of any pending customer defaults or repossession obligations. As we do not have access to information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated. As of August 31, 2019 and November 30, 2018, accounts receivable subject to flooring arrangements was $84.7 million. For more information on our third-party revolving short-term financing arrangements, see Note 9 to the Consolidated Financial Statements.

Related Party Transactions

We have a business relationship with MiTAC Holdings, a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of both August 31, 2019 and November 30, 2018, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock. Mr. Matthew Miau, the Chairman Emeritus of our Board of Directors and a director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates.

Table of Contents

The shares owned by MiTAC Holdings are held by the following entities:

	As of August 31, 2019
	(in thousands)
MiTAC Holdings⁽¹⁾		5,240
Synnex Technology International Corp.⁽²⁾		3,860
Total		9,100

	(1	)		Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 366 thousand shares held directly by Mr. Miau, 217 thousand shares indirectly held by Mr. Miau through a charitable remainder trust, and 9 thousand shares held by his spouse.
	(2	)		Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 14.4% in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.

MiTAC Holdings generally has significant influence over us regarding matters submitted to stockholders for consideration, including any merger or acquisition of ours. Among other things, this could have the effect of delaying, deterring or preventing a change of control over us.

We purchased inventories from MiTAC Holdings and its affiliates totaling $42.0 million and $120.1 million during the three and nine months ended August 31, 2019, respectively, and totaling $62.7 million and $164.8 million, respectively, during the three and nine months ended August 31, 2018. Our sales to MiTAC Holdings and its affiliates totaled $0.1 million and $0.5 million during the three and nine months ended August 31, 2019, respectively, and totaled $1.4 million and $2.3 million, respectively, during the three and nine months ended August 31, 2018. In addition, we received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings amounting to $0 during both the three and nine months ended August 31, 2019, and $0 and $71,000 during the three and nine months ended August 31, 2018, respectively.

As of August 31, 2019 and November 30, 2018, our payables to MiTAC Holdings and its affiliates were $17.2 million and $22.9 million, respectively. As of August 31, 2019 and November 30, 2018, our receivables from MiTAC Holdings and its affiliates were $330,000 and $65,000, respectively.

Our business relationship with MiTAC Holdings and its affiliates has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate pricing and other material terms on a case-by-case basis with MiTAC Holdings. We have adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition, Mr. Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors.

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 our potential competitor. MiTAC Holdings and its affiliates are not restricted from competing with us.

Recently Issued Accounting Pronouncements

For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 2 to the Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our quantitative and qualitative disclosures about market risk during the nine months ended August 31, 2019 from our Annual Report on Form 10-K for the fiscal year ended November 30, 2018. For a discussion of the Company's exposure to market risk, reference is made to disclosures set forth in Part II, Item 7A of our above-mentioned Annual Report on Form 10-K.

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Table of Contents

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II - OTHER INFORMATION

ITEM 1A. Risk Factors

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I-Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended November 30, 2018. There have been no material changes from the risk factors disclosed in our 2018 Annual Report on Form 10-K.

Table of Contents

ITEM 6. Exhibits



Exhibit Number		Description of Document


31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1*		Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 4, 2019

SYNNEX CORPORATION



By:		/s/ Dennis Polk
		Dennis Polk
		President and Chief Executive Officer
		(Duly authorized officer and principal executive officer)



By:		/s/ Marshall W. Witt
		Marshall W. Witt
		Chief Financial Officer
		(Duly authorized officer and principal financial officer)