SYNNEX Corporation (“SYNNEX”) is filing this Exhibit 99.1 to our Current Report on Form 8-K to reflect the reclassification of operations between continuing and discontinued operations in accordance with the provisions of “Presentation of Financial Statements” in the Accounting Standards Codification (“ASC”).

On December 1, 2020, the Company completed the previously announced separation of its customer experience services business (the “Separation”) that was included within continuing operations as of November 30, 2020 in our Annual Report on Form 10-K for the year ended November 30, 2020 (the “2020 Annual Report”). In accordance with the provisions of “Presentation of Financial Statements” in the ASC, the results of operations of this discontinued operations were removed from the results of continuing operations and were included in the results of discontinued operations in SYNNEX’ Quarterly Report on Form 10-Q for the first quarter ended February 28, 2021.

This Exhibit 99.1 to our Current Report on Form 8-K updates certain financial information for the years ended November 30, 2020, 2019 and 2018 and related disclosure presented in Item 6, 7, 7A, 8 and 15(a) of the 2020 Annual Report to reflect the reclassification of operations between continuing and discontinued operations during the first quarter ended February 28, 2021 as discussed above. This reclassification has no effect on SYNNEX’:

 

 

 

 

 

 

Unless otherwise noted, the information in this Exhibit 99.1 to our Current Report on Form 8-K are as of the date of our Current Report and do not reflect events occurring after the filing of the 2020 Annual Report and do not modify or update the disclosures therein in any way for any information, uncertainties, transactions, risks, events or trends occurring, or known to management, other than as specifically required to reflect the reclassification of operations between continuing and discontinued operations as noted herein. Other than the sections of the 2020 Annual Report that are revised herein, all other information in the 2020 Annual Report remains unchanged and has not been otherwise updated for events occurring after the filing of the 2020 Annual Report, and continues to speak only as of the original filing date.

More recent information, including risk factors, is contained in SYNNEX’ Form 10-Q for the fiscal quarter ended February 28, 2021 and May 31, 2021, and other filings made by SYNNEX with the SEC. These SEC filings contain important information regarding events, developments and updates affecting SYNNEX and its expectations, including those that have occurred since the filing of the 2020 Form 10-K. Accordingly, this Exhibit 99.1 to our Current Report on Form 8-K should be read in conjunction with SYNNEX’ Form 10-Q for the fiscal quarter ended February 28, 2021 and May 31, 2021, and other filings made by SYNNEX with the SEC.

This Exhibit 99.1 to our Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding expectations regarding the outstanding indebtedness of the combined company. When used in this Exhibit 99.1 to our Current Report on Form 8-K, 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 and expected trends related thereto, expansion and scaling of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets including our proposed acquisition of Tech Data and the timing and impact thereof, our goodwill, seasonality of sales, adequacy of our capital resources to meet our capital needs, cash held by our international subsidiaries and repatriation, changes in fair value of derivative instruments, 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 and repatriation expectations, our share repurchase and dividend program, our securitization programs and revolving credit lines, our investments in working capital, personnel, facilities and operations. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the risks detailed from time to time in SYNNEX’ filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended November 30, 2020. The forward-looking statements in this Current Report are based on information available to SYNNEX as of the date hereof, and SYNNEX does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made except as required by law.

These forward-looking statements are based on our current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors which may cause actual results to differ materially from our projections include those risks described in elsewhere in this report, as well as:

 

 

 

 

 

 

 

 

 

 

 

 

1

The following selected consolidated financial data are qualified by reference to, and should be read together with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Exhibit 99.1 to our Current Report on Form 8-K and the Consolidated Financial Statements and related Notes included in Item 8 of this Exhibit 99.1 to our Current Report on Form 8-K. The selected Consolidated Statements of Operations and other data presented below for fiscal years 2020, 2019 and 2018 and the consolidated balance sheet data as of November 30, 2020 and 2019 have been derived from our audited Consolidated Financial Statements included elsewhere in this Exhibit 99.1 to our Current Report on Form 8-K. The Consolidated Statements of Operations and other data for fiscal years 2017 and 2016 and the Consolidated Balance Sheet data as of November 30, 2018, 2017 and 2016 have been derived from our Consolidated Financial Statements that are not included elsewhere in this Exhibit 99.1 to our Current Report on Form 8-K. The Consolidated Statements of Operations data include the operating results from our acquisitions from the closing date of each acquisition. Historical operating results are not necessarily indicative of the results that may be expected for any future period. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to our Consolidated Financial Statements included elsewhere in this Exhibit 99.1 to our Current Report on Form 8-K for a discussion of factors, such as business combinations and the adoption of new accounting guidance, that affect the comparability of the following selected consolidated financial data.

 

 

 

 

 

 

2

For an understanding of SYNNEX and the significant factors that influenced our performance during the past three fiscal years, the following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6 Selected Financial Data and Item 8 Financial Statements and Supplementary Data included in this Exhibit 99.1 to our Current Report on Form 8-K. Amounts in certain tables appearing may not add or compute due to rounding.

We are a Fortune 200 corporation and a leading provider of a comprehensive range of distribution, systems design and integration solutions for the technology industry.

On December 1, 2020, we completed the previously announced separation of our customer experience services business (the “Separation”), which was accomplished by the distribution of one hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”) to our stockholders as of the close of business on November 17, 2020, the record date for the distribution. Our stockholders received one share of Concentrix common stock for every share of our common stock held at the close of business on the record date. Concentrix is now an independent public company trading under the symbol “CNXC” on the Nasdaq Stock Market. After the Separation, we do not beneficially own any shares of Concentrix’ common stock and beginning December 1, 2020, we no longer consolidate Concentrix within our financial results or reflect the financial results of Concentrix within our continuing results of operations. We distributed a total of approximately 51.6 million shares of Concentrix common stock to our stockholders. In connection with the Separation, we have entered into a separation and distribution agreement, as well as various other agreements with Concentrix that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide services to us following the Separation.

We distribute peripherals, information technology (“IT”) systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics (“CE”) and complementary products. We also provide systems design and integration solutions.

In fiscal years 2020, 2019 and 2018, approximately 24%, 23% and 23% of our revenue, was generated from our international operations. As a result, our revenue growth has been impacted by fluctuations in foreign currency exchange rates.

The market for IT products is generally characterized by declining unit prices and short product life cycles. Our overall business is also highly competitive on the basis of price. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide. From time to time, we also participate in the incentive and rebate programs of our OEM suppliers. These programs are important determinants of the final sales price we charge to our reseller customers. To mitigate the risk of declining prices and obsolescence of our distribution inventory, our OEM suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them. We carefully manage our inventory to maximize the benefit to us of these supplier provided protections.

A significant portion of our cost of revenue is the purchase price we pay our OEM suppliers for the products we sell, net of any incentives, rebates, price protection and purchase discounts received from our OEM suppliers. Cost of revenue also consists of provisions for inventory losses and write-downs, freight expenses associated with the receipt in and shipment out of our inventory, and royalties due to OEM vendors. In addition, cost of revenue includes the cost of material, labor and overhead for our systems design and integration solutions.

Revenue and cost of revenue in our business relate to various IT products.

 

3

The products distribution industry in which we operate 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. Our gross margin has fluctuated annually due to changes in the mix of products we offer, customers we sell to, incentives and rebates received from our OEM suppliers, competition, seasonality, replacement of lower margin business, inventory obsolescence, and lower costs associated with increased efficiencies. Generally, when our revenue becomes more concentrated on limited products or customers, our gross margin tends to decrease due to increased pricing pressure from OEM suppliers or reseller customers. Our operating margin has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, changes in the relative mix of our revenue, and the timing of our acquisitions and investments.

end-market

end-market

(“COVID-19”).

COVID-19

COVID-19

COVID-19

on-premise

COVID-19

The discussions and analysis of our consolidated financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our Consolidated Financial Statements.

We generate revenue primarily from the sale of various IT products.

We recognize 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. We account 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. Binding purchase orders from customers together with agreement to our terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer. Products sold by us are delivered via shipment from our facilities, drop-shipment directly from the vendor, or by electronic delivery of software products. In situations where arrangements include customer acceptance provisions, revenue is recognized when we can objectively verify the products comply with specifications underlying acceptance and the customer has control of the products. Revenue is presented net of taxes collected from customers and remitted to government authorities. We generally invoice a customer upon shipment, or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Service revenues represents less than 10% of the total revenue for the periods presented.

 

4

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. 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.

We recognize revenue on a net basis on certain contracts, where our 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 we do 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 our revenue, include supplier service contracts, post-contract software support services and extended warranty contracts.

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

We continually seek to augment organic growth in our business 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 business, we seek to acquire new OEM relationships, enhance our supply chain and integration capabilities, the services we provide to our customers and OEM suppliers, and expand our geographic footprint.

On March 22, 2021, we announced that we had entered into a merger agreement to acquire 100% of the parent company of Tech Data Corporation, a Florida Corporation (“Tech Data”) in a cash and stock transaction (the “Merger”). The consideration payable to the stockholder that owns Tech Data consists of $1.61 billion in cash and 44 million shares of our common stock (the “Merger Consideration”). Following the proposed transaction, the sole stockholder of Tech Data will own approximately 45.9% of our stock on a fully diluted basis, based on our shares outstanding as of May 31, 2021. If the Merger is not consummated, then under certain circumstances we would be obligated to pay Tech Data a termination fee ranging from $40.9 million to $131.7 million.

The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities. For the twelve months ended January 31, 2021, Tech Data generated approximately $36 billion in revenue and approximately $21 million of net income.

Tech Data and we filed their respective notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the Merger with the Federal Trade Commission and Department of Justice. The waiting period for filings made by both Tech Data and us expired on June 4, 2021.

On June 30, 2021, we received stockholder approval for the issuance of shares of SYNNEX common stock in connection with the initial merger contemplated by the Merger Agreement. We expect the transaction to close on or around September 1, 2021.

 

5

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

 

The financial results of the former Concentrix business are presented as income from discontinued operations, net of taxes in the Statements of Operations data.

COVID-19

Certain financial information

non-GAAP

 

 

 

 

 

divestitures/spin-off

non-GAAP

 

6

non-GAAP

non-GAAP

non-GAAP

non-GAAP

non-GAAP

non-GAAP

Financial Information:

 

 

 

7

 

Our revenue includes sales of products. We distribute a comprehensive range of products for the technology industry and design and integrate data center equipment. 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.

COVID-19

Revenue increased in fiscal year 2019 compared to fiscal year 2018 primarily due to broad-based strength in system components, IT systems, networking equipment and peripherals, primarily in the United States, which was partially offset by a decrease driven by revenue that is subject to net revenue presentation, primarily consisting of software, cloud and security products. By product category, our sales of system components, networking equipment, IT systems and peripherals, in fiscal year 2019, increased by 32%, 14%, 9% and 3%, respectively, while sales of software decreased by 1%. On a constant currency basis, revenue increased by 10.6% during fiscal year 2019, compared to fiscal year 2018.

 

Our gross margin is affected by a variety of factors, including competition, selling prices, mix of products, 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.

COVID-19

Our gross profit increased in fiscal year 2019, as compared to the prior fiscal year, primarily due to product mix, including higher yielding project and integration-based transactions, and broad-based growth across our product portfolio, primarily in the United States. This increase was partially offset by net unfavorable foreign currency translation. The increase in gross margin during the fiscal year ended November 30, 2019 was also attributable to an increase in our revenue generated from sales of products where revenue is reported on a net basis by recognizing the margins earned in revenue with no associated cost of revenue.

 

non-integration

non-technology

COVID-19.

COVID-19

 

8

Selling, general and administrative expenses increased in fiscal year 2019, compared to fiscal year 2018, primarily due to an increase in investments in our associates to support growth and incremental bad debt provision for specific customers, partially offset by a decrease in amortization of intangible assets and acquisition-related and integration expenses. Scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of segment revenue in the current year, compared to the prior year period.

 

COVID-19

Operating income and margin increased during fiscal year 2019, compared to the prior year, due to broad-based growth, higher operating income from our systems design and integration solutions and a decrease in the amortization of intangible assets and acquisition-related and integration expenses.

 

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.

The increase in our interest expense and finance charges net, during the fiscal year 2020, compared to the prior year, was primarily due to increased financing activities related to growth in the business and the planned Separation of Concentrix.

The increase in our interest expense and finance charges, net, during the fiscal year 2019, compared to the prior year, was due to an increase in our average borrowings during fiscal year 2019, as compared to the prior year, as well as a higher interest rate environment.

 

non-service

non-operating

sales-tax

write-off

 

9

sales-tax

 

Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.

Our income tax expense decreased during the fiscal year ended November 30, 2020, as compared to the prior year, due to the decrease in our effective tax rate. The effective tax rate for fiscal year 2020 was lower compared to the prior year, due to the benefit from the exercise of employee stock options and reversal of uncertain tax positions. The comparative decrease in the effective tax rate for fiscal year 2020 was partially offset by the favorable impact of a nontaxable contingent consideration gain recorded in the prior year period related to the fiscal year 2017 Westcon-Comstor Americas acquisition.

non-taxable

 

Income from discontinued operation includes net income from Concentrix during fiscal year ended November 30, 2020, 2019 and 2018, prior to Separation on December 1, 2020.

 

10

 

Our 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. We calculate CCC as days of the last fiscal quarter’s sales outstanding in accounts receivable plus days of supply on hand in inventory, less days of the last fiscal quarter’s direct cost outstanding in accounts payable. Our CCC was 25 days, 41 days and 42 days at the end of fiscal years 2020, 2019 and 2018, respectively. The decrease in fiscal year 2020, compared to the prior two years, was primarily due to efficient collections of accounts receivable and faster turnover of our inventories in the Company. In addition, our DPO was impacted by the timing of payments of accounts payable in our business.

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.

non-cash

COVID-19,

COVID-19.

non-cash

 

11

non-cash

non-cash

non-cash

non-cash

non-cash

Net cash used in investing activities in fiscal year 2020 was $209.5 million, primarily due to capital expenditures of $198.0 million related to infrastructure investments to support growth in both of our business segments and $5.6 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition, being paid in accordance with the original vesting schedule.

Net cash used in investing activities in fiscal year 2019 was $146.8 million, primarily due to capital expenditures of $137.4 million, principally related to infrastructure investments to support the anticipated growth in our business and from $9.4 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition.

non-qualified,

non-trade

COVID-19

Net cash used in financing activities in fiscal year 2019 was $631.7 million, primarily due to net repayments of $521.4 million under our borrowing arrangements. Cash generated from our operations was used to pay down revolving lines of credit. During fiscal year 2019, we drew the last tranche of $250.0 million under a term loan facility obtained in fiscal year 2018 for the Convergys acquisition, which was used for the settlement of the remaining amount of convertible debentures assumed as part of this acquisition, and the remainder used for working capital purposes. We also returned cash to stockholders through $76.6 million of dividend payments and $15.2 million of repurchases of our common stock. $14.0 million in cash was used to pay contingent consideration related to our Westcon-Comstor Americas acquisition.

Net cash provided by financing activities in fiscal year 2018 was $1.0 billion, consisting primarily of proceeds of $1.1 billion from borrowings, net of repayments and debt discount and issuance costs. The net borrowings increase was to fund the acquisition of Convergys and to support growth in our business. The cash inflow was partially offset by $66.0 million of repurchases of our common stock and dividend payments of $59.7 million. During the year, we obtained a term loan facility of $1.8 billion to fund the Convergys acquisition, the related refinancing or settlement of Convergys’ debt and payment of related fees and expenses. By November 30, 2018, we had drawn $1.6 billion of this term loan, of which approximately $1.2 billion was utilized to pay for the acquisition and approximately $313.8 million was utilized for settlement of Convergys’ assumed debt.

 

12

We believe our current cash balances and credit availability are sufficient to support the operating activities for at least the next twelve months.

Our cash and cash equivalents totaled $1.4 billion and $145.9 million as of November 30, 2020 and 2019, respectively. Of our total cash and cash equivalents, the cash held by our international subsidiaries was $434.8 million and $140.5 million as of November 30, 2020 and 2019, respectively. Our cash and cash equivalents held by international 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, including the impact of the separation of our Concentrix segment.

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. 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 or replaced 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.

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 has a maturity date of May 2022, our subsidiary, which is the borrower under this facility, can borrow up to a maximum of $650.0 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 included prevailing dealer commercial paper rates and a rate based upon LIBOR. In addition, a program fee of 1.25% per annum is payable on the used portion of the lenders’ commitment, in the case of lender groups who fund their advances based on prevailing commercial paper rates, and 1.30% per annum in the case of lender groups who fund their advances based on LIBOR (subject to a 0.50% per annum floor). A facility fee is payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between 0.35% per annum and 0.45% per annum depending on the amount of outstanding advances from time to time.

Under the terms of the U.S. AR Arrangement, we and two of our U.S. subsidiaries sell, on a revolving basis, our 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 November 30, 2020, there were no borrowings outstanding under this facility. As of November 30, 2019, $108.0 million was outstanding under the U.S. AR Arrangement.

In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, as renewed in March 2020, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to CAD100.0 million, or $76.9 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 2023. The program includes an accordion feature that allows us to request an increase in the bank’s commitment by an additional CAD50.0 million, or $38.4 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. We guarantee the performance obligations of SYNNEX Canada under this arrangement. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of 1.00% per annum and the prevailing lender commercial paper rates. In addition, prior to an event of termination, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. After an event of termination, the program fee shall be the sum of the base rate and 2.50% 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 $46.1 million, and when the unused portion exceeds CAD60.0 million, or $46.1 million, a fee of 0.55% per annum on the remaining unused commitment. As of both November 30, 2020 and 2019, there was no outstanding balance under this arrangement.

 

13

SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or $143.8 million. The credit agreement is comprised of a JPY7.0 billion, or $67.1 million, term loan and a JPY8.0 billion, or $76.7 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 November 30, 2020, and 2019, the balance outstanding under the term loan component of this facility was $67.1 million and $63.9 million, respectively. Balance outstanding under the revolving credit facility was $31.6 million and $5.9 million as of November 30, 2020 and 2019, respectively.

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 can 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. At November 30, 2020, in connection with Separation, we partially repaid $535.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements. The remaining outstanding principal of the term loan is payable on maturity. 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 November 30, 2020, and 2019, the balance outstanding under the term loan component of the U.S. Credit Agreement was $0.5 billion and $1.1 billion, respectively. There were no borrowings outstanding under the revolving line of credit under the U.S. Credit Agreement as of November 30, 2020. As of November 30, 2019, the balance outstanding under the revolving line of credit component of the U.S. Credit Agreement was $25.8 million.

We have a senior secured term loan credit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, in the original principal amount of $1.8 billion. The U.S. Term Loan Credit Agreement matures in October 2023. On November 30, 2020, we partially repaid $665.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements. The remaining outstanding principal amount of the term loan is payable on maturity. The term loan can be repaid at any time prior to the maturity 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 (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 November 30, 2020 and 2019, the balance outstanding under the U.S. Term Loan Credit Agreement was $1.0 billion and $1.7 billion, respectively.

SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50.0 million, or $38.4 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 November 30, 2020 and 2019, 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 November 30, 2020, commitments for these revolving credit facilities aggregated $47.9 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 November 30, 2020, and 2019, the balances outstanding under these revolving credit facilities were $25.8 million and $6.0 million, respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at November 30, 2020 exchange rates.

 

14

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 November 30, 2020 and 2019, we had a total of $21.4 million and $35.1 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.

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 November 30, 2020, we were in compliance with all material covenants for the above arrangements.

Our contractual obligations consist of future payments due under our loans, payments for our operating lease arrangements and repatriation tax under the Tax Cuts and Jobs Act of 2017 (“TCJA”), which are already recorded on our Consolidated Balance Sheet. In addition, our contractual obligations include interest on our debt and guarantees. The following table summarizes our contractual obligations at November 30, 2020:

 

Principal debt payments assume the repayment of our revolving lines of credit within a year. Interest on debt, in the table above, includes estimated interest on our term loans and revolving credit facilities at rates of interest applicable at the end of our fiscal year,

As of November 30, 2020, we have established a reserve of $12.5 million for unrecognized tax benefits.

As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities.

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 November 30, 2020 and 2019, 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.

 

15

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

 

 

MiTAC Holdings generally has 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 and services from MiTAC Holdings and its affiliates totaling $211.9 million, $173.4 million and $217.4 million during fiscal years 2020, 2019 and 2018, respectively. Our sales to MiTAC Holdings and its affiliates during fiscal years 2020, 2019 and 2018 totaled $0.8 million, $0.8 million and $2.4 million, respectively. In addition, we made payments of $0.1 million and $41 thousand to MiTAC Holdings and its affiliates for reimbursement of rent and overhead costs for facilities used by us during fiscal year ended November 30, 2020 and 2019, respectively. We received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings and its affiliates amounting to $0.1 million during fiscal years ended November 30, 2018.

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.

non-functional

 

16

The following table presents the hypothetical changes in fair values of our outstanding foreign currency derivative instruments as of November 30, 2020 and 2019, arising from an instantaneous strengthening or weakening of the U.S. dollar by 5%, 10% and 15% (in thousands).

 

Our exposure to changes in interest rates relates primarily to our outstanding debt obligations which have floated relative to major interest rate benchmarks in the United States, Canada and Japan. We are most sensitive to fluctuations in U.S. interest rates, changes which affect the costs associated with hedging and interest paid on our debt.

To manage interest rate risk on the U.S. dollar-denominated floating-rate debt, we have entered into interest rate swaps with aggregate notional amounts of $1.6 billion and $2.0 billion as of November 30, 2020 and 2019 respectively, which effectively converted a portion of the floating rate debt to a fixed interest rate. Substantially, all of our interest rate swaps are accounted as cash flow hedges. A 15% variation in our interest rates would not have a material impact on the fair value of our swaps.

The following tables present hypothetical interest expense related to our outstanding borrowings with variable interest rates (after considering the impact of the above mentioned swaps) for the years ended November 30, 2020 and 2019, arising from hypothetical parallel shifts in the respective countries’ yield curves, of plus or minus 5%, 10% and 15% (in thousands).

 

 

The equity price risk associated with our marketable equity securities as of November 30, 2020 and 2019 is not material in relation to our consolidated financial position, results of operations or cash flows. Marketable equity securities include shares of common stock and are recorded at fair market value based on quoted market prices. Gains and losses on marketable equity securities are included in earnings.

 

17

 

Financial statement schedules not listed above are either omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or in the Notes thereto.

 

18

To the Stockholders and Board of Directors

SYNNEX Corporation:

We have audited the accompanying consolidated balance sheets of SYNNEX Corporation and subsidiaries (the Company) as of November 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three year period ended November 30, 2020, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three year period ended November 30, 2020, in conformity with U.S. generally accepted accounting principles.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As discussed in Notes 11 and 17 to the consolidated financial statements, and presented in the consolidated statements of operations, the Company reported revenue of $24,675,563 thousand (inclusive of revenue recorded in discontinued operations) for the fiscal year ended November 30, 2020.

We identified the evaluation of the sufficiency of audit evidence over revenue as a critical audit matter. The geographical dispersion of distribution and administrative facilities and employees providing revenue generating services required especially subjective auditor judgment in determining the nature and extent of procedures to perform and in evaluating those procedures.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue, including the determination of the locations at which those procedures were to be performed. At each location selected, we performed the following procedures. We evaluated the design and tested the operating effectiveness of certain internal controls related to the recognition of revenue. We tested samples of revenue transactions during the year by comparing the amounts recognized by the Company to relevant underlying documentation such as contracts, shipping documents, or other third-party evidence. We investigated a selection of journal entries that were made by the Company to adjust revenue. We evaluated the sufficiency of the audit evidence obtained over revenue by assessing the results of the procedures performed, including the appropriateness of the determination of locations to perform procedures.

 

19

tax-free

tax-free

tax-free

tax-free

tax-free

/s/ KPMG LLP

We have served as the Company’s auditor since 2012.

Santa Clara, California

January 28, 2021, except for Note 17, as to which the date is August 31, 2021

 

20