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,OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one).
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 | ||||||
Common Stock, $0.001 par value | 51,544,234 |
SYNNEX CORPORATION
FORM 10-Q
INDEX
Page | ||
PART I | 3 | |
Item 1. | 3 | |
6 | ||
7 | ||
8 | ||
Item 2. | 26 | |
Item 3. | 39 | |
Item 4. | 39 | |
40 | ||
Item 1A. | 40 | |
Item 6. | 41 | |
42 |
ITEM 1. Financial Statements
SYNNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)
(unaudited)
|
| August 31, 2020 |
|
| November 30, 2019 |
| |||
ASSETS |
|
|
|
|
|
|
|
| |
Current assets: |
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 1,452,273 |
|
| $ | 225,529 |
| |
Accounts receivable, net |
|
| 3,580,970 |
|
|
| 3,926,709 |
| |
Receivables from vendors, net |
|
| 323,027 |
|
|
| 368,505 |
| |
Inventories |
|
| 2,832,607 |
|
|
| 2,547,224 |
| |
Other current assets |
|
| 375,273 |
|
|
| 385,024 |
| |
Total current assets |
|
| 8,564,151 |
|
|
| 7,452,992 |
| |
Property and equipment, net |
|
| 583,951 |
|
|
| 569,899 |
| |
Goodwill |
|
| 2,257,292 |
|
|
| 2,254,402 |
| |
Intangible assets, net |
|
| 1,031,168 |
|
|
| 1,162,212 |
| |
Deferred tax assets |
|
| 116,263 |
|
|
| 97,539 |
| |
Other assets, net |
|
| 710,283 |
|
|
| 160,917 |
| |
Total assets |
| $ | 13,263,107 |
|
| $ | 11,697,960 |
| |
|
|
|
|
|
|
|
|
| |
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
|
|
|
| |
Borrowings, current |
| $ | 244,114 |
|
| $ | 298,969 |
| |
Accounts payable |
|
| 3,655,215 |
|
|
| 3,149,443 |
| |
Accrued compensation and benefits |
|
| 447,661 |
|
|
| 402,771 |
| |
Other accrued liabilities |
|
| 1,257,160 |
|
|
| 723,716 |
| |
Income taxes payable |
|
| 27,998 |
|
|
| 32,223 |
| |
Total current liabilities |
|
| 5,632,148 |
|
|
| 4,607,122 |
| |
Long-term borrowings |
|
| 2,609,809 |
|
|
| 2,718,267 |
| |
Other long-term liabilities |
|
| 722,343 |
|
|
| 361,911 |
| |
Deferred tax liabilities |
|
| 205,225 |
|
|
| 222,210 |
| |
Total liabilities |
|
| 9,169,525 |
|
|
| 7,909,510 |
| |
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
| |
Stockholders’ equity: |
|
|
|
|
|
|
|
| |
Preferred stock, $0.001 par value, 5,000 shares authorized, 0 shares issued or outstanding |
|
| 0 |
|
|
| 0 |
| |
Common stock, $0.001 par value, 100,000 shares authorized, 53,380 and 53,154 shares issued as of August 31, 2020 and November 30, 2019, respectively |
|
| 53 |
|
|
| 53 |
| |
Additional paid-in capital |
|
| 1,579,026 |
|
|
| 1,545,421 |
| |
Treasury stock, 2,454 and 2,399 shares as of August 31, 2020 and November 30, 2019, respectively |
|
| (178,775 | ) |
|
| (172,627 | ) | |
Accumulated other comprehensive income (loss) |
|
| (224,628 | ) |
|
| (209,077 | ) | |
Retained earnings |
|
| 2,917,906 |
|
|
| 2,624,680 |
| |
Total stockholders' equity |
|
| 4,093,582 |
|
|
| 3,788,450 |
| |
Total liabilities and equity |
| $ | 13,263,107 |
|
| $ | 11,697,960 |
|
August 31, 2017 | November 30, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 243,265 | $ | 380,717 | |||
Restricted cash | 3,677 | 6,265 | |||||
Short-term investments | 5,487 | 5,109 | |||||
Accounts receivable, net | 1,861,409 | 1,756,494 | |||||
Receivable from related parties | 72 | 102 | |||||
Inventories | 2,242,083 | 1,741,734 | |||||
Other current assets | 97,940 | 104,609 | |||||
Total current assets | 4,453,933 | 3,995,030 | |||||
Property and equipment, net | 329,885 | 312,716 | |||||
Goodwill | 536,306 | 486,239 | |||||
Intangible assets, net | 279,818 | 298,550 | |||||
Deferred tax assets | 66,215 | 58,564 | |||||
Other assets | 73,203 | 64,182 | |||||
Total assets | $ | 5,739,360 | $ | 5,215,281 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Borrowings, current | $ | 489,904 | $ | 362,889 | |||
Accounts payable | 1,770,435 | 1,683,155 | |||||
Payable to related parties | 33,675 | 30,679 | |||||
Accrued compensation and benefits | 173,146 | 165,585 | |||||
Other accrued liabilities | 291,599 | 217,127 | |||||
Income taxes payable | 14,603 | 17,097 | |||||
Total current liabilities | 2,773,362 | 2,476,532 | |||||
Long-term borrowings | 564,085 | 601,095 | |||||
Other long-term liabilities | 114,151 | 103,217 | |||||
Deferred tax liabilities | 70,891 | 58,639 | |||||
Total liabilities | 3,522,489 | 3,239,483 | |||||
Commitments and contingencies (Note 16) | |||||||
SYNNEX Corporation 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, 40,949 and 40,816 shares issued as of August 31, 2017 and November 30, 2016, respectively | 41 | 41 | |||||
Additional paid-in capital | 458,916 | 440,713 | |||||
Treasury stock, 1,373 and 1,339 shares as of August 31, 2017 and November 30, 2016, respectively | (71,184 | ) | (67,262 | ) | |||
Accumulated other comprehensive income (loss) | (46,550 | ) | (93,116 | ) | |||
Retained earnings | 1,875,648 | 1,695,400 | |||||
Total SYNNEX Corporation stockholders’ equity | 2,216,871 | 1,975,776 | |||||
Noncontrolling interest | — | 22 | |||||
Total equity | 2,216,871 | 1,975,798 | |||||
Total liabilities and equity | $ | 5,739,360 | $ | 5,215,281 |
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
| $ | 5,306,361 |
|
| $ | 5,047,968 |
|
| $ | 13,858,313 |
|
| $ | 13,695,725 |
|
Services |
|
| 1,158,421 |
|
|
| 1,155,690 |
|
|
| 3,403,305 |
|
|
| 3,480,275 |
|
Total revenue |
|
| 6,464,782 |
|
|
| 6,203,659 |
|
|
| 17,261,619 |
|
|
| 17,176,000 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
| (5,008,881 | ) |
|
| (4,746,197 | ) |
|
| (13,031,113 | ) |
|
| (12,876,410 | ) |
Services |
|
| (747,809 | ) |
|
| (731,472 | ) |
|
| (2,206,256 | ) |
|
| (2,196,212 | ) |
Gross profit |
|
| 708,092 |
|
|
| 725,990 |
|
|
| 2,024,249 |
|
|
| 2,103,379 |
|
Selling, general and administrative expenses |
|
| (498,956 | ) |
|
| (517,135 | ) |
|
| (1,514,734 | ) |
|
| (1,557,906 | ) |
Operating income |
|
| 209,136 |
|
|
| 208,855 |
|
|
| 509,515 |
|
|
| 545,473 |
|
Interest expense and finance charges, net |
|
| (28,749 | ) |
|
| (42,945 | ) |
|
| (99,046 | ) |
|
| (127,695 | ) |
Other income (expense), net |
|
| (567 | ) |
|
| (1,087 | ) |
|
| 3,280 |
|
|
| 19,764 |
|
Income before income taxes |
|
| 179,819 |
|
|
| 164,823 |
|
|
| 413,748 |
|
|
| 437,542 |
|
Provision for income taxes |
|
| (45,356 | ) |
|
| (41,691 | ) |
|
| (99,740 | ) |
|
| (112,831 | ) |
Net income |
| $ | 134,464 |
|
| $ | 123,132 |
|
| $ | 314,008 |
|
| $ | 324,711 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.61 |
|
| $ | 2.41 |
|
| $ | 6.10 |
|
| $ | 6.35 |
|
Diluted |
| $ | 2.60 |
|
| $ | 2.40 |
|
| $ | 6.07 |
|
| $ | 6.32 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 50,890 |
|
|
| 50,601 |
|
|
| 50,851 |
|
|
| 50,661 |
|
Diluted |
|
| 51,241 |
|
|
| 50,845 |
|
|
| 51,172 |
|
|
| 50,903 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||
Revenue: | |||||||||||||||
Products | $ | 3,784,599 | $ | 3,267,287 | $ | 10,289,463 | $ | 9,099,762 | |||||||
Services | 492,087 | 402,527 | 1,444,360 | 1,075,173 | |||||||||||
Total revenue | 4,276,686 | 3,669,814 | 11,733,823 | 10,174,935 | |||||||||||
Cost of revenue: | |||||||||||||||
Products | (3,590,007 | ) | (3,096,529 | ) | (9,736,190 | ) | (8,608,518 | ) | |||||||
Services | (311,735 | ) | (247,328 | ) | (908,661 | ) | (662,238 | ) | |||||||
Gross profit | 374,944 | 325,957 | 1,088,972 | 904,179 | |||||||||||
Selling, general and administrative expenses | (252,728 | ) | (227,935 | ) | (739,867 | ) | (655,225 | ) | |||||||
Operating income | 122,216 | 98,022 | 349,105 | 248,954 | |||||||||||
Interest expense and finance charges, net | (9,754 | ) | (7,517 | ) | (26,898 | ) | (20,245 | ) | |||||||
Other income (expense), net | 1,854 | (378 | ) | 1,325 | 4,605 | ||||||||||
Income before income taxes | 114,316 | 90,127 | 323,532 | 233,314 | |||||||||||
Provision for income taxes | (39,153 | ) | (31,426 | ) | (113,432 | ) | (83,619 | ) | |||||||
Net income | 75,163 | 58,701 | 210,100 | 149,695 | |||||||||||
Net loss (income) attributable to noncontrolling interest | — | 3 | — | (67 | ) | ||||||||||
Net income attributable to SYNNEX Corporation | $ | 75,163 | $ | 58,704 | $ | 210,100 | $ | 149,628 | |||||||
Earnings attributable to SYNNEX Corporation per common share: | |||||||||||||||
Basic | $ | 1.88 | $ | 1.48 | $ | 5.27 | $ | 3.77 | |||||||
Diluted | $ | 1.87 | $ | 1.47 | $ | 5.24 | $ | 3.75 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 39,563 | 39,346 | 39,530 | 39,285 | |||||||||||
Diluted | 39,748 | 39,534 | 39,722 | 39,492 | |||||||||||
Cash dividends declared per share | $ | 0.25 | $ | 0.20 | $ | 0.75 | $ | 0.60 |
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Net income |
| $ | 134,464 |
|
| $ | 123,132 |
|
| $ | 314,008 |
|
| $ | 324,711 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) of defined benefit plans, net of taxes of $3,115 for the three and nine months ended August 31, 2020, and $0 for the three and nine months ended 2019 |
|
| (8,985 | ) |
|
| 0 |
|
|
| (8,768 | ) |
|
| 307 |
|
Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $(8,220) and $7,953 for the three and nine months ended August 31, 2020, respectively, and $8,722 and $24,605 for the three and nine months ended August 31, 2019, respectively |
|
| 24,641 |
|
|
| (23,744 | ) |
|
| (24,772 | ) |
|
| (71,414 | ) |
Reclassification of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of $(563) and $(1,120) for the three and nine months ended August 31, 2020, respectively, and $1,121 and $3,241 for three and nine months ended August 31, 2019, respectively |
|
| 1,824 |
|
|
| (3,371 | ) |
|
| 3,462 |
|
|
| (9,387 | ) |
Total change in unrealized gains (losses) on cash flow hedges, net of taxes |
|
| 26,465 |
|
|
| (27,115 | ) |
|
| (21,310 | ) |
|
| (80,801 | ) |
Foreign currency translation adjustments, net of taxes of $(345) and $(51) for the three and nine months ended August 31, 2020, respectively, and $(31) and $(55) for the three and nine months ended August 31, 2019, respectively |
|
| 95,168 |
|
|
| (19,395 | ) |
|
| 14,526 |
|
|
| (26,334 | ) |
Other comprehensive income (loss) |
|
| 112,648 |
|
|
| (46,510 | ) |
|
| (15,552 | ) |
|
| (106,828 | ) |
Comprehensive income |
| $ | 247,112 |
|
| $ | 76,622 |
|
| $ | 298,456 |
|
| $ | 217,883 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||
Net income | $ | 75,163 | $ | 58,701 | $ | 210,100 | $ | 149,695 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net of taxes of $0 for the three and nine months ended August 31, 2017 and 2016 | 220 | (359 | ) | 710 | (578 | ) | |||||||||
Changes in unrealized losses of defined benefit plans, net of taxes of $0 for the three and nine months ended August 31, 2017 and 2016 | (45 | ) | — | (58 | ) | (455 | ) | ||||||||
Unrealized gains (losses) on cash flow hedges, net of taxes of $222 and $(128) for the three and nine months ended August 31, 2017, respectively, and $722 and $3,159 for the three and nine months ended August 31, 2016, respectively | (355 | ) | (1,135 | ) | 203 | (4,961 | ) | ||||||||
Foreign currency translation adjustments, net of taxes of $(834) and $(895) for the three and nine months ended August 31, 2017, respectively, and $28 and $(1,371) for the three and nine months ended August 31, 2016, respectively | 29,840 | (2,068 | ) | 45,711 | (3,347 | ) | |||||||||
Other comprehensive income (loss) | 29,660 | (3,562 | ) | 46,566 | (9,341 | ) | |||||||||
Comprehensive income: | 104,823 | 55,139 | 256,666 | 140,354 | |||||||||||
Comprehensive income attributable to noncontrolling interest | — | (9 | ) | — | (100 | ) | |||||||||
Comprehensive income attributable to SYNNEX Corporation | $ | 104,823 | $ | 55,130 | $ | 256,666 | $ | 140,254 |
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)thousands, except per share amounts)
(unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Total Stockholders' equity, beginning balance |
| $ | 3,834,381 |
|
| $ | 3,537,053 |
|
| $ | 3,788,450 |
|
| $ | 3,435,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| 1,566,817 |
|
|
| 1,527,436 |
|
|
| 1,545,474 |
|
|
| 1,512,254 |
|
Share-based compensation |
|
| 8,829 |
|
|
| 6,430 |
|
|
| 25,041 |
|
|
| 19,515 |
|
Common stock issued for employee benefit plans |
|
| 3,433 |
|
|
| 929 |
|
|
| 8,564 |
|
|
| 3,134 |
|
Stock issuance costs (related to the Convergys acquisition in fiscal year 2018) |
|
| — |
|
| — |
|
|
| — |
|
|
| (107 | ) | |
Ending balance |
|
| 1,579,079 |
|
|
| 1,534,796 |
|
|
| 1,579,079 |
|
|
| 1,534,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| (178,609 | ) |
|
| (165,601 | ) |
|
| (172,627 | ) |
|
| (149,533 | ) |
Repurchases of common stock for tax withholdings on equity awards |
|
| (166 | ) |
|
| (109 | ) |
|
| (2,743 | ) |
|
| (994 | ) |
Repurchases of common stock |
|
| — |
|
| — |
|
|
| (3,405 | ) |
|
| (15,184 | ) | |
Ending balance |
|
| (178,775 | ) |
|
| (165,710 | ) |
|
| (178,775 | ) |
|
| (165,710 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| 2,783,449 |
|
|
| 2,363,779 |
|
|
| 2,624,680 |
|
|
| 2,198,621 |
|
Net income |
|
| 134,464 |
|
|
| 123,132 |
|
|
| 314,008 |
|
|
| 324,711 |
|
Cash dividends declared |
|
| (7 | ) |
|
| (19,116 | ) |
|
| (20,782 | ) |
|
| (57,491 | ) |
Cumulative effect of changes in accounting principles |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,955 |
| |
Ending balance |
|
| 2,917,906 |
|
|
| 2,467,795 |
|
|
| 2,917,906 |
|
|
| 2,467,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
| (337,276 | ) |
|
| (188,561 | ) |
|
| (209,077 | ) |
|
| (126,288 | ) |
Other comprehensive income (loss) |
|
| 112,648 |
|
|
| (46,510 | ) |
|
| (15,552 | ) |
|
| (106,828 | ) |
Cumulative effect of changes in accounting principles |
|
| — |
|
| — |
|
|
| — |
|
|
| (1,955 | ) | |
Ending balance |
|
| (224,628 | ) |
|
| (235,070 | ) |
|
| (224,628 | ) |
|
| (235,070 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity, ending balance |
| $ | 4,093,582 |
|
| $ | 3,601,810 |
|
| $ | 4,093,582 |
|
| $ | 3,601,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
| $ | — |
|
| $ | 0.375 |
|
| $ | 0.400 |
|
| $ | 1.125 |
|
Nine Months Ended | |||||||
August 31, 2017 | August 31, 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 210,100 | $ | 149,695 | |||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||
Depreciation and amortization | 108,302 | 83,058 | |||||
Share-based compensation | 12,412 | 10,615 | |||||
Provision for doubtful accounts | 7,299 | 884 | |||||
Excess tax benefit from share-based compensation | (2,466 | ) | (5,309 | ) | |||
Deferred income taxes | (746 | ) | (5,811 | ) | |||
Unrealized foreign exchange gains | (2,731 | ) | (8,943 | ) | |||
Others | 868 | — | |||||
Changes in assets and liabilities, net of acquisition of businesses: | |||||||
Accounts receivable, including from related parties | (76,866 | ) | 224,757 | ||||
Inventories | (484,650 | ) | (224,752 | ) | |||
Accounts payable, including to related parties | 76,463 | 70,361 | |||||
Other assets and liabilities | 71,846 | (20,933 | ) | ||||
Net cash (used in) provided by operating activities | (80,169 | ) | 273,622 | ||||
Cash flows from investing activities: | |||||||
Purchases of investments | (8,487 | ) | (83,671 | ) | |||
Proceeds from sale and maturity of investments | 6,230 | 82,886 | |||||
Purchases of property and equipment | (72,130 | ) | (95,161 | ) | |||
Acquisition of businesses, net of cash acquired and refunds | (51,309 | ) | (403,923 | ) | |||
Others | 1,538 | 4,123 | |||||
Net cash used in investing activities | (124,158 | ) | (495,746 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 5,371,963 | 1,902,424 | |||||
Repayments of borrowings | (5,289,800 | ) | (1,851,750 | ) | |||
Dividends paid | (29,852 | ) | (23,809 | ) | |||
Excess tax benefit from share-based compensation | 2,466 | 5,309 | |||||
Increase (decrease) in book overdrafts | 984 | (3,501 | ) | ||||
Repurchases of common stock | — | (6,917 | ) | ||||
Proceeds from issuance of common stock | 3,240 | 6,014 | |||||
Repurchases of common stock for tax withholdings on equity awards | (3,922 | ) | (3,427 | ) | |||
Others | — | (1,337 | ) | ||||
Net cash provided by financing activities | 55,079 | 23,006 | |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 9,293 | 1,112 | |||||
Net decrease in cash, cash equivalents and restricted cash | (139,955 | ) | (198,006 | ) | |||
Cash, cash equivalents and restricted cash at beginning of period | 387,167 | 424,630 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 247,212 | $ | 226,624 | |||
Supplemental disclosure of non-cash investing activities | |||||||
Accrued costs for property and equipment purchases | $ | 1,598 | $ | 5,135 |
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
6
SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
|
| Nine Months Ended |
| |||||
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 314,008 |
|
| $ | 324,711 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 251,459 |
|
|
| 281,392 |
|
Share-based compensation |
|
| 25,041 |
|
|
| 19,515 |
|
Provision for doubtful accounts |
|
| 48,233 |
|
|
| 25,496 |
|
Deferred income taxes |
|
| (24,070 | ) |
|
| (16,789 | ) |
Contingent consideration |
|
| 0 |
|
|
| (19,034 | ) |
Unrealized foreign exchange (gains) losses |
|
| 12,764 |
|
|
| (4,115 | ) |
Other |
|
| 7,456 |
|
|
| 8,595 |
|
Changes in operating assets and liabilities, net of acquisition of businesses: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| 280,476 |
|
|
| 148,128 |
|
Receivables from vendors, net |
|
| 44,666 |
|
|
| 13,322 |
|
Inventories |
|
| (282,654 | ) |
|
| (390,018 | ) |
Accounts payable |
|
| 454,290 |
|
|
| (119,599 | ) |
Other operating assets and liabilities |
|
| 415,428 |
|
|
| (69,131 | ) |
Net cash provided by operating activities |
|
| 1,547,097 |
|
|
| 202,473 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (127,326 | ) |
|
| (93,432 | ) |
Acquisition of businesses |
|
| (4,941 | ) |
|
| (8,647 | ) |
Other |
|
| (5,248 | ) |
|
| (199 | ) |
Net cash used in investing activities |
|
| (137,515 | ) |
|
| (102,279 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings, net of debt discount and issuance costs |
|
| 3,747,096 |
|
|
| 5,620,134 |
|
Repayments of borrowings |
|
| (3,915,519 | ) |
|
| (5,834,258 | ) |
Dividends paid |
|
| (20,782 | ) |
|
| (57,491 | ) |
Increase (decrease) in book overdraft |
|
| (1,051 | ) |
|
| 336 |
|
Repurchases of common stock |
|
| (3,405 | ) |
|
| (15,184 | ) |
Proceeds from issuance of common stock |
|
| 8,564 |
|
|
| 3,134 |
|
Repurchases of common stock for tax withholdings on equity awards |
|
| (2,743 | ) |
|
| (994 | ) |
Settlement of contingent consideration |
|
| 0 |
|
|
| (13,966 | ) |
Other |
|
| 0 |
|
|
| (107 | ) |
Net cash used in financing activities |
|
| (187,841 | ) |
|
| (298,397 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 3,902 |
|
|
| 3,575 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 1,225,644 |
|
|
| (194,628 | ) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 231,149 |
|
|
| 462,033 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 1,456,793 |
|
| $ | 267,405 |
|
Supplemental disclosure of non-cash investing activities: |
|
|
|
|
|
|
|
|
Accrued costs for property and equipment purchases |
| $ | 13,425 |
|
| $ | 2,905 |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
7
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 20172020 and 2016
(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 Europe.
The Company has two2 reportable segments: Technology Solutions and Concentrix. The Technology Solutions segment distributesprovides a broadcomprehensive range of distribution, logistics and integration solutions for the information technology systems and products and also provides systems design and integration solutions.(“IT”) industry. The Concentrix segment offers a portfolio of technology-infused strategic solutions and end-to-end global business outsourcing services focused on customer engagement strategy,experience, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten identified5 primary industry verticals.
On January 9, 2020, the Company announced a plan to separate its Concentrix segment into an independent publicly-traded company. The transaction, which was delayed due to the focus on managing the economic impact of a pandemic caused by an outbreak of a new strain of coronavirus (“ COVID-19”), barring further economic disruption, is now expected to be completed in the fourth quarter of calendar year 2020. The plan is subject to current economic and capital market trends. The separation is intended to qualify as a tax-free transaction for federal income tax purposes for both the Company and its then current stockholders. Immediately following the separation, it is expected that the Company’s stockholders will own shares of both SYNNEX and Concentrix, at the same percentage ownership that they held of SYNNEX prior to the transaction. Completion of the separation will not require a stockholder vote but will be subject to customary closing conditions, including, among others, obtaining final approval from the Company’s Board of Directors, receipt of a favorable opinion with respect to the tax-free nature of the transaction for federal income tax purposes, and the effectiveness of a Form 10 registration statement with the Securities and Exchange Commission.
The accompanying interim unaudited Consolidated Financial Statements as of August 31, 20172020 and for the three and nine months ended August 31, 20172020 and 20162019 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).Commission. The amounts as of November 30, 20162019 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, 2016.
Interim results of operations are not necessarily indicative of financial results for a full year, and the Company makes no representations related thereto.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For a discussion of the Company'sCompany’s significant accounting policies, please seerefer to the discussion in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended November 30, 2016. During2019. As described more fully in Note 16, as of August 31, 2020, due to the ongoing impact of the COVID-19 pandemic on the Company’s business, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change in future periods. Accounting pronouncements adopted during the nine months ended August 31, 2017, the Company adopted certain new accounting pronouncements which2020 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, 2017,2020, the Company hadhas not experienced any credit losses on such deposits and derivative instruments.
Accounts receivable include amounts due from customers, andincluding 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 theits receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through August 31, 2017,2020, such losses have been within management’s expectations.
NaN customer accounted for 22%16% and 20%,
8
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the same customer accounted for 12%three and 10%, respectively, of the Company's total revenue. Products nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
purchased from the Company’s largest OEM supplier, HP Inc., accounted for approximately 14% of total revenue during both the three and nine months ended August 31, 2017, and approximately 16% and 17%, respectively,12% of total revenue during the three and nine months ended August 31, 2016.
As of August 31, 2017, one2020 and November 30, 2019, 1 customer comprised 14%18% and 19%, respectively, of the totalconsolidated accounts receivable balance. As of November 30, 2016, no customer comprised 10% or more of the total accounts receivable balance.
Inventories
Inventories as of November 30, 2016 were stated at the lower of cost or market. Commencing December 1, 2016, inventories are stated at the lower of cost orand 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 designprojects and integration business, andintegration-based completed systems. Work-in-process inventories are not material to the Consolidated Financial Statements.
Leases
The Company enters into leases as a lessee for property and equipment in the ordinary course of business. When procuring goods or services, or upon entering into a contract with its customers and clients, the Company determines whether an arrangement contains a lease at its inception. As part of that evaluation, the Company considers whether there is an implicitly or explicitly identified asset in the arrangement and whether the Company, as the lessee, or the customer, if the Company is the lessor, has the right to prior period amountscontrol the use of that asset. Effective December 1, 2019, when the Company is the lessee, all leases with a term of more than 12 months are recognized as right-of-use (“ROU”) assets and associated lease liabilities in the Consolidated Balance Sheets,Sheet. Lease liabilities are measured at the lease commencement date and determined using the present value of the lease payments not yet paid, at the Company’s incremental borrowing rate, which approximates the rate at which the Company would borrow on a secured basis in the country where the lease was executed. The interest rate implicit in the lease is generally not determinable in transactions where the Company is the lessee. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid rent and lease incentives. The Company’s variable lease payments generally relate to payments tied to various indexes, non-lease components and payments above a contractual minimum fixed amount.
Operating leases are included in other assets, net, other accrued liabilities and other long-term liabilities in the Consolidated Balance Sheet. Finance leases are included in property and equipment, net, borrowings, current and long-term borrowings in the Consolidated Balance Sheet. Substantially all of the Company's leases are classified as operating leases. The lease term includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company made a policy election to not recognize leases with a lease term of 12 months or less in the Consolidated Balance Sheet. Lease expenses are recorded within selling, general, and administrative expenses in the Consolidated Statements of Cash Flows and the notes thereto to conform to current period presentation, primarily pursuant to the adoption of new accounting pronouncements. The impact of reclassifications pursuant to adoption of new guidance is provided below under “Recently adopted accounting pronouncements.” Other reclassificationsOperations. Operating lease payments are presented within “Cash flows from operating activities” in the Consolidated Statements of Cash Flows had no effect on cash flows from operating, investing or financing activitiesFlows.
For all asset classes, the Company has elected the lessee practical expedient to combine lease and non-lease components (e.g., maintenance services) and account for the combined unit as previously reported.
Recently adopted Accounting Pronouncements
In May 2017,February 2018, the Financial Accounting Standard Board (the “FASB”) issued guidance that permits the Company to clarify whenreclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.retained earnings. The guidance is effective prospectively for all companies for annual periodsfiscal years, and interim periods within those annual periods, beginning on or after December 15, 2017. The Company adopted the guidance prospectively in the second quarter of fiscal year 2017. The adoption had no impact on the Company's Consolidated Financial Statements, nor is it likely to have a material impact for the remainder of the fiscal year.
In OctoberFebruary 2016, the FASB issued a new guidance that requires a reporting entity to recognize the tax expense from intra-entity transfersstandard which revises various aspects of assets other than inventoryaccounting for leases, with amendments in the selling entity’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buying entity’s jurisdiction would also be recognized at the time of the transfer. 2018 and 2019 codified as Accounting Standards Codification Topic 842, Leases. The Company adopted thisthe guidance effective December 1, 2019, applying the optional transition method, which allows an entity to apply the new guidancestandard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the first quarterperiod of fiscal year 2017 usingadoption. In addition, the modified retrospective approach.Company elected the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and the lessee practical expedient to combine lease and non-lease components for all asset classes. The Company made a policy election to not recognize ROU assets and lease liabilities for short-term leases for all asset classes. The most significant impact of adoption to the Company’s Consolidated Financial Statements relates to the recognition of a right-of-use asset and a lease liability for virtually all of its leases other than short-term leases. The liability was equal to the present value of lease payments. The asset is based on the liability, and subject to adjustment, such as for initial direct costs. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee depends primarily 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. Upon adoption, the Company recorded $591,129 of ROU assets and of $642,567 of liabilities relating to its operating leases on its Consolidated Balance Sheet. The adoption did not have a materialan impact on the Company's Consolidated Financial Statements, nor is it likely to have a material impact for the remainderCompany’s consolidated statements of the fiscal year.
9
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
Recently issued accounting pronouncements
In March 2020, the FASB issued optional guidance for a limited time to ease the potential burden in practice exists.accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The Company adopted this new standard in is currently evaluating the first quarter of fiscal year 2017, with retrospective effect. The adoption did not have a material impact on the Company's cash flows from operating, investing or financing activities, nor is it likely to have a material impact for the remainder of the fiscal year.
In November 2015, the FASB issued a new accounting standard that requires deferred tax liabilities and assets be classified as noncurrent on a company’s balance sheet. The Company adopted this new standard in the first quarter of fiscal year 2017, with retrospective effect. Although the adoption did not materially impact the company's consolidated financial position or results of operations, it resulted in a reclassification of $44,116 of deferred tax assets from current to noncurrent and a reclassification of $448 of deferred tax liabilities from current to noncurrent at November 30, 2016. In addition, the Company offset $5,000 of current deferred tax assets against noncurrent deferred tax liabilities as of November 30, 2016 in order to present a single noncurrent deferred tax balance by tax jurisdiction.
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, and early adoption 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 doesadoption is not expect the adoption of this standardexpected to have a material impact on itsthe Company's Consolidated Financial Statements but expects this newStatements.
In August 2018, the FASB issued guidance to easeimprove the administrative burdeneffectiveness of hedge documentationfair value measurement disclosures by removing or modifying certain disclosure requirements and assessing hedge effectiveness.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 plans to adopt this guidance inis currently evaluating the fourth quarterimpact of fiscal year 2017.
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.
NOTE 3—ACQUISITIONS:
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.
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, 20172020 and 2016,2019, and the grant-datemeasurement-date fair value of those awards:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||||||||||||||||||
|
| 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 |
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 0 |
|
| $ | 0 |
|
|
| 17 |
|
| $ | 500 |
|
Restricted stock awards |
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 90 |
|
|
| 36 |
|
|
| 2,983 |
|
|
| 27 |
|
|
| 2,699 |
|
Restricted stock units |
|
| 0 |
|
|
| 0 |
|
|
| 107 |
|
|
| 9,852 |
|
|
| 1 |
|
|
| 73 |
|
|
| 158 |
|
|
| 14,617 |
|
|
|
| 0 |
|
| $ | 0 |
|
|
| 108 |
|
| $ | 9,942 |
|
|
| 37 |
|
| $ | 3,056 |
|
|
| 202 |
|
| $ | 17,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||||||||||||||
Shares awarded | Fair value of grants | Shares awarded | Fair value of grants | Shares awarded | Fair value of grants | Shares awarded | Fair value of grants | ||||||||||||||||||||
Restricted stock awards | 2 | $ | 250 | 2 | $ | 175 | 25 | $ | 2,803 | 16 | $ | 1,410 | |||||||||||||||
Restricted stock units | — | — | 1 | 76 | 33 | 3,768 | 35 | 2,840 | |||||||||||||||||||
2 | $ | 250 | 3 | $ | 251 | 58 | $ | 6,571 | 51 | $ | 4,250 |
10
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2017, respectively,2020 and $3,4242019
(currency and $10,654share amounts in thousands, except per share amounts)
(unaudited)
The Company recorded share-based compensation expense in the Consolidated Statements of Operations for the three and nine months ended August 31, 2016, respectively. The Company recorded substantially all of its share-based compensation expense in “Selling, general2020 and administrative expenses” in the Consolidated Statements of Operations.2019 as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Total share-based compensation (recorded in selling, general and administrative expenses) |
| $ | 8,925 |
|
| $ | 6,461 |
|
| $ | 25,251 |
|
| $ | 19,616 |
|
Tax benefit recorded in the provision for income taxes |
|
| (2,211 | ) |
|
| (1,653 | ) |
|
| (6,271 | ) |
|
| (5,146 | ) |
Effect on net income |
| $ | 6,714 |
|
| $ | 4,808 |
|
| $ | 18,980 |
|
| $ | 14,470 |
|
NOTE 5—4—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, 2020 |
|
| November 30, 2019 |
| ||
Cash and cash equivalents |
| $ | 1,452,273 |
|
| $ | 225,529 |
|
Restricted cash included in other current assets |
|
| 4,520 |
|
|
| 5,620 |
|
Cash, cash equivalents and restricted cash |
| $ | 1,456,793 |
|
| $ | 231,149 |
|
Accounts receivable, net:
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Accounts receivable |
| $ | 3,657,245 |
|
| $ | 3,956,629 |
|
Less: Allowance for doubtful accounts |
|
| (76,275 | ) |
|
| (29,920 | ) |
Accounts receivable, net |
| $ | 3,580,970 |
|
| $ | 3,926,709 |
|
Receivables from vendors, net:
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Receivables from vendors |
| $ | 327,958 |
|
| $ | 373,986 |
|
Less: Allowance for doubtful accounts |
|
| (4,931 | ) |
|
| (5,481 | ) |
Receivables from vendors, net |
| $ | 323,027 |
|
| $ | 368,505 |
|
As of | |||||||
August 31, 2017 | November 30, 2016 | ||||||
Cash and cash equivalents | $ | 243,265 | $ | 380,717 | |||
Restricted cash | 3,677 | 6,265 | |||||
Restricted cash included in other assets | 270 | 185 | |||||
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows | $ | 247,212 | $ | 387,167 |
Property and the issuance of bank guarantees.equipment, net:
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Land |
| $ | 47,702 |
|
| $ | 47,494 |
|
Equipment, computers and software |
|
| 585,195 |
|
|
| 503,240 |
|
Furniture and fixtures |
|
| 116,886 |
|
|
| 111,408 |
|
Buildings, building improvements and leasehold improvements |
|
| 462,716 |
|
|
| 428,180 |
|
Construction-in-progress |
|
| 8,259 |
|
|
| 12,379 |
|
Total property and equipment, gross |
| $ | 1,220,759 |
|
| $ | 1,102,702 |
|
Less: Accumulated depreciation |
|
| (636,808 | ) |
|
| (532,803 | ) |
Property and equipment, net |
| $ | 583,951 |
|
| $ | 569,899 |
|
As of | |||||||
August 31, 2017 | November 30, 2016 | ||||||
Accounts receivable, net: | |||||||
Accounts receivable | $ | 1,926,103 | $ | 1,820,049 | |||
Less: Allowance for doubtful accounts | (18,653 | ) | (13,564 | ) | |||
Less: Allowance for sales returns | (46,041 | ) | (49,991 | ) | |||
$ | 1,861,409 | $ | 1,756,494 |
11
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
As of | |||||||
August 31, 2017 | November 30, 2016 | ||||||
Property and equipment, net: | |||||||
Land | $ | 23,953 | $ | 23,629 | |||
Equipment, computers and software | 291,688 | 255,400 | |||||
Furniture and fixtures | 56,819 | 51,767 | |||||
Buildings, building improvements and leasehold improvements | 243,772 | 219,780 | |||||
Construction-in-progress | 27,643 | 12,007 | |||||
Total property and equipment, gross | 643,875 | 562,583 | |||||
Less: Accumulated depreciation | (313,990 | ) | (249,867 | ) | |||
$ | 329,885 | $ | 312,716 |
Depreciation expense was $20,185$37,447 and $59,058$111,139, respectively, for the three and nine months ended August 31, 2017,2020 and $39,124 and $123,242, respectively, and $15,375 and $46,549 for the three and nine months ended August 31, 2016, respectively.2019.
Goodwill:
|
| Technology Solutions |
|
| Concentrix |
|
| Total |
| |||
Balance as of November 30, 2019 |
| $ | 425,076 |
|
| $ | 1,829,326 |
|
| $ | 2,254,402 |
|
Foreign exchange translation |
|
| (3,308 | ) |
|
| 6,198 |
|
|
| 2,890 |
|
Balance as of August 31, 2020 |
| $ | 421,768 |
|
| $ | 1,835,524 |
|
| $ | 2,257,292 |
|
Intangible assets, net:
Goodwill: | |||||||||||
Technology Solutions | Concentrix | Total | |||||||||
Balance as of November 30, 2016 | $ | 96,412 | $ | 389,827 | $ | 486,239 | |||||
Additions from acquisitions, net of adjustments (See Note 3) | — | 37,642 | 37,642 | ||||||||
Foreign exchange translation | 3,494 | 8,931 | 12,425 | ||||||||
Balance as of August 31, 2017 | $ | 99,906 | $ | 436,400 | $ | 536,306 |
|
| As of August 31, 2020 |
|
| As of November 30, 2019 |
| ||||||||||||||||||
|
| Gross Amounts |
|
| Accumulated Amortization |
|
| Net Amounts |
|
| Gross Amounts |
|
| Accumulated Amortization |
|
| Net Amounts |
| ||||||
Customer relationships and lists |
| $ | 1,563,164 |
|
| $ | (652,341 | ) |
| $ | 910,823 |
|
| $ | 1,546,349 |
|
| $ | (522,083 | ) |
| $ | 1,024,266 |
|
Vendor lists |
|
| 177,102 |
|
|
| (78,100 | ) |
|
| 99,002 |
|
|
| 178,444 |
|
|
| (66,954 | ) |
|
| 111,490 |
|
Technology |
|
| 14,831 |
|
|
| (10,523 | ) |
|
| 4,308 |
|
|
| 14,720 |
|
|
| (8,998 | ) |
|
| 5,721 |
|
Other intangible assets |
|
| 34,388 |
|
|
| (17,353 | ) |
|
| 17,035 |
|
|
| 35,267 |
|
|
| (14,532 | ) |
|
| 20,735 |
|
Total |
| $ | 1,789,485 |
|
| $ | (758,317 | ) |
| $ | 1,031,168 |
|
| $ | 1,774,780 |
|
| $ | (612,567 | ) |
| $ | 1,162,212 |
|
As of August 31, 2017 | As of November 30, 2016 | ||||||||||||||||||||||
Gross Amounts | Accumulated Amortization | Net Amounts | Gross Amounts | Accumulated Amortization | Net Amounts | ||||||||||||||||||
Intangible assets, net: | |||||||||||||||||||||||
Customer relationships and lists | $ | 468,123 | $ | (211,132 | ) | $ | 256,991 | $ | 448,008 | $ | (160,033 | ) | $ | 287,975 | |||||||||
Vendor lists | 36,815 | (35,946 | ) | 869 | 36,815 | (34,793 | ) | 2,022 | |||||||||||||||
Technology | 26,154 | (4,741 | ) | 21,413 | 10,900 | (3,227 | ) | 7,673 | |||||||||||||||
Other intangible assets | 5,939 | (5,394 | ) | 545 | 5,827 | (4,947 | ) | 880 | |||||||||||||||
$ | 537,031 | $ | (257,213 | ) | $ | 279,818 | $ | 501,550 | $ | (203,000 | ) | $ | 298,550 |
Amortization expense was $16,688$46,828 and $49,244$140,320, respectively, for the three and nine months ended August 31, 2017,2020 and $52,428 and $158,150, respectively, and $13,011 and $36,509 for the three and nine months ended August 31, 2016, respectively.
Estimated future amortization expense of the Company'sCompany’s intangible assets including preliminary estimates from the acquisition of Tigerspike, is as follows:
Fiscal years ending November 30, |
|
|
|
|
2020 (remaining three months) |
| $ | 57,525 |
|
2021 |
|
| 173,532 |
|
2022 |
|
| 150,213 |
|
2023 |
|
| 131,762 |
|
2024 |
|
| 109,475 |
|
Thereafter |
|
| 408,661 |
|
Total |
| $ | 1,031,168 |
|
Other accrued liabilities:
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Customer advances and other customer liabilities |
| $ | 398,571 |
|
| $ | 108,401 |
|
Current operating lease liabilities |
|
| 178,723 |
|
|
| — |
|
Derivative instruments |
|
| 143,514 |
|
|
| 87,406 |
|
Other accrued expenses and payables |
|
| 536,352 |
|
|
| 527,909 |
|
Total |
| $ | 1,257,160 |
|
| $ | 723,716 |
|
Fiscal Years Ending November 30, | |||
2017 (remaining three months) | $ | 17,102 | |
2018 | 57,971 | ||
2019 | 46,025 | ||
2020 | 40,907 | ||
2021 | 35,690 | ||
thereafter | 82,123 | ||
Total | $ | 279,818 |
Other accrued expenses and payables includes accrued expenses, sales and value added tax accruals, sales return reserve, and other third-party liabilities.
12
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(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, attributable to SYNNEX Corporation were as follows:
|
| Unrecognized gains (losses) on defined benefit plans, 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, 2019 |
| $ | (28,784 | ) |
| $ | (46,932 | ) |
| $ | (133,361 | ) |
| $ | (209,077 | ) |
Other comprehensive income (loss) before reclassification |
|
| (8,768 | ) |
|
| (24,772 | ) |
|
| 14,526 |
|
|
| (19,013 | ) |
Reclassification of (gains) losses from Other comprehensive income (loss) |
|
| 0 |
|
|
| 3,462 |
|
|
| 0 |
|
|
| 3,462 |
|
Balance as of August 31, 2020 |
| $ | (37,552 | ) |
| $ | (68,242 | ) |
| $ | (118,835 | ) |
| $ | (224,628 | ) |
Unrealized gains on available-for-sale securities, net of taxes | Unrecognized defined benefit plan costs, net of taxes | Unrealized gains (losses) on cash flow hedges, net of taxes | Foreign currency translation adjustment, net of taxes | Total | ||||||||||||||||
Balance as of November 30, 2016 | $ | 713 | $ | (850 | ) | $ | (4,458 | ) | $ | (88,521 | ) | $ | (93,116 | ) | ||||||
Other comprehensive gain (loss) | 710 | (58 | ) | 203 | 45,711 | 46,566 | ||||||||||||||
Balance as of August 31, 2017 | $ | 1,423 | $ | (908 | ) | $ | (4,255 | ) | $ | (42,810 | ) | $ | (46,550 | ) |
Refer to Note 5
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 Company’s investments is shown in the table below:
As of | |||||||||||||||||||||||
August 31, 2017 | November 30, 2016 | ||||||||||||||||||||||
Adjusted Cost Basis | Unrealized Gains | Carrying Value | Adjusted Cost Basis | Unrealized Gains | Carrying Value | ||||||||||||||||||
Short-term investments: | |||||||||||||||||||||||
Held-to-maturity investments | $ | 5,487 | $ | — | $ | 5,487 | $ | 5,109 | $ | — | $ | 5,109 | |||||||||||
Long-term investments in other assets: | |||||||||||||||||||||||
Available-for-sale securities | $ | 988 | $ | 1,711 | $ | 2,699 | $ | 928 | $ | 955 | $ | 1,883 | |||||||||||
Held-to-maturity investments | 4,963 | — | 4,963 | 2,102 | — | 2,102 | |||||||||||||||||
Cost-method investments | 3,835 | — | 3,835 | 3,884 | — | 3,884 |
NOTE 7—5—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’s transactions in most of its foreign operations are primarily denominated in local currency. 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
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivativederivatives are recorded in the Consolidated Statements of Operations, as “Other income (expense), net” or as a component of “Accumulated other comprehensive income (loss)”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 its risk management strategy, the Company uses short-term forward contracts to offset the foreign exchange risk on assets and liabilitiesCompany’s subsidiaries with functional currencies that are not in U.S. dollars may hedge a portion of forecasted revenue or costs not denominated in currencies other than the subsidiaries’ functional currency of the respective entities.currencies. These forward-exchange contracts are not designated as hedging instruments.instruments mature at various dates through August 2022. The forward exchange contracts are recorded at fair value in each reporting period and any gains or losses, resulting from the changes in fair value, are recorded in earnings in the period of change.
Fair Value as of | |||||||||
Balance Sheet Line Item | August 31, 2017 | November 30, 2016 | |||||||
Derivative instruments not designated as hedging instruments | |||||||||
Foreign exchange forward contracts | |||||||||
Other current assets | $ | 940 | $ | 1,700 | |||||
Other accrued liabilities | 1,187 | 979 | |||||||
Derivative instruments designated as cash flow hedges | |||||||||
Interest rate swaps | |||||||||
Other accrued liabilities | $ | 1,295 | $ | 706 | |||||
Other long-term liabilities | 5,622 | 6,542 |
Non-Designated Derivatives
13
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
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 6— Fair Value Measurements and summarized in the table below:
|
| Value as of |
| |||||
Balance Sheet Line Item |
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Derivative instruments not designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange forward contracts (notional value) |
| $ | 1,429,429 |
|
| $ | 1,192,964 |
|
Other current assets |
|
| 29,808 |
|
|
| 11,757 |
|
Other accrued liabilities |
|
| 14,123 |
|
|
| 2,637 |
|
Interest rate swap (notional value) |
| $ | 100,000 |
|
| $ | 100,000 |
|
Other assets, net |
|
| 0 |
|
|
| 515 |
|
Other accrued liabilities |
|
| 367 |
|
|
| 0 |
|
Derivative instruments designated as cash flow hedges: |
|
|
|
|
|
|
|
|
Foreign exchange forward contracts (notional value) |
| $ | 814,879 |
|
| $ | 563,654 |
|
Other current assets and other assets, net |
|
| 38,288 |
|
|
| 14,523 |
|
Other accrued liabilities and other long-term liabilities |
|
| 740 |
|
|
| 1,633 |
|
Interest rate swaps (notional value) |
| $ | 1,500,000 |
|
| $ | 1,900,000 |
|
Other accrued liabilities |
|
| 128,418 |
|
|
| 83,428 |
|
Volume of Activity
The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Philippine Peso, Indian Rupee, the Euro, Canadian Dollar, British Pound, the Chinese Yuan, the Japanese Yen 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.
14
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2017,2020 and losses2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
The Effect of $1,668Derivative Instruments on AOCI and $6,126, respectively, during the three and nine months ended August 31, 2016, in “Other income (expense), net.”
The following table shows the three and nine months ended August 31, 2017, the Company recorded losses before tax of $577 and gains before tax of $331, respectively, and losses, before taxtaxes, of $1,857 and $8,120, respectively, for the three and nine months ended August 31, 2016 in “Other comprehensive income (loss)” related to changes in the fair value of itsCompany’s derivative instruments designated as cash flow hedges and not designated as hedging instruments. Duringinstruments in Other Comprehensive Income (“OCI”), and the three and nine months ended August 31, 2017 and 2016, there was no hedge ineffectiveness related to these derivative instruments. DuringConsolidated Statements of Operations for the three and nine months ended August 31, 2017 and 2016, thereperiods presented:
|
| Location of Gain (Loss) |
| Three Months Ended August 31, |
|
| Nine Months Ended August 31, |
| ||||||||||
|
| in Income |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for services |
|
|
| $ | 1,158,421 |
|
| $ | 1,155,690 |
|
| $ | 3,403,305 |
|
| $ | 3,480,275 |
|
Cost of revenue for services |
|
|
|
| (747,809 | ) |
|
| (731,472 | ) |
|
| (2,206,256 | ) |
|
| (2,196,212 | ) |
Selling, general and administrative expenses |
|
|
|
| (498,956 | ) |
|
| (517,135 | ) |
|
| (1,514,734 | ) |
|
| (1,557,906 | ) |
Interest expense and finance charges, net |
|
|
|
| (28,749 | ) |
|
| (42,945 | ) |
|
| (99,046 | ) |
|
| (127,695 | ) |
Other income (expense), net |
|
|
|
| (567 | ) |
|
| (1,087 | ) |
|
| 3,280 |
|
|
| 19,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
|
| $ | 34,764 |
|
| $ | 1,592 |
|
| $ | 35,795 |
|
| $ | 8,304 |
|
Interest rate swaps |
|
|
|
| (1,902 | ) |
|
| (34,058 | ) |
|
| (68,520 | ) |
|
| (104,323 | ) |
Total |
|
|
| $ | 32,862 |
|
| $ | (32,466 | ) |
| $ | (32,725 | ) |
| $ | (96,020 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) reclassified from AOCI into income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) reclassified from AOCI into income |
| Revenue for services |
| $ | 0 |
|
| $ | 73 |
|
| $ | 0 |
|
| $ | 89 |
|
Gain (loss) reclassified from AOCI into income |
| Cost of revenue for services |
|
| 5,568 |
|
|
| 4,586 |
|
|
| 13,322 |
|
|
| 12,034 |
|
Gain (loss) reclassified from AOCI into income |
| Selling, general and administrative expenses |
|
| 2,350 |
|
|
| 1,888 |
|
|
| 5,805 |
|
|
| 5,041 |
|
Gain (loss) reclassified from AOCI into income |
| Other income (expense), net |
|
| 0 |
|
|
| 10 |
|
|
| — |
|
|
| 10 |
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) reclassified from AOCI into income |
| Interest expense and finance charges, net |
|
| (10,305 | ) |
|
| (2,065 | ) |
|
| (23,710 | ) |
|
| (4,545 | ) |
Total |
|
|
| $ | (2,387 | ) |
| $ | 4,492 |
|
| $ | (4,583 | ) |
| $ | 12,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized from foreign exchange forward contracts, net(1) |
| Other income (expense), net |
| $ | 24,972 |
|
| $ | (1,286 | ) |
| $ | 32,512 |
|
| $ | 8,657 |
|
Gains (losses) recognized from interest rate swaps, net |
| Interest expense and finance charges, net |
|
| 222 |
|
|
| (807 | ) |
|
| (882 | ) |
|
| (2,984 | ) |
Total |
|
|
| $ | 25,194 |
|
| $ | (2,093 | ) |
| $ | 31,630 |
|
| $ | 5,673 |
|
(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 gainsmaterial gain or loss amounts excluded from the assessment of effectiveness. Existing net losses recognized in earnings associated with an underlying exposureAOCI that did not, or was notare expected to occur; nor are there any anticipatedbe reclassified into earnings in the normal course of business within the next twelve months.
Offsetting of Derivatives
The Company’s derivative instruments are generally governed by standard International Swaps and Derivatives Association, Inc. master agreements, which generally do not require the Company to post any collateral, and specify netting rights, and other customary provisions including events of defaults and termination rights. 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
15
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
Consolidated Statement of Financial Position,Balance Sheet, the total derivative asset and liability positions would have been reduced by $935$12,458 each as of August 31, 20172020 and $1,364$6,003 each as of November 30, 2016.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed ourthe Company’s obligations to the counterparties. We manageThe 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—6—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;
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, 2020 |
|
| As of November 30, 2019 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| 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 |
| $ | 50,019 |
|
| $ | 50,019 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 37,760 |
|
| $ | 37,760 |
|
| $ | 0 |
|
| $ | 0 |
|
Marketable equity securities |
|
| 3,192 |
|
|
| 3,192 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,834 |
|
|
| 2,834 |
|
|
| 0 |
|
|
| 0 |
|
Foreign government bond |
|
| 1,378 |
|
|
| 1,378 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,228 |
|
|
| 1,228 |
|
|
| 0 |
|
|
| 0 |
|
Forward foreign currency exchange contracts |
|
| 68,096 |
|
|
| 0 |
|
|
| 68,096 |
|
|
| 0 |
|
|
| 26,280 |
|
|
| 0 |
|
|
| 26,280 |
|
|
| 0 |
|
Interest rate swaps |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 515 |
|
|
| 0 |
|
|
| 515 |
|
|
| 0 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
| $ | 14,863 |
|
| $ | 0 |
|
| $ | 14,863 |
|
| $ | 0 |
|
| $ | 4,270 |
|
| $ | 0 |
|
| $ | 4,270 |
|
| $ | 0 |
|
Interest rate swaps |
|
| 128,785 |
|
|
| 0 |
|
|
| 128,785 |
|
|
| 0 |
|
|
| 83,428 |
|
|
| 0 |
|
|
| 83,428 |
|
|
| 0 |
|
As of August 31, 2017 | As of November 30, 2016 | ||||||||||||||||||||||||||||||
Total | Fair value measurement category | Total | Fair value measurement category | ||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Cash equivalents | $ | 49,048 | $ | 49,048 | $ | — | $ | — | $ | 43,043 | $ | 43,043 | $ | — | $ | — | |||||||||||||||
Available-for-sale securities | 2,699 | 2,699 | — | — | 1,883 | 1,883 | — | — | |||||||||||||||||||||||
Forward foreign currency exchange contracts | 940 | — | 940 | — | 1,700 | — | 1,700 | — | |||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | $ | 1,187 | $ | — | $ | 1,187 | $ | — | $ | 979 | $ | — | $ | 979 | $ | — | |||||||||||||||
Interest rate swaps | 6,917 | — | 6,917 | — | 7,248 | — | 7,248 | — |
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 available-for-sale securities consist ofmarketable equity securities, andprimarily comprising investments in other companies’ equity securities as per local customary business practice, are recorded at fair value based on quoted market prices. Investment in foreign government bond classified as available-for-sale debt security is 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
The carrying values of held-to-maturity securities 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. The fair value of long-term held-to-maturity investments in foreign government bonds is based on quoted market prices. 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, 2017,2020, there were no0 transfers between the fair value measurement category levels.
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
NOTE 9—7—ACCOUNTS RECEIVABLE ARRANGEMENTS:
The Company has an uncommitted supply-chain financing program with a global financial institution under which trade accounts receivable of a certain customercustomers and itstheir affiliates may be acquired, without recourse, by the financial institution. Available capacity under this program is dependent on the level of ourthe Company’s trade accounts receivable with this customerthese customers and the financial institution’s willingness to purchase such receivables. As of August 31, 20172020 and November 30, 2016,2019, accounts receivable sold to and held by the financial institution under this program were $8,774$17,957 and $8,988,$32,472, 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 StatementStatements of Operations. During the three and nine months ended August 31, 20172020 and 2016,2019, discount fees were not material to the Company'sCompany’s results of operations.
SYNNEX Infotec,Japan, the Company'sCompany’s Japanese Technology Solutions subsidiary, has arrangements with various banks and 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, 20172020 and November 30, 20162019 were $2,414$5,760 and $3,564,$2,856, respectively.
The Company also has other financing agreements in North America with various 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. Please see See Note 1615 — Commitments and Contingencies for further information.
The following table summarizes the net sales financed through the flooring agreements and the flooring fees incurred:
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 |
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||||||||||||||
Net sales financed | $ | 313,058 | $ | 362,491 | $ | 869,478 | $ | 922,448 |
| $ | 584,901 |
|
| $ | 521,341 |
|
| $ | 1,512,429 |
|
| $ | 1,424,081 |
| |||||||
Flooring fees(1) | 2,126 | 2,287 | 5,887 | 5,996 |
|
| 3,690 |
|
|
| 3,584 |
|
|
| 9,563 |
|
|
| 9,410 |
|
(1) | Flooring fees are included within “Interest expense and finance charges, net.” |
As of August 31, 20172020 and November 30, 2016,2019, accounts receivable subject to flooring agreements were $63,665$58,567 and $65,099,$69,637, respectively.
NOTE 8—BORROWINGS:
Borrowings consist of the following:
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
SYNNEX United States accounts receivable securitization arrangement |
| $ | 0 |
|
| $ | 108,000 |
|
SYNNEX Japan credit facility - revolving line of credit component |
|
| 72,696 |
|
|
| 5,936 |
|
SYNNEX United States credit agreement - revolving line of credit component |
|
| 0 |
|
|
| 25,800 |
|
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 |
|
|
| 90,000 |
|
Other borrowings |
|
| 21,418 |
|
|
| 9,233 |
|
Borrowings, current |
| $ | 244,114 |
|
| $ | 298,969 |
|
|
|
|
|
|
|
|
|
|
SYNNEX Japan credit facility - term loan component |
| $ | 66,088 |
|
| $ | 63,921 |
|
SYNNEX United States credit agreement - term loan component |
|
| 975,000 |
|
|
| 1,020,000 |
|
SYNNEX United States term loan credit agreement |
|
| 1,575,000 |
|
|
| 1,642,500 |
|
Other term debt |
|
| 95 |
|
|
| 298 |
|
Long-term borrowings, before unamortized debt discount and issuance costs |
| $ | 2,616,183 |
|
| $ | 2,726,719 |
|
Less: unamortized debt discount and issuance costs |
|
| (6,374 | ) |
|
| (8,452 | ) |
Long-term borrowings |
| $ | 2,609,809 |
|
| $ | 2,718,267 |
|
17
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
SYNNEX United States accounts receivable securitization arrangement
In the following:
As of | |||||||
August 31, 2017 | November 30, 2016 | ||||||
SYNNEX U.S. AR arrangement | $ | 353,000 | $ | 262,900 | |||
SYNNEX Canada AR arrangement | 24,033 | — | |||||
SYNNEX U.S. credit agreement | 558,594 | 585,938 | |||||
SYNNEX Infotec credit facility | 95,472 | 81,251 | |||||
India credit facilities | 12,000 | 12,000 | |||||
Other borrowings | 13,099 | 24,877 | |||||
Total borrowings | 1,056,198 | 966,966 | |||||
Less: unamortized debt discount and issuance costs | (2,209 | ) | (2,982 | ) | |||
Total borrowings, net of unamortized debt discount and issuance costs | 1,053,989 | 963,984 | |||||
Less: current portion | (489,904 | ) | (362,889 | ) | |||
Noncurrent portion | $ | 564,085 | $ | 601,095 |
Under the terms of the U.S. AR Arrangement, the Company and onetwo of its U.S. subsidiaries sell, on a revolving basis, their receivables (other than certain specifically excluded receivables) to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in and to the receivables acquired by the Company's bankruptcy-remote subsidiary as security. Any borrowingsamounts received under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets.
SYNNEX Canada ARaccounts receivable securitization arrangement
SYNNEX Canada Limited (“SYNNEX Canada”) entered into, the Company's Technology Solutions subsidiary in Canada, has an accounts receivable securitization program with a bank to provide additional capital for its operations. In March 2020, SYNNEX Canada renewed this agreement to mature in May 2023. Under the terms of this program, SYNNEX Canada can borrow up to CAD100,000, or $76,628, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis, up to CAD65,000, or $52,071, through May 10, 2020.basis. The program includes an accordion feature that allows SYNNEX Canada to allow a request toan increase in the lender'sbank's commitment byup to an additional CAD25,000,CAD50,000, or $20,027.$38,314. Any borrowingsamounts received under this arrangement are recorded as debt on the Company's Consolidated Balance Sheets.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 averageweighted-average of the Canadian Dollar Offered Rate plus a margin of 2.00%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. It will payAfter 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 below CAD25,000up to CAD60,000, or $45,977, and an additional 0.55% per annum ifwhen the unused portion exceeds CAD25,000.CAD60,000, or $45,977, a fee of 0.55% per annum of the unused portion of the commitment. As of both August 31, 2017, borrowings outstanding under this arrangement were $24,033.
The Company has guaranteed the term loan componentperformance obligations of the U.S. Credit Agreement were $558,594 and $585,938, respectively. There were no borrowings outstandingSYNNEX Canada under the revolvingthis facility.
SYNNEX Japan credit facility as of either August 31, 2017 or November 30, 2016.
SYNNEX Infotec credit facility
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 0 borrowings outstanding under these credit facilities as of either August 31, 2020 or November 30, 2019.
18
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
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 maturity 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 0. 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.
SYNNEX United States term loan credit agreement
The Company has a secured term loan credit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions in the original principal amount of $1,800,000. The U.S. Term Loan Credit Agreement matures in October 2023. 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 0. 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 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.
SYNNEX Canada revolving line of credit
SYNNEX Canada entered intohas an uncommitted revolving line of credit with a bank under which it can borrow up to CAD35,000,CAD50,000, or $28,038.$38,314. 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 USU.S. Base Rate. As of August 31, 2017, there were no borrowings outstanding under the credit facility.
Other borrowings
Other borrowings and $8,657, respectively, on its Consolidated Balance Sheets in obligations attributable to SYNNEX Infotec for the sale and financing of this subsidiary’s approved accounts receivable and notes receivable with recourse provisions.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at August 31, 20172020 exchange rates.
19
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
Future principal payments
As of August 31, 2017,2020, future principal payments under the above loans are as follows:
Fiscal Years Ending November 30, |
|
|
|
|
2020 (remaining three months) |
| $ | 131,519 |
|
2021 |
|
| 216,274 |
|
2022 |
|
| 1,050,004 |
|
2023 |
|
| 1,462,500 |
|
Total |
| $ | 2,860,297 |
|
Fiscal Years Ending November 30, | |||
2017 (remaining three months) | $ | 450,842 | |
2018 | 105,349 | ||
2019 | 62,507 | ||
2020 | 437,500 | ||
$ | 1,056,198 |
Interest expense and finance charges
The total interest expense and finance charges for the Company's borrowings were $10,224$31,021 and $28,186,$105,017, respectively, for the three and nine months ended August 31, 2017,2020, and $8,178$44,401 and $22,022,$132,111, respectively, for the three and nine months ended August 31, 2016.2019. The variable interest rates ranged between 0.71%0.74% and 4.50%4.95% during the three months ended August 31, 2017,2020, and 0.58%between 0.74% and 4.50%8.41% during the nine months ended
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, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of August 31, 2017,2020, the Company was in compliance with all material covenants for the above arrangements.
NOTE 11—9—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 |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 |
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||||||||||||||
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to SYNNEX Corporation | $ | 75,163 | $ | 58,704 | $ | 210,100 | $ | 149,628 | |||||||||||||||||||||||
Net income |
| $ | 134,464 |
|
| $ | 123,132 |
|
| $ | 314,008 |
|
| $ | 324,711 |
| |||||||||||||||
Less: net income allocated to participating securities(1) | (689 | ) | (592 | ) | (1,951 | ) | (1,566 | ) |
|
| (1,491 | ) |
|
| (1,070 | ) |
|
| (3,623 | ) |
|
| (2,894 | ) | |||||||
Net income attributable to SYNNEX Corporation common stockholders | $ | 74,474 | $ | 58,112 | $ | 208,149 | $ | 148,062 | |||||||||||||||||||||||
Net income attributable to common stockholders |
| $ | 132,973 |
|
| $ | 122,062 |
|
| $ | 310,385 |
|
| $ | 321,817 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted-average number of common shares - basic | 39,563 | 39,346 | 39,530 | 39,285 |
|
| 50,890 |
|
|
| 50,601 |
|
|
| 50,851 |
|
|
| 50,661 |
| |||||||||||
Basic earnings attributable to SYNNEX Corporation per common share | $ | 1.88 | $ | 1.48 | $ | 5.27 | $ | 3.77 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic earnings per common share |
| $ | 2.61 |
|
| $ | 2.41 |
|
| $ | 6.10 |
|
| $ | 6.35 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income attributable to SYNNEX Corporation | $ | 75,163 | $ | 58,704 | $ | 210,100 | $ | 149,628 | |||||||||||||||||||||||
Net income |
| $ | 134,464 |
|
| $ | 123,132 |
|
| $ | 314,008 |
|
| $ | 324,711 |
| |||||||||||||||
Less: net income allocated to participating securities(1) | (686 | ) | (589 | ) | (1,943 | ) | (1,559 | ) |
|
| (1,481 | ) |
|
| (1,066 | ) |
|
| (3,602 | ) |
|
| (2,883 | ) | |||||||
Net income attributable to SYNNEX Corporation common stockholders | $ | 74,477 | $ | 58,115 | $ | 208,157 | $ | 148,069 | |||||||||||||||||||||||
Net income attributable to common stockholders |
| $ | 132,983 |
|
| $ | 122,066 |
|
| $ | 310,406 |
|
| $ | 321,828 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted-average number of common shares - basic | 39,563 | 39,346 | 39,530 | 39,285 |
|
| 50,890 |
|
|
| 50,601 |
|
|
| 50,851 |
|
|
| 50,661 |
| |||||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock options and restricted stock units | 185 | 188 | 192 | 207 |
|
| 351 |
|
|
| 244 |
|
|
| 321 |
|
|
| 242 |
| |||||||||||
Weighted-average number of common shares - diluted | 39,748 | 39,534 | 39,722 | 39,492 |
|
| 51,241 |
|
|
| 50,845 |
|
|
| 51,172 |
|
|
| 50,903 |
| |||||||||||
Diluted earnings attributable to SYNNEX Corporation per common share | $ | 1.87 | $ | 1.47 | $ | 5.24 | $ | 3.75 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted earnings per common share |
| $ | 2.60 |
|
| $ | 2.40 |
|
| $ | 6.07 |
|
| $ | 6.32 |
| |||||||||||||||
Anti-dilutive shares excluded from diluted earnings per share calculation | 9 | 5 | 12 | 10 |
|
| 41 |
|
|
| 121 |
|
|
| 83 |
|
|
| 120 |
|
(1) | Restricted stock awards granted to employees |
20
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
NOTE 12—10—SEGMENT INFORMATION:
Summarized financial information related to the Company’s reportable business segments for the three and nine months ended August 31, 2017 and 2016periods presented is shown below:
|
| Technology Solutions |
|
| Concentrix |
|
| Inter-Segment Elimination |
|
| Consolidated |
| ||||
Three months ended August 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 5,306,361 |
|
| $ | 1,163,694 |
|
| $ | (5,273 | ) |
| $ | 6,464,782 |
|
External revenue |
|
| 5,306,361 |
|
|
| 1,158,421 |
|
|
|
|
|
|
| 6,464,782 |
|
Operating income |
|
| 132,373 |
|
|
| 76,763 |
|
|
| — |
|
|
| 209,136 |
|
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 |
|
Nine months ended August 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 13,858,313 |
|
| $ | 3,418,676 |
|
| $ | (15,371 | ) |
| $ | 17,261,619 |
|
External revenue |
|
| 13,858,313 |
|
|
| 3,403,305 |
|
|
| — |
|
|
| 17,261,619 |
|
Operating income |
|
| 320,962 |
|
|
| 188,554 |
|
|
| — |
|
|
| 509,515 |
|
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 |
|
Total assets as of August 31, 2020 |
| $ | 11,164,679 |
|
| $ | 5,110,950 |
|
| $ | (3,012,522 | ) |
| $ | 13,263,107 |
|
Total assets as of November 30, 2019 |
| $ | 10,312,512 |
|
| $ | 4,645,475 |
|
| $ | (3,260,027 | ) |
| $ | 11,697,960 |
|
Technology Solutions | Concentrix | Inter-Segment Elimination | Consolidated | ||||||||||||
Three months ended August 31, 2017 | |||||||||||||||
Revenue | $ | 3,784,678 | $ | 495,974 | $ | (3,966 | ) | $ | 4,276,686 | ||||||
External revenue | 3,784,599 | 492,087 | 4,276,686 | ||||||||||||
Operating income | 99,968 | 22,248 | — | 122,216 | |||||||||||
Three months ended August 31, 2016 | |||||||||||||||
Revenue | 3,267,354 | 406,715 | (4,255 | ) | 3,669,814 | ||||||||||
External revenue | 3,267,287 | 402,527 | 3,669,814 | ||||||||||||
Operating income | 79,410 | 18,564 | 48 | 98,022 | |||||||||||
Nine months ended August 31, 2017 | |||||||||||||||
Revenue | $ | 10,289,694 | $ | 1,455,817 | $ | (11,688 | ) | $ | 11,733,823 | ||||||
External revenue | 10,289,463 | 1,444,360 | 11,733,823 | ||||||||||||
Operating income | 282,094 | 66,989 | 22 | 349,105 | |||||||||||
Nine months ended August 31, 2016 | |||||||||||||||
Revenue | 9,099,969 | 1,087,332 | (12,366 | ) | 10,174,935 | ||||||||||
External revenue | 9,099,762 | 1,075,173 | 10,174,935 | ||||||||||||
Operating income | 222,896 | 25,855 | 203 | 248,954 | |||||||||||
Total assets as of August 31, 2017 | $ | 5,226,676 | $ | 1,632,479 | $ | (1,119,795 | ) | $ | 5,739,360 | ||||||
Total assets as of November 30, 2016 | 4,844,271 | 1,614,623 | (1,243,613 | ) | 5,215,281 |
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 geographic areas in which the Company operates. The revenue attributable to countries is based on the geography of the entitiescountry from where theTechnology Solutions products are delivered and the country of domicile of the Concentrix legal entity that is party to the client contract. Shown below are the countries that accounted for 10% or from where customer service contracts are managed.more of the Company’s revenue and property and equipment, net, for the periods presented:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 4,650,397 |
|
| $ | 4,181,667 |
|
| $ | 11,576,670 |
|
| $ | 11,327,961 |
|
Others |
|
| 1,814,385 |
|
|
| 2,021,992 |
|
|
| 5,684,948 |
|
|
| 5,848,039 |
|
Total |
| $ | 6,464,782 |
|
| $ | 6,203,659 |
|
| $ | 17,261,619 |
|
| $ | 17,176,000 |
|
|
| As of |
| |||||
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Property and equipment, net: |
|
|
|
|
|
|
|
|
United States |
| $ | 279,008 |
|
| $ | 287,679 |
|
Philippines |
|
| 69,315 |
|
|
| 63,421 |
|
Others |
|
| 235,628 |
|
|
| 218,799 |
|
Total |
| $ | 583,951 |
|
| $ | 569,899 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||
Revenue: | |||||||||||||||
United States | $ | 3,188,407 | $ | 2,726,126 | $ | 8,563,766 | $ | 7,456,117 | |||||||
Canada | 410,916 | 369,439 | 1,187,843 | 1,101,464 | |||||||||||
Others | 677,363 | 574,249 | 1,982,214 | 1,617,354 | |||||||||||
Total | $ | 4,276,686 | $ | 3,669,814 | $ | 11,733,823 | $ | 10,174,935 |
21
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
As of | |||||||
August 31, 2017 | November 30, 2016 | ||||||
Property and equipment, net: | |||||||
United States | $ | 139,552 | $ | 129,633 | |||
India | 40,477 | 41,285 | |||||
Philippines | 32,001 | 36,219 | |||||
Others | 117,855 | 105,579 | |||||
Total | $ | 329,885 | $ | 312,716 |
NOTE 13—11—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, 20172020 and November 30, 2016,2019, MiTAC Holdings and its affiliates beneficially owned approximately
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 24%18% of the Company’s outstanding common stock as of August 31, 2017.2020. These shares are owned by the following entities:
As of August 31, | ||||||
MiTAC Holdings (1) | 5,300 | |||||
Synnex Technology International Corp. (2) | 3,860 | |||||
Total | 9,160 |
_________________________
(1) | |
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes |
trust, and 190 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 |
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 Company purchased inventories fromfollowing table presents the Company's transactions with MiTAC Holdings and its affiliates totaling $66,298for the periods indicated:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Purchases of inventories and services |
| $ | 53,365 |
|
| $ | 41,989 |
|
| $ | 151,929 |
|
| $ | 120,093 |
|
Sale of products to MiTAC Holdings and affiliates |
|
| 285 |
|
|
| 142 |
|
|
| 882 |
|
|
| 546 |
|
Rent and overhead costs incurred for use of facilities of MiTAC Holdings and affiliates |
|
| 27 |
|
|
| 0 |
|
|
| 91 |
|
|
| 0 |
|
The following table presents the Company’s receivable from and $183,390, respectively, during the three and nine months ended
|
| August 31, 2020 |
|
| November 30, 2019 |
| ||
Receivable from related parties (included in Accounts receivable, net) |
| $ | 15,841 |
|
| $ | 4,405 |
|
Payable to related parties (included in Accounts payable) |
|
| 28,761 |
|
|
| 23,179 |
|
The Company’s business relationship with MiTAC Holdings and its affiliates has been informal and is generally 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.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. Matthew 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.
NOTE 14—12—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
22
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2020 and 2019
(currency and share amounts in thousands, except per share amounts)
(unaudited)
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, 2020, the Company contributed $18,874 and $51,487, respectively, to 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.
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, 2020 and November 30, 2019, the deferred compensation liability balance was $5,511 and $5,389, 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, the Company provides government mandated postemploymenthas a frozen defined benefit plans topension plan, which includes both a qualified and non-qualified portion, for all eligible employees in certain foreign subsidiaries. Netthe U.S. (“the cash balance plan”). The pension costs were $1,456benefit formula for the cash balance plan is determined by a combination of compensation, age-based credits and $5,000, respectively, during the three and nine months ended August 31, 2017, and $911 and $1,909, respectively, during the three and nine months ended August 31, 2016.annual guaranteed interest credits. The Company contributed $1,321 and $2,599, respectively, to these plans during the three and nine months ended August 31, 2017, and $776 and $1,958, respectively, during the three and nine months ended August 31, 2016. As of August 31, 2017 and November 30, 2016, these plans were unfunded by $17,643 and $16,113, respectively.
During the three and nine months ended August 31, 2017,2020, net periodic pension costs were $3,995 and $10,171, respectively, and the Company contributed $8,062Company’s contribution was $239 and $24,611, respectively, to defined contribution plans.$636, respectively. During the three and nine months ended August 31, 2016,2019, net periodic pension costs were $6,204 and $11,678, respectively, and the Company contributed $8,138Company’s contribution was $2,225 and $22,238, respectively, to defined contribution plans.
NOTE 15—13—EQUITY:
Share repurchase program
In June 2017,2020, the Board of Directors authorized a three-year $300,000 $400,000 share repurchase program, effective July 1, 2017,2020, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions. As of August 31, 2017,2020, the Company had not0t repurchased anyshares under thethis program.
In June 2014,2017, the Board of Directors authorized a three-year $100,000 $300,000 share repurchase program, effective July 1, 2017, pursuant to which the Company could repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions. Through the expiration of thethis program in June 2017,2020, the Company had purchased 207repurchased 875 shares at a total cost of $15,654.$84,577. 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 March 24, 2020, as a result of $9,955 and $7,922 during the three months ended August 31, 2017 and 2016, respectively. On September 25, 2017,unpredictable economic environment due to the impact of the COVID-19 pandemic, the Company announced the suspension of its quarterly dividend.
NOTE 14—LEASES:
The Company leases certain of its facilities and equipment under operating lease agreements, which expire in various periods through 2034. The Company’s finance leases are not material.
The following table presents the various components of lease costs.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| August 31, 2020 |
|
| August 31, 2020 |
| ||
Operating lease cost |
| $ | 61,354 |
|
| $ | 182,374 |
|
Short-term lease cost |
|
| 1,753 |
|
|
| 8,574 |
|
Variable lease cost |
|
| 11,941 |
|
|
| 31,500 |
|
Sublease income |
|
| (52 | ) |
|
| (193 | ) |
Total operating lease cost |
| $ | 74,996 |
|
| $ | 222,255 |
|
The following table presents a maturity analysis of expected undiscounted cash dividend of $0.30 per share payableflows for operating leases on October 27, 2017 to stockholders of record an annual basis for the next five years and thereafter as of October 13, 2017. Future dividends are subject to declaration by the Board of Directors.
23
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---STATEMENTS—(continued)
For the three and nine months ended August 31, 20172020 and 2016
(currency and share amounts in thousands, except per share amounts)
(unaudited)
Fiscal Years Ending November 30, |
|
|
|
|
2020 (remaining three months) |
| $ | 56,407 |
|
2021 |
|
| 200,153 |
|
2022 |
|
| 158,322 |
|
2023 |
|
| 111,850 |
|
2024 |
|
| 78,311 |
|
Thereafter |
|
| 80,229 |
|
Total payments |
| $ | 685,272 |
|
Less: imputed interest* |
|
| 91,428 |
|
Total present value of lease payments |
| $ | 593,844 |
|
*Imputed interest represents the changes in equity for the nine months ended
Nine Months Ended August 31, 2017 | Nine Months Ended August 31, 2016 | |||||||||||||||||||||||
Attributable to SYNNEX Corporation | Attributable to Noncontrolling interest | Total Equity | Attributable to SYNNEX Corporation | Attributable to Noncontrolling interest | Total Equity | |||||||||||||||||||
Beginning balance: | $ | 1,975,776 | $ | 22 | $ | 1,975,798 | $ | 1,799,381 | $ | 516 | $ | 1,799,897 | ||||||||||||
Issuance of common stock on exercise of options | 1,053 | — | 1,053 | 4,243 | — | 4,243 | ||||||||||||||||||
Issuance of common stock for employee stock purchase plan | 2,187 | — | 2,187 | 1,771 | — | 1,771 | ||||||||||||||||||
Tax benefit from employee stock plans | 2,466 | — | 2,466 | 5,262 | — | 5,262 | ||||||||||||||||||
Taxes paid for the settlement of equity awards | (3,922 | ) | — | (3,922 | ) | (3,427 | ) | — | (3,427 | ) | ||||||||||||||
Share-based compensation | 12,412 | 12,412 | 10,615 | — | 10,615 | |||||||||||||||||||
Changes in ownership of noncontrolling interest | 85 | (22 | ) | 63 | (628 | ) | (578 | ) | (1,206 | ) | ||||||||||||||
Repurchases of common stock | — | — | — | (6,917 | ) | — | (6,917 | ) | ||||||||||||||||
Dividends declared | (29,852 | ) | — | (29,852 | ) | (23,809 | ) | — | (23,809 | ) | ||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | 210,100 | — | 210,100 | 149,628 | 67 | 149,695 | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities, net of taxes | 710 | — | 710 | (575 | ) | (3 | ) | (578 | ) | |||||||||||||||
Change in unrealized gain (losses) in defined benefit plans, net of taxes | (58 | ) | — | (58 | ) | (455 | ) | — | (455 | ) | ||||||||||||||
Unrealized gains (losses) on cash flow hedges, net of taxes | 203 | — | 203 | (4,961 | ) | — | (4,961 | ) | ||||||||||||||||
Foreign currency translation adjustments, net of taxes | 45,711 | — | 45,711 | (3,383 | ) | 36 | (3,347 | ) | ||||||||||||||||
Total other comprehensive income (loss) | 46,566 | — | 46,566 | (9,374 | ) | 33 | (9,341 | ) | ||||||||||||||||
Total comprehensive income | 256,666 | — | 256,666 | 140,254 | 100 | 140,354 | ||||||||||||||||||
Ending balance: | $ | 2,216,871 | $ | — | $ | 2,216,871 | $ | 1,926,745 | $ | 38 | $ | 1,926,783 |
During the three and nine months ended August 31, 20172019, rent expense was $66,749 and 2016$197,645, respectively. Sublease income was immaterial.
The following amounts were recorded in the Company's Consolidated Balance Sheet as of August 31, 2020:
Operating leases |
| Balance sheet location |
| August 31, 2020 |
| |
Operating lease ROU assets |
| Other assets, net |
| $ | 540,990 |
|
Current operating lease liabilities |
| Other accrued liabilities |
|
| 178,723 |
|
Non-current operating lease liabilities |
| Other long-term liabilities |
|
| 415,121 |
|
The following table presents supplemental cash flow information related to the Company's operating leases for the nine months ended August 31, 2020. Cash payments related to variable lease costs and share amountsshort-term leases are not included in thousands, except per share amounts)
|
|
|
| Nine months ended |
| |
Cash flow information |
|
|
| August 31, 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
| $ | 168,954 |
|
Non-cash ROU assets obtained in exchange for lease liabilities (subsequent to initial adoption) |
|
|
|
| 77,506 |
|
The weighted-average remaining lease term and discount rate as of August 31, 2020 were as follows:
Operating lease term and discount rate | Operating Leases | |||||
Weighted-average remaining lease term (years) | 4.13 | |||||
Weighted-average discount rate | 7.01% |
Future minimum contractually required cash payment obligations under non-cancellable lease agreements as of August 31, 2017November 30, 2019 were as follows:
Fiscal Years Ending November 30, |
|
|
|
|
2020 |
| $ | 213,649 |
|
2021 |
|
| 174,611 |
|
2022 |
|
| 132,778 |
|
2023 |
|
| 96,084 |
|
2024 |
|
| 66,753 |
|
Thereafter |
|
| 71,351 |
|
Total minimum lease payments |
| $ | 755,226 |
|
Fiscal Years Ending November 30, | |||
2017 (remaining three months) | $ | 23,075 | |
2018 | 87,070 | ||
2019 | 76,209 | ||
2020 | 62,148 | ||
2021 | 40,481 | ||
Thereafter | 82,473 | ||
Total minimum lease payments | $ | 371,456 |
24
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and nine months ended August 31, 2017, rent expense was $28,5042020 and $85,237, respectively. During the three2019
(currency and nine months ended August 31, 2016, rent expense was $26,395 and $76,998, respectively. Sublease income was immaterial for each of the periods presented and is immaterial for theshare amounts entitled to be received in future periods under non-cancellable sublease arrangements.
(unaudited)
NOTE 15— COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of August 31, 20172020 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 97 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, 20172020 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 currently not involved in any material proceedings.
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.
NOTE 16— RISKS AND UNCERTAINTIES RELATED TO THE COVID-19 PANDEMIC:
On March 11, 2020, the World Health Organization characterized the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and work force participation and created significant volatility and disruption of financial markets. These disruptions, which were most acute during the second quarter of fiscal year 2020, have impacted the Company’s business including Concentrix’ ability to support customer demand due to decreased workforce productivity and limiting the Technology Solutions segment’s ability to support end market demand due to supply chain disruptions. As a result, many of the estimates and assumptions used in preparation of these interim financial statements required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, the Company’s estimates may materially change in future periods.
25
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.
When used in this Quarterly Report on Form 10-Q, or the Report,this “Report”, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “allows,” “can,” “may,” “could,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about the impact of COVID-19, market trends, our business model and our services, our business and market strategy, our proposed separation of SYNNEX and Concentrix, including the timing and impact thereof, future growth, including expansion of our product and service lines, our infrastructure, our investment in information technology, or IT, systems, our employee hiring, impactretention of the ownership interest of MiTAC Holdings Corporation or (“MiTAC Holdings, ownership interestHoldings”), in us and its impact, our revenue, and operating results,including our products revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers and suppliers, customer and supplier contract terms, customer forecasts and its impact on us, relationships with our suppliers, adequacy of our facilities, productivity, our data center and contact center operations, use of technology at contact centers, ability to manage and communicate with international resources, scalability of customer management solutions, ability to meet demand, managing inventory and our shipping costs, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, the withdrawal of the UK from the EU, expansion of our operations and related effects, including our Concentrix business, our strategic acquisitions and divestitures of businesses and assets, including the impactseasonality of the acquisition of Tigerspike and the Westcon-Comstor Americas business on our business, and the investmentsales, changes in Datatec's Westcon EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific) businesses,share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, dependency on personnel, pricing pressures, competition, impact of economic and industry trends, changes to the markets in which we compete, impact of our accounting policies and recently issued accounting pronouncements, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, and plans regarding tax repatriation, our share repurchase and dividend program, and statements regarding our securitization programs, term loans and revolving credit lines, and our investments in working capital personnel, facilities and operations.personnel. 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 and risks related to the impact of COVID-19 or coronavirus, or other pandemics, and the impact of related governmental, individual and business responses, including the ability of our staff to travel to work, our ability to maintain adequate inventories, delivery capabilities, the impact on our customers and supply chain, and the impact on demand in general, the proposed separation, as well as with respect to the acquisition of Tigerspike and the Westcon-Comstor Americas business, the risks associated with the transaction including the ability to successfully integrate employees and operations, diversion of management’s attention and the ability to retain key employee, as well as risks relating to our business including the seasonality ofthe 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,(“CE”), industries, fluctuations in general economic and market conditions, change in the market for our customers' products, employee turnover, changes in value of foreign currencies and interest rates and other risk factors contained hereinbelow under Part I, Item 1A, and in our Annual Report on Form 10-K for the year ended November 30, 2016.“Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertakingdo not intend 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.
In the sections of this Report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all references to “SYNNEX,” “we,” “us,” “our” or the “Company” mean SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments.
SYNNEX, the SYNNEX Logo, CONCENTRIX, and all other SYNNEX company, product and services names and slogans are trademarks or registered trademarks of SYNNEX Corporation. SYNNEX, the SYNNEX Logo, and CONCENTRIX Reg. U.S. Pat. & Tm. Off. Other names and marks are the property of their respective owners.
Overview
We are a Fortune 500200 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 strategyexperience 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 distributessells peripherals, ITinformation technology (“IT”) systems including data center server and storage solutions, system components, software, networking/communications/networking, communications and security equipment, consumer electronics or CE,(“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-infused strategic solutions and end-to-end business services focused on customer engagement strategy,experience, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten identifiedfive primary industry verticals.
In our Technology Solutions segment, we distribute more than 30,00040,000 technology products (as measured by active SKUs) from more than 300400 IT, CE and original equipment manufacturers, or OEM, suppliers, to more than 20,00025,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan, Mexico and Japan.Central and South America. We purchase peripherals, IT systems, system components, software, networking/communications/networking, communications and, 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 or VARs,(“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-marketaftermarket product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare, and we provide specialized service
26
offerings that increase efficiencies in the areas of print management, renewals, networking, logistics services and supplychain 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 particular product or bundle of products we distribute and services we provide.
In our Technology Solutions segment, we are highly dependent on the end-market demand for IT and CE products, and on our partners’ strategic initiatives and business models. This end-market demand is influenced by many factors including the introduction of new IT and CE products and software by OEMs, replacement cycles for existing IT and CE products, trends toward cloud computing, overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT and CE industries and increased price-based competition.
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 interactionexperience 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 mediumsmedia and in more than 4070 languages. Our portfolio of solutions and services support our clients and their customers globally.
Our Concentrix segment generates revenue from performing services that are generally tied to our clients’ products and 73%services and how they are received in the marketplace. Any shift in business or size of the market for our clients’ products, any failure of technology or failure of acceptance of our total revenueclients’ 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.
We have been in business since 1980 and are headquartered in Fremont, California. We have significant operations in North and South America, Asia-Pacific, Europe and Africa. 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, 2020, we had over 252,000 full-time and temporary employees worldwide.
In December 2019, there was froman outbreak of a new strain of coronavirus (“COVID-19”). In March 2020, the United StatesWorld Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets. The impact of the COVID-19 pandemic on our business is discussed below and at other appropriate places in the discussion of the results of our operations for the three and nine months ended August 31, 2017, respectively,2020:
‒The disruptions due to COVID-19 have impacted our business including logistics operations in our Technology Solutions segment and limited the productive ability of many of our associates in our Concentrix segment, particularly during the second quarter of fiscal year 2020. We have successfully transitioned a significant portion of our workforce in both segments to a remote working environment and implemented a number of safety and social distancing measures within our premises to protect the health and safety of associates who are required to be on-premise to support our business. As of August 31, 2020, the majority of our workforce across both segments was productive. During the three months ended August 31, 2020, we incurred net incremental costs associated with COVID-19 of approximately 74%$21 million, of which Concentrix incurred net costs of approximately $13 million and 73%Technology Solutions incurred net costs of approximately $8 million. During the nine months ended August 31, 2020, we incurred net incremental costs associated with COVID-19 of approximately $110 million, of which Concentrix incurred net costs of approximately $65 million and Technology Solutions incurred net costs of approximately $45 million. We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, vendors or customers and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in the preparation of the financial statements included in this report on Form 10-Q, required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.
‒In March 2020, we announced the suspension of share repurchases and our quarterly dividends. In June 2020, our board of directors approved a new three-year $400 million share repurchase program effective July 1st, 2020. We view this as the “first step” in the return to the capital allocation program we had in place pre-pandemic. The focus of this new repurchase program will be anti-dilutive, similar to our historical approach, albeit at a more measured pace to start given the current environment and opportunistic buying when available.
‒On January 9, 2020, we announced a plan to separate our Concentrix segment into an independent publicly-traded company. The transaction, which was delayed due to the economic impact of the COVID-19 pandemic, is now expected to be completed in the fourth quarter of calendar year 2020, subject to market conditions. The separation is intended to qualify as a tax-free transaction for federal income tax purposes. Immediately following the separation, it is expected that our stockholders will own shares of both SYNNEX and Concentrix, at the same percentage ownership that they held prior to the transaction. Completion of the separation will not require a stockholder vote but will be subject to customary closing conditions, including, among others, obtaining final approval from our Board of
27
Directors, receipt of a favorable opinion with respect to the tax-free nature of the transaction for federal income tax purposes, and the effectiveness of a Form 10 registration statement with the Securities and Exchange Commission.
Critical Accounting Policies and Estimates
During the three and nine months ended August 31, 2016, respectively. The revenue attributable2020, there were no material changes to countries is based on geographical locations from where products are delivered or from where customer service contracts are managed. Approximately 42% and 41% of our net property and equipment was located in the United States as of both August 31, 2017 and November 30, 2016, respectively. As of August 31, 2017, we had approximately 111,000 full-time and temporary employees worldwide.
See Note 2 to theour Consolidated Financial Statements.
As of August 31, 2020, the impact of COVID-19 on our business continued to unfold. As a result, many of our estimates and assumptions carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change in future periods.
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, geographic coverage, and the services we provide to our customers and OEM suppliers, and customers.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.
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, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
Products revenue |
|
| 82.08 | % |
|
| 81.37 | % |
|
| 80.28 | % |
|
| 79.74 | % |
Services revenue |
|
| 17.92 |
|
|
| 18.63 |
|
|
| 19.72 |
|
|
| 20.26 |
|
Total revenue |
|
| 100.00 |
|
|
| 100.00 |
|
|
| 100.00 |
|
|
| 100.00 |
|
Cost of products revenue |
|
| (77.48 | ) |
|
| (76.51 | ) |
|
| (75.49 | ) |
|
| (74.97 | ) |
Cost of services revenue |
|
| (11.57 | ) |
|
| (11.79 | ) |
|
| (12.78 | ) |
|
| (12.79 | ) |
Gross profit |
|
| 10.95 |
|
|
| 11.70 |
|
|
| 11.73 |
|
|
| 12.25 |
|
Selling, general and administrative expenses |
|
| (7.72 | ) |
|
| (8.34 | ) |
|
| (8.78 | ) |
|
| (9.07 | ) |
Operating income |
|
| 3.24 |
|
|
| 3.37 |
|
|
| 2.95 |
|
|
| 3.18 |
|
Interest expense and finance charges, net |
|
| (0.44 | ) |
|
| (0.69 | ) |
|
| (0.57 | ) |
|
| (0.74 | ) |
Other income (expense), net |
|
| (0.01 | ) |
|
| (0.02 | ) |
|
| 0.02 |
|
|
| 0.12 |
|
Income before income taxes |
|
| 2.78 |
|
|
| 2.66 |
|
|
| 2.40 |
|
|
| 2.55 |
|
Provision for income taxes |
|
| (0.70 | ) |
|
| (0.67 | ) |
|
| (0.58 | ) |
|
| (0.66 | ) |
Net income |
|
| 2.08 | % |
|
| 1.98 | % |
|
| 1.82 | % |
|
| 1.89 | % |
Statements of Operations Data: | Three Months Ended | Nine Months Ended | |||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||
Products revenue | 88.49 | % | 89.03 | % | 87.69 | % | 89.43 | % | |||
Services revenue | 11.51 | 10.97 | 12.31 | 10.57 | |||||||
Total revenue | 100.00 | 100.00 | 100.00 | 100.00 | |||||||
Cost of products revenue | (83.94 | ) | (84.38 | ) | (82.98 | ) | (84.61 | ) | |||
Cost of services revenue | (7.29 | ) | (6.74 | ) | (7.74 | ) | (6.50 | ) | |||
Gross profit | 8.77 | 8.88 | 9.28 | 8.89 | |||||||
Selling, general and administrative expenses | (5.91 | ) | (6.21 | ) | (6.30 | ) | (6.44 | ) | |||
Operating income | 2.86 | 2.67 | 2.98 | 2.45 | |||||||
Interest expense and finance charges, net | (0.23 | ) | (0.20 | ) | (0.23 | ) | (0.21 | ) | |||
Other income (expense), net | 0.04 | (0.01 | ) | 0.01 | 0.05 | ||||||
Income before income taxes | 2.67 | 2.46 | 2.76 | 2.29 | |||||||
Provision for income taxes | (0.91 | ) | (0.86 | ) | (0.97 | ) | (0.82 | ) | |||
Net income | 1.76 | 1.60 | 1.79 | 1.47 | |||||||
Net loss (income) attributable to noncontrolling interest | 0.00 | 0.00 | 0.00 | (0.00 | ) | ||||||
Net income attributable to SYNNEX Corporation | 1.76 | % | 1.60 | % | 1.79 | % | 1.47 | % |
With the announcement of a plan to separate the Concentrix segment into a separate publicly-traded company in a transaction expected to be completed in the fourth calendar quarter of 2020, subject to market conditions, our services revenue and cost of services revenue which represent revenue and cost of revenue of our Concentrix segment are expected to be discontinued following the separation. Further, selling, general and administrative expenses, interest expense and finance charges, net, other income (expense), net and provision for income-taxes are expected to decrease by amounts related to the Concentrix segment or impacted by the proposed separation, with related reductions in gross profit, operating income and net income. Additionally, our gross margin and operating margin are expected to decrease due to the discontinuance of the higher margins earned in the Concentrix segment.
Due to the ongoing impact the COVID-19 pandemic, current results and financial condition discussed herein may not be indicative of future operating results and trends.
28
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”),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, 2020 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 adjusted to exclude acquisition-related and integration expenses, restructuring costs and 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 (“Adjusted EBITDA”) which excludes other income (expense), net and acquisition-related and integration expenses. |
• | 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) a gain recorded in fiscal year 2019 upon the settlement of contingent consideration related to the acquisition of Westcon-Comstor Americas in fiscal year 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. However, analysisThese non-GAAP financial measures also exclude amortization of resultsintangible assets. Our acquisition activities have resulted in the recognition of intangible assets which consist primarily of customer relationships, vendor lists and technology. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations within each segment. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the sale of our products and the services performed for our clients. Additionally, intangible asset amortization expense typically fluctuates based on athe size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP basis should be used as a complementadjustments which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and in conjunctionour investors’ ability to compare our past financial performance with data presented in accordance with GAAP. Additionally,current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. 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.
29
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, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Consolidated | |||||||||||||||
Revenue | $ | 4,276,686 | $ | 3,669,814 | $ | 11,733,823 | $ | 10,174,935 | |||||||
Foreign currency translation | 9,131 | 9,297 | |||||||||||||
Revenue in constant currency | $ | 4,285,817 | $ | 3,669,814 | $ | 11,743,120 | $ | 10,174,935 | |||||||
Operating income | $ | 122,216 | $ | 98,022 | $ | 349,105 | $ | 248,954 | |||||||
Acquisition-related and integration expenses | 1,026 | 2,358 | 1,637 | 3,928 | |||||||||||
Restructuring charges | — | 258 | — | 4,255 | |||||||||||
Amortization of intangibles | 16,688 | 13,011 | 49,244 | 36,509 | |||||||||||
Non-GAAP operating income | $ | 139,930 | $ | 113,649 | $ | 399,986 | $ | 293,646 | |||||||
Depreciation | 20,185 | 15,375 | 59,058 | 46,549 | |||||||||||
Adjusted EBITDA | $ | 160,115 | $ | 129,024 | $ | 459,044 | $ | 340,195 | |||||||
Operating margin | 2.86 | % | 2.67 | % | 2.98 | % | 2.45 | % | |||||||
Non-GAAP operating margin | 3.27 | % | 3.10 | % | 3.41 | % | 2.89 | % | |||||||
Technology Solutions | |||||||||||||||
Revenue | $ | 3,784,678 | $ | 3,267,354 | $ | 10,289,694 | $ | 9,099,969 | |||||||
Foreign currency translation | 8,827 | 2,305 | |||||||||||||
Revenue in constant currency | $ | 3,793,505 | $ | 3,267,354 | $ | 10,291,999 | $ | 9,099,969 | |||||||
Operating income | $ | 99,968 | $ | 79,410 | $ | 282,094 | $ | 222,896 | |||||||
Acquisition-related and integration expenses | 705 | — | 705 | — | |||||||||||
Amortization of intangibles | 656 | 674 | 1,961 | 1,987 | |||||||||||
Non-GAAP operating income | $ | 101,329 | $ | 80,084 | $ | 284,760 | $ | 224,883 | |||||||
Depreciation | 3,530 | 3,558 | 10,408 | 10,446 |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||||||||
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||||||||||||||||||
Three Months Ended | Nine Months Ended |
| (in thousands, except per share amounts) |
| |||||||||||||||||||||||||||
August 31, 2017 | August 31, 2016 | August 31, 2017 | August 31, 2016 | ||||||||||||||||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | 104,859 | $ | 83,642 | $ | 295,168 | $ | 235,329 | |||||||||||||||||||||||
Concentrix | |||||||||||||||||||||||||||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenue | $ | 495,974 | $ | 406,715 | $ | 1,455,817 | $ | 1,087,332 |
| $ | 6,464,782 |
|
| $ | 6,203,659 |
|
| $ | 17,261,619 |
|
| $ | 17,176,000 |
| |||||||
Foreign currency translation | 304 | 6,992 |
|
| 35,239 |
|
|
|
|
|
|
| 111,756 |
|
|
|
|
| |||||||||||||
Revenue in constant currency | $ | 496,278 | $ | 406,715 | $ | 1,462,809 | $ | 1,087,332 |
| $ | 6,500,021 |
|
| $ | 6,203,659 |
|
| $ | 17,373,375 |
|
| $ | 17,176,000 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating income | $ | 22,248 | $ | 18,564 | $ | 66,989 | $ | 25,855 |
| $ | 209,136 |
|
| $ | 208,855 |
|
| $ | 509,515 |
|
| $ | 545,473 |
| |||||||
Acquisition-related and integration expenses | 321 | 2,358 | 932 | 3,928 |
|
| 4,163 |
|
|
| 9,200 |
|
|
| 22,701 |
|
|
| 53,582 |
| |||||||||||
Restructuring charges | — | 258 | — | 4,255 | |||||||||||||||||||||||||||
Amortization of intangibles | 16,032 | 12,337 | 47,283 | 34,522 |
|
| 46,828 |
|
|
| 52,428 |
|
|
| 140,320 |
|
|
| 158,149 |
| |||||||||||
Non-GAAP operating income | $ | 38,601 | $ | 33,517 | $ | 115,204 | $ | 68,560 |
| $ | 260,127 |
|
| $ | 270,483 |
|
| $ | 672,536 |
|
| $ | 757,204 |
| |||||||
Depreciation | 16,655 | 11,866 | 48,673 | 36,306 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating margin |
|
| 3.24 | % |
|
| 3.37 | % |
|
| 2.95 | % |
|
| 3.18 | % | |||||||||||||||
Non-GAAP operating margin |
|
| 4.02 | % |
|
| 4.36 | % |
|
| 3.90 | % |
|
| 4.41 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income |
| $ | 134,464 |
|
| $ | 123,132 |
|
| $ | 314,008 |
|
| $ | 324,711 |
| |||||||||||||||
Interest expense and finance charges, net |
|
| 28,749 |
|
|
| 42,945 |
|
|
| 99,046 |
|
|
| 127,695 |
| |||||||||||||||
Provision for income taxes |
|
| 45,356 |
|
|
| 41,691 |
|
|
| 99,740 |
|
|
| 112,831 |
| |||||||||||||||
Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses below) |
|
| 37,446 |
|
|
| 38,597 |
|
|
| 110,981 |
|
|
| 119,004 |
| |||||||||||||||
Amortization of intangibles |
|
| 46,828 |
|
|
| 52,428 |
|
|
| 140,320 |
|
|
| 158,149 |
| |||||||||||||||
EBITDA |
| $ | 292,843 |
|
| $ | 298,793 |
|
| $ | 764,095 |
|
| $ | 842,390 |
| |||||||||||||||
Other (income) expense, net (excluding amounts included in acquisition-related and integration expenses below) |
|
| 567 |
|
|
| 1,087 |
|
|
| (3,798 | ) |
|
| (19,593 | ) | |||||||||||||||
Acquisition-related and integration expenses |
|
| 4,163 |
|
|
| 9,200 |
|
|
| 23,219 |
|
|
| 53,411 |
| |||||||||||||||
Adjusted EBITDA | $ | 55,256 | $ | 45,383 | $ | 163,877 | $ | 104,866 |
| $ | 297,573 |
|
| $ | 309,080 |
|
| $ | 783,516 |
|
| $ | 876,208 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted EPS | $ | 1.87 | $ | 1.47 | $ | 5.24 | $ | 3.75 |
| $ | 2.60 |
|
| $ | 2.40 |
|
| $ | 6.07 |
|
| $ | 6.32 |
| |||||||
Acquisition-related and integration expenses | 0.03 | 0.06 | 0.04 | 0.10 |
|
| 0.08 |
|
|
| 0.18 |
|
|
| 0.45 |
|
|
| 1.04 |
| |||||||||||
Restructuring charges | — | 0.01 | — | 0.11 | |||||||||||||||||||||||||||
Amortization of intangibles | 0.42 | 0.33 | 1.23 | 0.91 |
|
| 0.90 |
|
|
| 1.02 |
|
|
| 2.71 |
|
|
| 3.08 |
| |||||||||||
Contingent consideration |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.37 | ) | |||||||||||||||
Income taxes related to the above(1) | (0.15 | ) | (0.14 | ) | (0.44 | ) | (0.40 | ) |
|
| (0.25 | ) |
|
| (0.30 | ) |
|
| (0.80 | ) |
|
| (1.08 | ) | |||||||
Non-GAAP diluted EPS(2) | $ | 2.16 | $ | 1.73 | $ | 6.06 | $ | 4.47 | |||||||||||||||||||||||
Non-GAAP diluted EPS |
| $ | 3.33 |
|
| $ | 3.30 |
|
| $ | 8.43 |
|
| $ | 8.99 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Technology Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenue |
| $ | 5,306,361 |
|
| $ | 5,047,970 |
|
| $ | 13,858,313 |
|
| $ | 13,695,729 |
| |||||||||||||||
Foreign currency translation |
|
| 32,798 |
|
|
|
|
|
|
| 79,488 |
|
|
|
|
| |||||||||||||||
Revenue in constant currency |
| $ | 5,339,159 |
|
| $ | 5,047,970 |
|
| $ | 13,937,801 |
|
| $ | 13,695,729 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating income |
| $ | 132,373 |
|
| $ | 138,830 |
|
| $ | 320,962 |
|
| $ | 352,594 |
| |||||||||||||||
Acquisition-related and integration expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 981 |
| |||||||||||||||
Amortization of intangibles |
|
| 9,995 |
|
|
| 10,999 |
|
|
| 30,130 |
|
|
| 32,968 |
| |||||||||||||||
Non-GAAP operating income |
| $ | 142,368 |
|
| $ | 149,829 |
|
| $ | 351,092 |
|
| $ | 386,543 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Operating margin |
|
| 2.49 | % |
|
| 2.75 | % |
|
| 2.32 | % |
|
| 2.57 | % | |||||||||||||||
Non-GAAP operating margin |
|
| 2.68 | % |
|
| 2.97 | % |
|
| 2.53 | % |
|
| 2.82 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income |
| $ | 85,531 |
|
| $ | 87,778 |
|
| $ | 204,237 |
|
| $ | 236,080 |
| |||||||||||||||
Interest expense and finance charges, net |
|
| 19,747 |
|
|
| 17,775 |
|
|
| 59,531 |
|
|
| 55,725 |
| |||||||||||||||
Provision for income taxes |
|
| 27,119 |
|
|
| 29,739 |
|
|
| 56,189 |
|
|
| 77,873 |
| |||||||||||||||
Depreciation |
|
| 5,937 |
|
|
| 5,875 |
|
|
| 17,650 |
|
|
| 16,719 |
| |||||||||||||||
Amortization of intangibles |
|
| 9,995 |
|
|
| 10,999 |
|
|
| 30,130 |
|
|
| 32,968 |
| |||||||||||||||
EBITDA |
| $ | 148,329 |
|
| $ | 152,166 |
|
| $ | 367,737 |
|
| $ | 419,365 |
| |||||||||||||||
Other (income) expense, net |
|
| (25 | ) |
|
| 3,538 |
|
|
| 1,004 |
|
|
| (17,083 | ) | |||||||||||||||
Acquisition-related and integration expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 981 |
| |||||||||||||||
Adjusted EBITDA |
| $ | 148,304 |
|
| $ | 155,704 |
|
| $ | 368,741 |
|
| $ | 403,263 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| August 31, 2020 |
|
| August 31, 2019 |
| ||||
|
| (in thousands, except per share amounts) |
| |||||||||||||
Concentrix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 1,163,694 |
|
| $ | 1,160,928 |
|
| $ | 3,418,676 |
|
| $ | 3,495,076 |
|
Foreign currency translation |
|
| 2,441 |
|
|
|
|
|
|
| 32,268 |
|
|
|
|
|
Revenue in constant currency |
| $ | 1,166,135 |
|
| $ | 1,160,928 |
|
| $ | 3,450,944 |
|
| $ | 3,495,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
| $ | 76,763 |
|
| $ | 70,025 |
|
| $ | 188,554 |
|
| $ | 192,879 |
|
Acquisition-related and integration expenses |
|
| 4,163 |
|
|
| 9,200 |
|
|
| 22,701 |
|
|
| 52,601 |
|
Amortization of intangibles |
|
| 36,833 |
|
|
| 41,429 |
|
|
| 110,190 |
|
|
| 125,181 |
|
Non-GAAP operating income |
| $ | 117,759 |
|
| $ | 120,654 |
|
| $ | 321,445 |
|
| $ | 370,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
| 6.60 | % |
|
| 6.03 | % |
|
| 5.52 | % |
|
| 5.52 | % |
Non-GAAP operating margin |
|
| 10.12 | % |
|
| 10.39 | % |
|
| 9.40 | % |
|
| 10.61 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 48,933 |
|
| $ | 35,354 |
|
| $ | 109,771 |
|
| $ | 88,631 |
|
Interest expense and finance charges, net |
|
| 9,002 |
|
|
| 25,170 |
|
|
| 39,515 |
|
|
| 71,970 |
|
Provision for income taxes |
|
| 18,236 |
|
|
| 11,952 |
|
|
| 43,551 |
|
|
| 34,958 |
|
Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses below) |
|
| 31,509 |
|
|
| 32,722 |
|
|
| 93,331 |
|
|
| 102,285 |
|
Amortization of intangibles |
|
| 36,833 |
|
|
| 41,429 |
|
|
| 110,190 |
|
|
| 125,181 |
|
EBITDA |
| $ | 144,513 |
|
| $ | 146,627 |
|
| $ | 396,358 |
|
| $ | 423,025 |
|
Other (income) expense, net (excluding amounts included in acquisition-related and integration expenses below) |
|
| 592 |
|
|
| (2,450 | ) |
|
| (4,802 | ) |
|
| (2,510 | ) |
Acquisition-related and integration expenses |
|
| 4,163 |
|
|
| 9,200 |
|
|
| 23,219 |
|
|
| 52,430 |
|
Adjusted EBITDA |
| $ | 149,268 |
|
| $ | 153,377 |
|
| $ | 414,775 |
|
| $ | 472,945 |
|
(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. |
Three and Nine Months Ended
August 31,Revenue
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||
Revenue |
| $ | 6,464,782 |
|
| $ | 6,203,659 |
|
|
| 4.2 | % |
| $ | 17,261,619 |
|
| $ | 17,176,000 |
|
|
| 0.5 | % |
Technology Solutions revenue |
|
| 5,306,361 |
|
|
| 5,047,970 |
|
|
| 5.1 | % |
|
| 13,858,313 |
|
|
| 13,695,729 |
|
|
| 1.2 | % |
Concentrix revenue |
|
| 1,163,694 |
|
|
| 1,160,928 |
|
|
| 0.2 | % |
|
| 3,418,676 |
|
|
| 3,495,076 |
|
|
| (2.2 | )% |
Inter-segment elimination |
|
| (5,273 | ) |
|
| (5,240 | ) |
|
|
|
|
|
| (15,371 | ) |
|
| (14,805 | ) |
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Revenue | $ | 4,276,686 | $ | 3,669,814 | 16.5 | % | $ | 11,733,823 | $ | 10,174,935 | 15.3 | % | |||||||||
Technology Solutions revenue | 3,784,678 | 3,267,354 | 15.8 | % | 10,289,694 | 9,099,969 | 13.1 | % | |||||||||||||
Concentrix revenue | 495,974 | 406,715 | 21.9 | % | 1,455,817 | 1,087,332 | 33.9 | % | |||||||||||||
Inter-segment elimination | (3,966 | ) | (4,255 | ) | (11,688 | ) | (12,366 | ) |
Our revenues includerevenue includes sales of products and services. In our Technology Solutions segment, we distribute a comprehensive range of products for the technology industry.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 because of rapiddue to changes in product models, features and features. We also design and integrate data center servers.customer demand requirements. The revenue generated inby our Concentrix
Revenue in our Technology Solutions segment increased during the three and nine months ended August 31, 20172020, compared to the prior year periods, due to a demand for technology equipment as COVID-19 related government mandated shelter-in-place restrictions during the second and third quarters of fiscal year 2020 led to increased needs for work-at-home, learn-at-home and related solutions. The increase in Technology Solutions revenue during the nine months ended August 31, 2020, compared to the prior year period was partially offset by a decline in integration-based server solutions in the first half of fiscal year 2020.
Revenue in our Concentrix segment during the three months ended August 31, 2020 increased slightly due to growth with technology, retail and e-commerce clients, partially offset by lower demand from media, communications, travel, tourism and automotive clients. Revenue for the nine months ended August 31, 2020 decreased compared to the prior period primarily due to strong demand forthe impact of COVID-19 related government mandated shelter in place restrictions in several countries in the world. These restrictions adversely impacted our systems design and integration solutions and higher sales acrossrevenue due to the inability of a majoritysignificant number of our other product lines. On a constant currency basis,associates to work despite client demand. This impact was most acute in the second quarter of 2020.
31
Our revenue for the nine months ended August 31, 2020 was also adversely impacted by lower demand from media, communications, travel, tourism and automotive clients, partially offset by an increase in our Technology Solutions segment increased 16.1%demand from technology, financial services, retail, e-commerce and 13.1%, respectively,government clients. In addition, revenue during the three and nine months ended August 31, 2017.
Gross Profit
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| ||||||||||||
Gross profit |
| $ | 708,092 |
|
| $ | 725,990 |
|
|
| (2.5 | )% |
| $ | 2,024,249 |
|
| $ | 2,103,379 |
|
|
| (3.8 | )% |
Gross margin |
|
| 10.95 | % |
|
| 11.70 | % |
|
|
|
|
|
| 11.73 | % |
|
| 12.25 | % |
|
|
|
|
Technology Solutions gross profit |
| $ | 297,480 |
|
| $ | 301,774 |
|
|
| (1.4 | )% |
| $ | 827,201 |
|
| $ | 819,319 |
|
|
| 1.0 | % |
Technology Solutions gross margin |
|
| 5.61 | % |
|
| 5.98 | % |
|
|
|
|
|
| 5.97 | % |
|
| 5.98 | % |
|
|
|
|
Concentrix gross profit |
| $ | 412,533 |
|
| $ | 426,181 |
|
|
| (3.2 | )% |
| $ | 1,202,893 |
|
| $ | 1,290,017 |
|
|
| (6.8 | )% |
Concentrix gross margin |
|
| 35.45 | % |
|
| 36.71 | % |
|
|
|
|
|
| 35.19 | % |
|
| 36.91 | % |
|
|
|
|
Inter-segment elimination |
| $ | (1,922 | ) |
| $ | (1,964 | ) |
|
|
|
|
| $ | (5,845 | ) |
| $ | (5,957 | ) |
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Gross profit | $ | 374,944 | $ | 325,957 | 15.0 | % | $ | 1,088,972 | $ | 904,179 | 20.4 | % | |||||||||
Gross margin | 8.77 | % | 8.88 | % | 9.28 | % | 8.89 | % | |||||||||||||
Technology Solutions gross profit | 194,669 | 170,825 | 14.0 | % | 553,500 | 491,451 | 12.6 | % | |||||||||||||
Technology Solutions gross margin | 5.14 | % | 5.23 | % | 5.38 | % | 5.40 | % | |||||||||||||
Concentrix gross profit | 181,977 | 157,168 | 15.8 | % | 541,121 | 418,418 | 29.3 | % | |||||||||||||
Concentrix gross margin | 36.69 | % | 38.64 | % | 37.17 | % | 38.48 | % | |||||||||||||
Inter-segment elimination | (1,702 | ) | (2,036 | ) | (5,649 | ) | (5,690 | ) |
Our Technology Solutions gross margin is affected by a variety of factors, including competition, average selling prices, mix of products and services, we sell, our customers, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, charges for inventory losses, acquisitions and divestituresacquisition of business units and fluctuations in revenue. Concentrix margins, which are generally higher than those in our Technology Solutions segment, can be impacted by resource locations, competitive wage, customerlocation, client mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.
Technology Solutions segmentgross profit and margin decreased during the three months ended August 31, 2020, as compared to the prior year period, primarily due to lower margins driven by the product mix from our projects and integration-based server solutions.
Technology Solutions gross profit increased, during the three and nine months ended August 31, 2017,2020, as compared to the prior year periods asperiod, driven by strong demand for our systems design and integration and cloud services solutions continued and we maintained our pricing discipline across the majority of our product lines. Gross margin in our Technology Solutions segmenttechnology products as COVID-19 related government mandated shelter-in-place restrictions during the threesecond and nine months ended August 31, 2017 decreased comparedthird quarters of fiscal year 2020 led to the prior year periods, primarily due to thea greater need for work-at-home, learn-at-home and related solutions. This increase was partially offset by lower margins driven by product mix of businessfrom our projects and costs associated with higher level of inventories.
Our Concentrix segment’s gross profit in our Concentrix segment increased during both the three and nine months ended August 31, 2017, compared to the prior year periods, primarily due to the Minacs acquisition. Gross margin in the Concentrix segment decreased during the three and nine monthsmonth periods ended August 31, 2017,2020 as compared to the prior year periods primarily due to the mixa decrease in revenue and an incremental impact of customers.
Selling, General and Administrative Expenses
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||
Selling, general and administrative expenses |
| $ | 498,956 |
|
| $ | 517,135 |
|
|
| (3.5 | )% |
| $ | 1,514,734 |
|
| $ | 1,557,906 |
|
|
| (2.8 | )% |
Percentage of revenue |
|
| 7.72 | % |
|
| 8.34 | % |
|
|
|
|
|
| 8.78 | % |
|
| 9.07 | % |
|
|
|
|
Technology Solutions selling, general and administrative expenses |
| $ | 165,107 |
|
| $ | 162,944 |
|
|
| 1.3 | % |
| $ | 506,239 |
|
| $ | 466,725 |
|
|
| 8.5 | % |
Percentage of Technology Solutions revenue |
|
| 3.11 | % |
|
| 3.23 | % |
|
|
|
|
|
| 3.65 | % |
|
| 3.41 | % |
|
|
|
|
Concentrix selling, general and administrative expenses |
| $ | 335,770 |
|
| $ | 356,155 |
|
|
| (5.7 | )% |
| $ | 1,014,339 |
|
| $ | 1,097,139 |
|
|
| (7.5 | )% |
Percentage of Concentrix revenue |
|
| 28.85 | % |
|
| 30.68 | % |
|
|
|
|
|
| 29.67 | % |
|
| 31.39 | % |
|
|
|
|
Inter-segment elimination |
| $ | (1,922 | ) |
| $ | (1,964 | ) |
|
|
|
|
| $ | (5,845 | ) |
| $ | (5,957 | ) |
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Selling, general and administrative expenses | $ | 252,728 | $ | 227,935 | 10.9 | % | $ | 739,867 | $ | 655,225 | 12.9 | % | |||||||||
Percentage of revenue | 5.91 | % | 6.21 | % | 6.30 | % | 6.44 | % | |||||||||||||
Technology Solutions selling, general and administrative expenses | 94,702 | 91,415 | 3.6 | % | 271,407 | 268,555 | 1.1 | % | |||||||||||||
Technology Solutions percentage of revenue | 2.50 | % | 2.80 | % | 2.64 | % | 2.95 | % | |||||||||||||
Concentrix selling, general and administrative expenses | 159,728 | 138,604 | 15.2 | % | 474,132 | 392,563 | 20.8 | % | |||||||||||||
Concentrix percentage of revenue | 32.21 | % | 34.08 | % | 32.57 | % | 36.10 | % | |||||||||||||
Inter-segment elimination | (1,702 | ) | (2,084 | ) | (5,672 | ) | (5,893 | ) |
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, 2017,2020, selling, general and administrative expenses in our Technology Solutions segment increased in absolute dollars compared to the prior year period, primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to COVID-19, partially offset by a decrease in amortization of intangible assets and
32
acquisition-related and integration expenses. Incremental costs related to COVID-19 were approximately $8 million and $45 million for the three and nine months ended August 31, 2020.
Concentrix segment selling, general and administrative expenses for the three and nine month periods ended August 31, 2020 decreased in absolute dollars and as a percentage of revenue, compared to the prior year periods, primarilydue to support higher saleslower facility and employee costs pursuant to Convergys acquisition-related integration and facility rationalization under taken in fiscal year 2019, a decrease in the amortization of our system designintangible assets of $4.6 million and $14.0 million for the three and nine month periods ended August 31, 2020, compared to the respective prior periods and a decrease in acquisition-related and integration solutions. Selling, generalexpenses of $5.0 million and administrative expenses as a percentage$29.2 million for these same periods. These decreases were offset by incremental COVID-19 cost of revenue$4 million and $10 million for these same periods.
Operating Income
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| ||||||||||||
Operating income |
| $ | 209,136 |
|
| $ | 208,855 |
|
|
| 0.1 | % |
| $ | 509,515 |
|
| $ | 545,473 |
|
|
| (6.6 | )% |
Operating margin |
|
| 3.24 | % |
|
| 3.37 | % |
|
|
|
|
|
| 2.95 | % |
|
| 3.18 | % |
|
|
|
|
Technology Solutions operating income |
| $ | 132,373 |
|
| $ | 138,830 |
|
|
| (4.7 | )% |
| $ | 320,962 |
|
| $ | 352,594 |
|
|
| (9.0 | )% |
Technology Solutions operating margin |
|
| 2.49 | % |
|
| 2.75 | % |
|
|
|
|
|
| 2.32 | % |
|
| 2.57 | % |
|
|
|
|
Concentrix operating income |
| $ | 76,763 |
|
| $ | 70,025 |
|
|
| 9.6 | % |
| $ | 188,554 |
|
| $ | 192,879 |
|
|
| (2.2 | )% |
Concentrix operating margin |
|
| 6.60 | % |
|
| 6.03 | % |
|
|
|
|
|
| 5.52 | % |
|
| 5.52 | % |
|
|
|
|
Operating income and margin in our Technology Solutions segment decreased during the three and nine months ended August 31, 2017 decreased, compared to the prior year periods, as we scaled the growth of business and effectively managed discretionary spend.
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Operating income | $ | 122,216 | $ | 98,022 | 24.7 | % | $ | 349,105 | $ | 248,954 | 40.2 | % | |||||||||
Operating margin | 2.86 | % | 2.67 | % | 2.98 | % | 2.45 | % | |||||||||||||
Technology Solutions operating income | 99,968 | 79,410 | 25.9 | % | 282,094 | 222,896 | 26.6 | % | |||||||||||||
Technology Solutions operating margin | 2.64 | % | 2.43 | % | 2.74 | % | 2.45 | % | |||||||||||||
Concentrix operating income | 22,248 | 18,564 | 19.8 | % | 66,989 | 25,855 | 159.1 | % | |||||||||||||
Concentrix operating margin | 4.49 | % | 4.56 | % | 4.60 | % | 2.38 | % | |||||||||||||
Inter-segment eliminations | — | 48 | 22 | 203 |
Operating income and margin in our Concentrix segment increased during the three and nine monthsmonth period ended August 31, 2017 compared to the prior year periods2020 primarily due to higher gross profit as described earlier.lower acquisition-related and integration expenses and lower amortization of intangible assets partially offset by the impact of COVID-19 related revenue decreases and incremental costs. Operating marginincome decreased during the three months ended August 31, 2017 compared to the prior year period, primarily due to revenue mix of ramping clients and new country openings. Operating margin increased in the nine months ended August 31, 20172020 compared to the comparable prior year period primarily due to infrastructurereflecting the decrease in revenue and facility investments madeCOVID-19 related incremental costs as discussed above. Operating margin was unchanged across the two periods as the decrease in the prior year.
Interest Expense and Finance Charges, Net
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||
Interest expense and finance charges, net |
| $ | 28,749 |
|
| $ | 42,945 |
|
|
| (33.1 | )% |
| $ | 99,046 |
|
| $ | 127,695 |
|
|
| (22.4 | )% |
Percentage of revenue |
|
| 0.44 | % |
|
| 0.69 | % |
|
|
|
|
|
| 0.57 | % |
|
| 0.74 | % |
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Interest expense and finance charges, net | $ | 9,754 | $ | 7,517 | 29.8 | % | $ | 26,898 | $ | 20,245 | 32.9 | % | |||||||||
Percentage of revenue | 0.23 | % | 0.20 | % | 0.23 | % | 0.21 | % |
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 facility,facilities, offset by income earned on our cash investments.
During the three and nine months ended August 31, 2017,2020, our interest expense and finance charges, net, increaseddecreased compared to the prior year period, due to lower interest expense as a result of reduction of approximately $700 million in our average borrowings during fiscal year 2020, as compared to the prior year periods, primarily due to higher interest expenseas well as a result of additional borrowings to fund the Minacs and Tigerspike acquisitions and support growth in our Technology Solutions segment, and the impact of step-uplower interest rate swaps relatedenvironment. Approximately 56% of our outstanding borrowings at August 31, 2020 have been economically converted to our term loan in the United States. In connection with our term loan in the United States, we entered into step-upfixed-rate debt through interest rate swaps, which effectively converted a portion of the floating rate term loan to a fixed interest rate, which is higher than the prevailing floating rate. The fixed rate on the swaps steps up to a higher rate in June each year.
Other Income (Expense), Net
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
|
|
| ||||||||||
Other income (expense), net |
| $ | (567 | ) |
| $ | (1,087 | ) |
|
| 47.8 | % |
| $ | 3,280 |
|
| $ | 19,764 |
|
|
| 83.4 | % |
Percentage of revenue |
|
| (0.01 | )% |
|
| (0.02 | )% |
|
|
|
|
|
| 0.02 | % |
|
| 0.12 | % |
|
|
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
August 31, 2017 | August 31, 2016 | Percent Change | August 31, 2017 | August 31, 2016 | Percent Change | ||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||
Other income (expense), net | $ | 1,854 | $ | (378 | ) | 590.5 | % | $ | 1,325 | $ | 4,605 | (71.2 | )% | ||||||||
Percentage of revenue | 0.04 | % | (0.01 | )% | 0.01 | % | 0.05 | % |
Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses.
Other income (expense), net, which was a net expense during the three months ended August 31, 2017 compared to2020, was consistent with the prior year period was primarily due to foreign currency exchange losses in the prior year period.
33
Other income (expense), net, which was a net income during the nine months ended August 31, 20172020, decreased compared to the prior year period, was primarily due to lower benefita $19.0 million gain recorded in fiscal year 2019 upon the settlement of $3.9 million received from class-action legal settlementscontingent consideration related to our acquisition of Westcon-Comstor Americas in our Technology Solutions segment,fiscal year 2017. This decrease was partially offset by lower foreign currency exchange lossesa $3.5 million gain recorded in fiscal year 2020, upon reversal of $1.8 million.
Provision for Income Taxes
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
| ||||||||||||
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
|
| August 31, 2020 |
|
| August 31, 2019 |
|
| Change |
| ||||||
|
| (in thousands) |
|
|
|
|
|
| (in thousands) |
|
|
| ||||||||||||
Provision for income taxes |
| $ | 45,356 |
|
| $ | 41,691 |
|
|
| 8.8 | % |
| $ | 99,740 |
|
| $ | 112,831 |
|
|
| (11.6 | )% |
Percentage of income before income taxes |
|
| 25.22 | % |
|
| 25.29 | % |
|
|
|
|
|
| 24.11 | % |
|
| 25.79 | % |
|
|
|
|
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
During the three months ended August 31, 2020, our income tax expense increased due to an increase in our income before income taxes. The effective tax rate forwas consistent with the three andprior year period.
During the nine months ended August 31, 2017 was 34.2% and 35.1%, respectively,2020, our income tax expense decreased compared to 34.9% and 35.8%, respectively, for the three and nine months ended August 31, 2016.prior year period primarily due to a decrease in our income before income taxes as a result of the economic impact of COVID-19 during the first half of fiscal year 2020, as well as a lower effective tax rate. The effective tax rate for the three and nine months ended August 31, 2017 decreased relative2020, was lower compared to the prior year periodsperiod, due to the mixbenefit from exercising of income in different tax jurisdictions, theemployee stock options and reversal of certainuncertain tax reserves as a result ofpositions. The comparative decrease in the expiration of the statute of limitation in certaineffective tax jurisdictions, and the settlement of an appeal resulting in a favorable impact duringrate for the nine months ended August 31, 2017.
Liquidity and Capital Resources
Cash Conversion Cycle
|
|
|
| Three Months Ended |
| |||||||||
|
|
|
| August 31, 2020 |
|
| November 30, 2019 |
|
| August 31, 2019 |
| |||
|
|
|
| (Amounts in thousands) |
| |||||||||
Days sales outstanding ("DSO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (products and services) |
| (a) |
| $ | 6,464,782 |
|
| $ | 6,581,293 |
|
| $ | 6,203,659 |
|
Accounts receivable |
| (b) |
|
| 3,580,970 |
|
|
| 3,926,709 |
|
|
| 3,452,976 |
|
Days sales outstanding |
| (c) = (b)/((a)/the number of days during the period) |
|
| 51 |
|
|
| 54 |
|
|
| 51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days inventory outstanding ("DIO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (products and services) |
| (d) |
| $ | 5,756,690 |
|
| $ | 5,786,754 |
|
| $ | 5,477,669 |
|
Inventories |
| (e) |
|
| 2,832,607 |
|
|
| 2,547,224 |
|
|
| 2,787,159 |
|
Days inventory outstanding |
| (f) = (e)/((d)/the number of days during the period) |
|
| 45 |
|
|
| 40 |
|
|
| 47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days payable outstanding ("DPO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (products and services) |
| (g) |
| $ | 5,756,690 |
|
| $ | 5,786,754 |
|
| $ | 5,477,669 |
|
Accounts payable |
| (h) |
|
| 3,655,215 |
|
|
| 3,149,443 |
|
|
| 2,932,046 |
|
Days payable outstanding |
| (i) = (h)/((g)/the number of days during the period) |
|
| 58 |
|
|
| 50 |
|
|
| 49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash conversion cycle ("CCC") |
| (j) = (c)+(f)-(i) |
|
| 38 |
|
|
| 44 |
|
|
| 49 |
|
Three Months Ended | ||||||||
August 31, 2017 | August 31, 2016 | |||||||
(in thousands) | ||||||||
Days sales outstanding | ||||||||
Revenue (products and services) | (a) | $ | 4,276,686 | $ | 3,669,814 | |||
Accounts receivable, including receivable from related parties | (b) | 1,861,481 | 1,651,173 | |||||
Days sales outstanding | (b)/((a)/the number of days during the period) | 40 | 41 | |||||
Days inventory outstanding | ||||||||
Cost of revenue (products and services) | (c) | $ | 3,901,742 | $ | 3,343,857 | |||
Inventories | (d) | 2,242,083 | 1,568,697 | |||||
Days inventory outstanding | (d)/((c)/the number of days during the period) | 53 | 43 | |||||
Days payable outstanding | ||||||||
Cost of revenue (products and services) | (c) | $ | 3,901,742 | $ | 3,343,857 | |||
Accounts payable, including payable to related parties | (e) | 1,804,110 | 1,531,664 | |||||
Days payable outstanding | (e)/((c)/the number of days during the period) | 43 | 42 | |||||
Cash conversion cycle | 50 | 42 |
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
34
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 5038 days and 4249 days as of August 31, 20172020 and August 31, 2016,2019, respectively. We calculate cash conversion cycle 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 purchases outstanding in accounts payable. The increase, compared to the prior year period,decrease was primarily a result of higher inventoriesdue to support growthfaster turnover of our systems designinventories and integration solutions linethe timing of business. These inventories typically have longer cash conversion cycles.
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 used inprovided by operating activities was $80.2 million$1.547 billion during the nine months ended August 31, 2017,2020, primarily due to an increase in inventories of $484.7 million and an increase in accounts receivable of $76.9 million. This cash outflow was
Net cash provided by operating activities was $273.6$202.5 million during the nine months ended August 31, 2016,2019, primarily due to net income of $149.7$324.7 million, adjustments for non-cash items of $74.5$295.1 million, and a decrease in accounts receivable of $224.8 million and an increase in accounts payable of $70.4$148.1 million. These cash inflows were partially offset by an increase in inventories of $224.8$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 accounts payable was primarily due to timing of collections and payments, respectively. Accounts receivable was also lower daysdue to lower days’ sales outstanding in our Technology Solutions segment as of August 31, 2016 compared to November 30, 2015, while the fourth quarter of fiscal year 2018. The increase in accounts payable and inventories over the same period was primarily due to increasedstrong demand for our systems design and integration solutions.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, andprovision for doubtful accounts, stock-based compensation expense.
Net cash used in investing activities during the nine months ended August 31, 20172020 was $124.2$137.5 million, primarily due to capital expenditures of $72.1$127.3 million substantially related to infrastructure investments to support growth in both of our Concentrix segmentbusiness segments and a payment$4.9 million of $57.8 million to acquire Tigerspike. This cash outflow was partially offset by a refund of excess consideration receivedpaid related to the Minacssettlement of employee stock-based awards assumed under the Convergys acquisition, as a result of post-closing adjustments.
Net cash used in investing activities during the nine months ended August 31, 20162019 was $495.7$102.3 million, primarily due to a payment of $404.5 million to acquire Minacs and capital expenditures of $95.2$93.4 million substantially related to infrastructure investments to support growth in both of our Concentrix segment.
Net cash provided byused in financing activities during the nine months ended August 31, 20172020 was $55.1$187.8 million, consistingrepresenting primarily a pay down of $82.2our revolving lines of credit with cash generated from operations and scheduled quarterly repayments of our term loans aggregating $168.4 million. In addition, we paid dividends of $20.8 million in January 2020, prior to suspension of net proceeds from our borrowing arrangementsdividends program due to fund our working capital requirements and the acquisition of Tigerspike. This cash inflow was partially offset by $29.9 million of dividend payments.
Net cash provided byused in financing activities during the nine months ended August 31, 20162019 was $23.0$298.4 million consisting primarily of $50.7 milliondue to net proceeds fromrepayments under our borrowing arrangements partially offset by $23.8of $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.
Capital Resources
Our cash and cash equivalents totaled $243.3 million$1.452 billion and $380.7$225.5 million as of August 31, 20172020 and November 30, 2016,2019, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $191.4$397.5 million
35
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. 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 programprograms and our U.S. credit facility agreementagreements 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.
On-Balance Sheet Arrangements
In the United States, we have an accounts receivable securitization program or the U.S. AR Arrangement, to provide additional capital for our operations. Theoperations (the “U.S. AR Arrangement”). Prior to the amendment in May 2020 described in this paragraph, under the terms of the U.S. AR Arrangement, expires on November 1, 2019. Onewhich had a maturity date of May 2020, our subsidiaries,subsidiary, which is the borrower under the U.S. AR Arrangement, canthis facility, could borrow up to a maximum of $600.0 $850.0million based upon eligible trade accounts receivable denominated in United States dollars. The U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $120.0 million.receivable. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders that includesincluded prevailing dealer commercial paper rates and a rate based upon LIBOR. In addition, prior to the daily London Interbank Offered Rate, or LIBOR, plusMay 2020 amendment, 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 was payable on the adjusted commitment of the lenders. As of August 31, 2017 and November 30, 2016, $353.0 million and $262.9 million, respectively, were outstanding underIn May 2020, the U.S. AR Arrangement.
Under the terms of the U.S. AR Arrangement, we and onetwo of our United StatesU.S. subsidiaries sell, on a revolving basis, our receivables (other than certain specifically excluded receivables) to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in and to the receivables acquired by our bankruptcy-remote subsidiary as security. Any borrowingsamounts received under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets.
In May 2017, SYNNEX Canada, Limited, or SYNNEX Canada, entered intowe 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 $76.6 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis up to CAD65.0 million, or $52.1 million, through May 10, 2020.2023. The program includes an accordion feature that allows us to allow a request toan increase in the lender'sbank's commitment by an additional CAD25.0CAD50.0 million, or $20.0$38.3 million. Any borrowingsamounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets.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 averageweighted-average of the Canadian Dollar Offered Rate plus a margin of 2.00%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. We will payAfter 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 below CAD25.0up to CAD60.0 million, or $46.0 million, and an additional 0.55% per annum ifwhen the unused portion exceeds CAD25.0 million.CAD60.0 million, or $46.0 million, a fee of 0.55% per annum on the remaining unused commitment. As of both August 31, 2017, borrowings2020 and November 30, 2019, there was no outstanding balance under this arrangement were $24.0 million.
SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or the U.S. Credit Agreement, was$141.6 million. The credit agreement is comprised of a $275.0JPY7.0 billion, or $66.1 million, term loan and a JPY8.0 billion, or $75.5 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 $625.0margin, 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, 2020 and November 30, 2019, the balances outstanding under the term loan component of these facilities were $66.1 million and $63.9 million, respectively. As of August 31, 2020 and November 30, 2019, $72.7 million and $5.9 million, respectively, was outstanding under the revolving credit facility.
Indian subsidiaries of our Concentrix segment 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, 2020 or November 30, 2019.
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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.loan in the original principal amount of $1.2 billion. We couldcan request incremental commitments to increase the principal amount of the revolving line of credit or term loan availableby $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 upmatures 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 $350.0 million.the maturity date without penalty. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at our option. Through August 31, 2017, loans borrowed under the U.S. Credit Agreement had interest, in the case ofoption, plus a margin. The margin for LIBOR loans at a per annum rate equalranges from 1.25% to 2.00% and the applicable LIBOR, plus a margin which could range from 1.50% to 2.25%, based on our consolidated leverage ratios, as determined in accordance with the U.S. Credit Agreement. Loans borrowed under the U.S. Credit Agreement that were not LIBOR loans, but were insteadfor base rate loans had interest atranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a per annumvariable rate equal to (i)which is the greatesthighest of (A)(a) the Federal Funds Rate, plus a margin of 1/2 of 1.0%0.50%, (B) LIBOR plus 1.0% per annum, and (C)(b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A,N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus (ii) a margin which could range1.00%. The unused revolving credit facility commitment fee ranges from 0.50%0.175% to 1.25%,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 ratiosratio, as determined in accordance withcalculated under the U.S. Credit Agreement. The unused revolving credit facility was subject to a commitment fee ranging from 0.20% to 0.35% per annum, based on our consolidated leverage ratios. 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.
We have a secured term loan to $1.2 billion. The incremental commitment amount to increasecredit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, in the original principal amount of the revolving line of credit or term loan was increased to $400.0 million.$1.8 billion. The U.S. Term Loan Credit Agreement was extended to maturematures in September 2022. TheOctober 2023.The outstanding principal amount of the term loanloans is repayablepayable in quarterly installments of $15.0$22.5 million, commencing on February 28, 2018, with the unpaid balance due in full on the September 2022 maturity date. Interest on the borrowings under the U.S. Credit Agreement was amended to change the margin for LIBOR loans to range from 1.25% to 2.00% and for base rate loans to range from 0.25% to 1.00%, provided that
SYNNEX Canada entered intohas an uncommitted revolving line of credit with a bank under which it can borrow up to CAD35.0CAD50.0 million, or $28.0$38.3 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 USU.S. Base Rate. As of both August 31, 2017,2020 and November 30, 2019, there were no borrowings outstanding under thethis credit facility.
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Other borrowings and November 30, 2016, borrowings outstanding under these credit facilities were $12.0 million.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at August 31, 20172020 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, 20172020 and November 30, 2016,2019, we had a total of $11.2$23.7 million and $12.6$35.3 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, 2017,2020, 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, capital leases andpayments for our operating lease arrangements.commitments 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. As of August 31, 2017,2020, there have been no material changes from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2016.2019. For more information on our future minimum rental obligations under noncancellablenon-cancellable lease agreements as of August 31, 2017,2020, see Note 1614 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, 20172020 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, 2020 and November 30, 2019, accounts receivable subject to flooring arrangements was $58.6 million and $69.6 million, respectively. For more information on our third-party revolving short-term financing arrangements, see Note 97 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, 20172020 and November 30, 2016,2019, MiTAC Holdings and its affiliates beneficially owned approximately 24%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.
The shares owned by MiTAC Holdings are held by the following entities:
As of August 31, | ||||
(in thousands) | ||||
MiTAC Holdings (1) | 5,300 | |||
Synnex Technology International Corp. (2) | 3,860 | |||
Total | 9,160 |
(1) | |
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes |
trust, and 190 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 |
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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 and services from MiTAC Holdings and its affiliates totaling $66.3$53.4 million and $183.4$151.9 million during the three and nine months ended August 31, 2020, respectively, and totaling $42.0 million and $120.1 million, respectively, during the three and nine months ended August 31, 2017,2019. Our sales to MiTAC Holdings and totaling $44.1its affiliates totaled $0.3 million and $105.4$0.9 million during the three and nine months ended August 31, 2020, respectively, and totaled $0.1 million and $0.5 million, respectively, during the three and nine months ended August 31, 2016. Our sales to2019. In addition, we paid rent and overhead costs for the use of the facilities of MiTAC Holdings and its affiliates totaled $0.2 millionamounting to $27.0 thousand and $1.0 million, respectively,$91.0 thousand during the three and nine months ended August 31, 2017,2020. There were no rent and totaled $0.6 million and $1.3 million, respectively,overhead costs during the three and nine months ended August 31, 2016. In addition, we received reimbursements2019.
As of rentAugust 31, 2020 and overhead costs for facilities used byNovember 30, 2019, our payables to MiTAC Holdings amounting to $36,000 and $109,000, respectively, during the threeits affiliates were $28.8 million and nine months ended$23.2 million, respectively. As of August 31, 2017,2020 and $98,000November 30, 2019, our receivables from MiTAC Holdings and $172,000, respectively, during the threeits affiliates were $15.8 million and nine months ended August 31, 2016.
Our business relationship with MiTAC Holdings and its affiliates has been informal and is generally 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. Matthew 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,Consolidated Financial Statements, see Note 2 - Summary of Significant Accounting Policies 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, 20172020 from our Annual Report on Form 10-K for the fiscal year ended November 30, 2016.2019. 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 is 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.
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
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, 2016. Except as2019. In addition, the risk to our business from the impact of the COVID-19 pandemic and the United Kingdom’s withdrawal from the European Union are set forth below,below:
The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, could adversely affect our business, results of operations and financial condition.
We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, there have been no material changes fromwas an outbreak of a new strain of coronavirus, COVID-19. On March 11, 2020, the risk factors disclosed inWorld Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation due to “shelter-in-place” restrictions by various governments worldwide and created significant volatility and disruption of financial markets. This has adversely impacted our 2016 Annual Report on Form 10-K.
An extended period of global supply chain and economic disruption could materially affect our business, successfully,our plans to separate our Concentrix segment into an independent public company, our results of operations, our access to sources of liquidity, the carrying value of our goodwill and intangible assets, our financial condition and our stock price.
The United Kingdom’s withdrawal from the European Union (“EU”) could adversely impact our business, results of operations and financial condition.
On January 31, 2020, the United Kingdom left the EU (“Brexit”). The United Kingdom and EU are now in a transitional period during which the United Kingdom will maintain access to the EU single market and to the global trade deals negotiated by the EU on behalf of its members, and remain subject to EU law, until December 31, 2020.
The uncertainty regarding the status of Brexit has negatively impacted the United Kingdom’s and the EU’s economies. This negative impact will likely continue until the United Kingdom and EU reach and implement a definitive resolution on their future trading relationship. Any additional impact of Brexit will depend on the terms of such resolution. Even if the United Kingdom maintains access to the EU single market and trade deals following the transition period, Brexit could reduceresult in further economic downturn globally. If the United Kingdom ultimately loses access to the EU single market and trade deals, significant market and economic disruption could occur, our profitabilitycustomer experience, service quality and international operations could be negatively impacted, and the demand for our services could be depressed. Additionally, we may face new regulations regarding trade, tax, security and employees, among others, in the United Kingdom. Compliance with such regulations could be costly, negatively impacting our business, results of operations and financial condition. Brexit could also adversely affect our stock price.
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ITEM 6. Exhibits
Exhibit Number | Description of Document | ||
10.1 | |||
31.1 | |||
31.2 | |||
32.1* | |||
101.INS | Inline XBRL Instance | ||
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.
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:
OctoberSYNNEX CORPORATION
By: | /s/ | ||
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) |
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