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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _____________________________________________________________________________
FORM 10-Q
 _____________________________________________________________________________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission File Number: 001-31892
snxlogoa13.jpg
_________________________________________________________________________
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)
 
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  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
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 March 30, 2018
Common Stock, $0.001 par value
 
40,109,179

Table of Contents

SYNNEX CORPORATION
 
FORM 10-Q
INDEX
 
 
 
 
 
 
Page
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Item 1A.
Item 2.
Item 6.
 

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements
SYNNEX CORPORATION 
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)
(unaudited)
 
February 28,
2018
 
November 30,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
372,344

 
$
550,688

Restricted cash
5,643

 
5,837

Short-term investments
5,698

 
5,475

Accounts receivable, net
2,620,279

 
2,846,371

Receivable from related parties
1,265

 
77

Inventories
2,323,259

 
2,162,626

Other current assets
197,278

 
168,704

Total current assets
5,525,766

 
5,739,778

Property and equipment, net
346,705

 
346,589

Goodwill
871,106

 
872,641

Intangible assets, net
558,408

 
583,051

Deferred tax assets
31,687

 
31,687

Other assets
124,111

 
124,780

Total assets
$
7,457,783

 
$
7,698,526

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings, current
$
694,560

 
$
805,471

Accounts payable
2,427,847

 
2,626,720

Payable to related parties
20,631

 
16,888

Accrued compensation and benefits
166,770

 
204,665

Other accrued liabilities
389,123

 
354,104

Income taxes payable
42,242

 
33,359

Total current liabilities
3,741,173

 
4,041,207

Long-term borrowings
1,121,206

 
1,136,089

Other long-term liabilities
192,360

 
124,008

Deferred tax liabilities
87,605

 
113,527

Total liabilities
5,142,344

 
5,414,831

Commitments and contingencies (Note 17)

 

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, 41,145 and 41,092 shares issued as of February 28, 2018 and November 30, 2017, respectively
41

 
41

Additional paid-in capital
474,653

 
467,948

Treasury stock, 1,431 and 1,419 shares as of February 28, 2018 and November 30, 2017, respectively
(78,775
)
 
(77,133
)
Accumulated other comprehensive income (loss)
(45,701
)
 
(61,919
)
Retained earnings
1,965,221

 
1,954,758

Total stockholders’ equity
2,315,439

 
2,283,695

Total liabilities and equity
$
7,457,783

 
$
7,698,526

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

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SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Revenue:
 
 
 
Products
$
4,048,763

 
$
3,046,621

Services
503,607

 
474,248

Total revenue
4,552,370

 
3,520,869

Cost of revenue:
 
 
 
Products
(3,824,096
)
 
(2,880,553
)
Services
(314,323
)
 
(298,533
)
Gross profit
413,951

 
341,783

Selling, general and administrative expenses
(302,019
)
 
(240,024
)
Operating income
111,932

 
101,759

Interest expense and finance charges, net
(17,451
)
 
(8,182
)
Other expense, net
(1,178
)
 
(323
)
Income before income taxes
93,303

 
93,254

Provision for income taxes
(68,869
)
 
(31,465
)
Net income
$
24,434

 
$
61,789

Earnings per common share:
 
 
 
Basic
$
0.61

 
$
1.55

Diluted
$
0.61

 
$
1.54

Weighted-average common shares outstanding:
 
 
 
Basic
39,695

 
39,494

Diluted
39,978

 
39,705

Cash dividends declared per share
$
0.35

 
$
0.25



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

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SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
 
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Net income
$
24,434

 
$
61,789

Other comprehensive income (loss):
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of taxes of $0 for both the three months ended February 28, 2018 and 2017
(142
)
 
163

Change in unrealized losses of defined benefit plans, net of taxes of $0 for both the three months ended February 28, 2018 and 2017
—

 
(69
)
Unrealized gains on cash flow hedges during the period, net of taxes of $(1,914) and $(737) for the three months ended February 28, 2018 and 2017, respectively
5,386

 
939

Reclassification of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of $(63) and $(150) for the three months ended February 28, 2018 and 2017, respectively
177

 
241

Total change in unrealized gains on cash flow hedges, net of tax
5,563

 
1,180

Foreign currency translation adjustments, net of taxes of $(23) and $(122) for the three months ended February 28, 2018 and 2017, respectively
10,797

 
5,625

Other comprehensive income
16,218

 
6,899

Comprehensive income
$
40,652

 
$
68,688


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

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SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Cash flows from operating activities:
 
 
 
Net income
$
24,434

 
$
61,789

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
48,634

 
35,947

Share-based compensation
5,101

 
4,289

Provision for doubtful accounts
3,336

 
2,090

Deferred income taxes
(25,923
)
 
(1,652
)
Unrealized foreign exchange gains
(659
)
 
(1,697
)
Others
562

 
(1,140
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable, including from related parties
236,437

 
36,698

Inventories
(154,745
)
 
(109,058
)
Accounts payable, including to related parties
(200,127
)
 
(214,022
)
Other assets and liabilities
57,276

 
1,126

Net cash used in operating activities
(5,674
)
 
(185,630
)
Cash flows from investing activities:
 
 
 
Purchases of investments
(21
)
 
(2,886
)
Proceeds from maturity of investments
—

 
1,962

Purchases of property and equipment
(22,360
)
 
(21,646
)
Acquisition of businesses, net of refunds
(5,922
)
 
—

Others
431

 
517

Net cash used in investing activities
(27,872
)
 
(22,053
)
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
2,602,591

 
1,943,889

Repayments of borrowings
(2,742,055
)
 
(1,900,275
)
Dividends paid
(13,971
)
 
(9,934
)
Increase (decrease) in book overdrafts
7,081

 
(637
)
Proceeds from issuance of common stock
1,604

 
937

Repurchases of common stock for tax withholdings on equity awards
(1,488
)
 
(3,033
)
Others
(154
)
 
1,411

Net cash (used in) provided by financing activities
(146,392
)
 
32,358

Effect of exchange rate changes on cash, cash equivalents and restricted cash
1,401

 
1,797

Net decrease in cash, cash equivalents and restricted cash
(178,537
)
 
(173,528
)
Cash, cash equivalents and restricted cash at beginning of period
556,742

 
387,167

Cash, cash equivalents and restricted cash at end of period
$
378,205

 
$
213,639

 
 
 
 
Supplemental disclosure of non-cash investing activities:
 
 
 
Accrued costs for property and equipment purchases
$
1,998

 
$
1,221

 

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

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2018 and 2017
(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 and Europe.
The Company has two reportable segments: Technology Solutions and Concentrix. The Technology Solutions segment distributes a broad range of information technology systems and products and also provides systems design and integration solutions. The Concentrix segment offers a portfolio of strategic solutions and end-to-end global business outsourcing services focused on customer engagement, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten identified industry verticals.
The accompanying interim unaudited Consolidated Financial Statements as of February 28, 2018 and for the three months ended February 28, 2018 and 2017 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2017 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, 2017.
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's significant accounting policies, please see the discussion in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2017. Accounting pronouncements adopted during the three months ended February 28, 2018 are discussed below.
Concentration of credit risk 
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, accounts receivable and derivative instruments.
The Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through February 28, 2018, the Company had not experienced any credit losses on such deposits and derivative instruments. 
Accounts receivable include amounts due from customers and 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 the receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through February 28, 2018, such losses have been within management’s expectations. 
One customer accounted for 18% and 17% of the Company's total revenue during the three months ended February 28, 2018 and February 28, 2017, respectively. Products purchased from the Company’s largest OEM supplier, HP Inc. accounted for approximately 12% and 14% of total revenue during the three months ended February 28, 2018 and February 28, 2017, respectively.
As of both February 28, 2018 and November 30, 2017, one customer comprised 12% of the total accounts receivable balance.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is computed based on the weighted-average method. Inventories are comprised of finished goods and work-in-process. Finished goods include products purchased for resale, system components purchased for both resale and for use in the Company’s systems design and integration business, and completed systems. Work-in-process inventories are not material to the Consolidated Financial Statements.
Recently adopted accounting pronouncement
In March 2016, the Financial Accounting Standard Board (the “FASB”), issued guidance which changes the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statement of Cash Flows. The guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is permitted. The Company adopted this guidance prospectively, during the three months ended February 28, 2018. The adoption did not have a material impact on the Company's Consolidated Financial Statements.
Recently issued accounting pronouncements 
In June 2016, the FASB issued a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued a new standard which revises various aspects of accounting for leases. The most significant impact to the Company’s Consolidated Financial Statements relates to the recognition by a lessee of a right-of-use asset and a lease liability for virtually all of its leases other than short-term leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. For income statement purposes, operating leases will result in a straight line expense while finance leases will result in a front-loaded expense pattern. This accounting standard will be applicable to the Company at the beginning of its first quarter of fiscal year 2020 using a modified retrospective approach and early adoption is permitted. The Company expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption and is currently evaluating the impact on its Consolidated Financial Statements upon the adoption of this new standard.
In January 2016, the FASB issued new guidance which amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. With respect to the Company’s consolidated financial statements, the most significant impact relates to the accounting for equity investments (other than those that are consolidated or accounted under the equity method) which will be measured at fair value through earnings. The new guidance is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017, with early adoption permitted only for certain provisions. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. The Company does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements.
In May 2014, the FASB issued a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB amended this accounting standard and postponed the implementation date to fiscal years, and interim periods within those fiscal years,

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

beginning after December 15, 2017. Early application for fiscal years, and interim periods within those years, beginning after December 15, 2016 is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. This accounting standard will be applicable to the Company at the beginning of its first quarter of fiscal year 2019. The Company has established an implementation team and engaged external advisers to assess the Company’s business and contracts. The Company is in the process of determining the transition method and evaluating the impact of several aspects of the standard including principal versus agent considerations, identification of performance obligations and the determination of when control of goods and services transfers to the Company’s customers.

NOTE 3—ACQUISITIONS:
Fiscal 2017 acquisitions
On September 1, 2017, the Company acquired the North America and Latin America distribution businesses of Datatec Limited, a public limited company incorporated in the Republic of South Africa (“Datatec”), through the purchase of 100% of the shares of its subsidiary, Westcon Group, Inc., a Delaware company (“Westcon-Comstor Americas”) for a purchase price of approximately $633,568. The purchase price was comprised of $602,739 paid in cash, fair value of contingent consideration payable of $33,098 and a refund of $2,269 receivable from Datatec towards the settlement of certain pre-acquisition intra Datatec group transactions. During the three months ended February 28, 2018, the Company received $2,269 from Datatec and classified this amount in investing activities in the Consolidated Statements of Cash Flows. The Company also recorded measurement period adjustments of $1,796 to the fair value of acquired net tangible assets with a corresponding reduction to goodwill. Acquisition-related and integration expenses were $5,529, of which $1,805 was incurred during the three months ended February 28, 2018. These charges were recorded in “Selling, general and administrative expenses.” The purchase price is preliminary as the Company is in the process of finalizing the contingent consideration.
Under the terms of the acquisition agreement with Datatec, contingent consideration of up to $200,000 is payable in cash if certain gross profit targets were achieved for the twelve-month period ended February 28, 2018. The Company is in the process of finalizing the amount of contingent consideration payable, if any.
On July 31, 2017, the Company acquired 100% of Tigerspike Pty Ltd (“Tigerspike”), a digital products company incorporated in Australia, specializing in strategy, experience design, development and systems integration, for a preliminary purchase price of $68,457, including a holdback amount which was payable to the sellers upon the finalization of post-closing adjustments. During the three months ended February 28, 2018, the Company recorded certain immaterial measurement period adjustments to the fair value of assumed net tangible liabilities, decreasing goodwill by $631 and the purchase price by $1,443, resulting in a final purchase price of $67,014, and paid the remaining holdback amount of $8,191 to the sellers.

NOTE 4—SHARE-BASED COMPENSATION: 
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units, performance-based restricted stock units and employee stock purchases, based on estimated fair values.
The following table summarizes the number of share-based awards granted under the Company’s 2013 Stock Incentive Plan, as amended, during the three months ended February 28, 2018 and 2017, and the grant-date fair value of those awards:
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
 
Shares awarded
 
Fair value of grants
 
Shares awarded
 
Fair value of grants
Restricted stock awards
2

 
$
210

 
1

 
$
134

Restricted stock units
22


2,554

 
29

 
3,416

 
24

 
$
2,764

 
30

 
$
3,550



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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The Company recorded share-based compensation expense in the Consolidated Statements of Operations for the three months ended February 28, 2018 and 2017 as follows:
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Total share-based compensation
$
5,135

 
$
4,316

Tax effect on share-based compensation
(1,547
)
 
(1,456
)
Net effect on net income
$
3,588

 
$
2,860

Substantially all of the share-based compensation expense was recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

NOTE 5—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
 
February 28, 2018
 
November 30, 2017
Cash and cash equivalents
$
372,344

 
$
550,688

Restricted cash
5,643

 
5,837

Restricted cash included in other assets
218

 
217

Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows
$
378,205

 
$
556,742

Restricted cash balances relate primarily to temporary restrictions caused by the timing of lockbox collections under borrowing arrangements and the issuance of bank guarantees and government grants.
 
As of
 
February 28, 2018
 
November 30, 2017
Accounts receivable, net:
 
 
 
Accounts receivable
$
2,692,555

 
$
2,918,703

Less: Allowance for doubtful accounts
(21,021
)
 
(19,193
)
Less: Allowance for sales returns
(51,255
)
 
(53,139
)
 
$
2,620,279

 
$
2,846,371


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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

 
As of
 
February 28, 2018
 
November 30, 2017
Property and equipment, net:
 
 
 
Land
$
25,946

 
$
25,922

Equipment, computers and software
313,621

 
306,665

Furniture and fixtures
62,408

 
60,892

Buildings, building improvements and leasehold improvements
275,251

 
270,649

Construction-in-progress
18,380

 
12,049

Total property and equipment, gross
695,606

 
676,177

Less: Accumulated depreciation
(348,901
)
 
(329,588
)

$
346,705

 
$
346,589

Depreciation expense was $21,924 and $19,460 for the three months ended February 28, 2018 and 2017, respectively.
Goodwill:
 
 
 
 
 
 
Technology Solutions
 
Concentrix
 
Total
Balance as of November 30, 2017
$
437,225

 
$
435,416

 
$
872,641

Additions/adjustments from acquisitions (See Note 3)
(1,796
)
 
(631
)
 
(2,427
)
Foreign exchange translation
822

 
69

 
892

Balance as of February 28, 2018
$
436,251

 
$
434,854

 
$
871,106

 
 
As of February 28, 2018
 
As of November 30, 2017
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Intangible assets, net:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships and lists
$
632,872

 
$
(258,602
)
 
$
374,270

 
$
619,431

 
$
(236,282
)
 
$
383,149

Vendor lists
180,132

 
(42,909
)
 
137,223

 
180,041

 
(39,016
)
 
141,025

Technology
24,824

 
(6,689
)
 
18,135

 
38,041

 
(6,519
)
 
31,522

Other intangible assets
36,446

 
(7,666
)
 
28,780

 
33,745

 
(6,390
)
 
27,355

 
$
874,274

 
$
(315,866
)
 
$
558,408

 
$
871,258

 
$
(288,207
)
 
$
583,051

 
Amortization expense was $26,710 and $16,487 for the three months ended February 28, 2018 and 2017, respectively.
Estimated future amortization expense of the Company's intangible assets is as follows:
Fiscal Years Ending November 30,
 
2018 (remaining nine months)
$
80,334

2019
90,194

2020
82,319

2021
74,959

2022
64,544

thereafter
166,058

Total
$
558,408


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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)


Accumulated other comprehensive income (loss): 
The components of accumulated other comprehensive income (loss), net of taxes, are as follows:
 
 
Unrealized gains on available-for-sale securities, net of taxes
 
Unrecognized defined benefit plan costs, net of taxes
 
Unrealized gains on cash flow hedges, net of taxes
 
Foreign currency translation adjustment, net of taxes
 
Total
Balance as of November 30, 2017
 
$
2,119

 
$
(2,313
)
 
$
386

 
$
(62,111
)
 
$
(61,919
)
Other comprehensive gain (loss) before reclassification
 
(142
)
 
—

 
5,386

 
10,797

 
16,041

Reclassification of (gains) losses from Other comprehensive income (loss)
 
—

 
—

 
177

 
—

 
177

Balance as of February 28, 2018
 
$
1,977

 
$
(2,313
)
 
$
5,949

 
$
(51,314
)
 
$
(45,701
)

Reclassifications of (gains) losses on cash flow hedges into earnings are recorded in "Interest expense and finance charges, net" in the Company's "Consolidated Statements of Operations."
NOTE 6—INVESTMENTS:
The carrying amount of the Company’s investments is shown in the table below:
 
As of
 
February 28, 2018
 
November 30, 2017
 
Adjusted Cost Basis
 
Unrealized Gains (Losses)
 
Carrying
Value
 
Adjusted Cost Basis
 
Unrealized Gains (Losses)
 
Carrying
Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Held-to-maturity investments
$
5,698

 
$
—

 
$
5,698

 
$
5,475

 
$
—

 
$
5,475

 
 
 
 
 
 
 
 
 
 
 
 
Long-term investments in "Other assets:"
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
1,031

 
$
2,398

 
$
3,429

 
$
972

 
$
2,404

 
$
3,376

Held-to-maturity investments
5,152

 
(232
)
 
5,152

 
5,189

 
(225
)
 
5,189

Cost-method investments
33,800

 
—

 
33,800

 
33,817

 
—

 
33,817

 
Short-term held-to-maturity investments primarily consist of term deposits with maturities from the date of purchase greater than three months and less than one year. These term deposits are held until the maturity date and are not traded. Long-term available-for-sale securities primarily consist of investments in other companies’ equity securities. Long-term held-to-maturity investments consist of foreign government bonds of $1,333 purchased pursuant to local regulations, maturing in fiscal year 2023, and term deposits with maturities not exceeding one year. These term deposits are renewed due to certain restrictions under the terms of an acquisition arrangement. Long-term cost-method investments consist of investments in equity securities of private entities.
Available-for-sale securities are recorded at fair value in each reporting period and therefore the carrying value of these securities equals their fair value. For cost-method investments, the Company records an impairment charge when the decline in fair value is determined to be other-than-temporary. The fair value of cost-method investments is based on an internal valuation of the investees. The fair value of foreign government bonds is $1,101 and $1,171 as of February 28, 2018 and November 30, 2017, respectively.

12
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Cash flows from purchases and maturities of available-for-sale and held-to-maturity securities are classified as cash flows from investing activities and reported gross on a combined basis as these principally represent cash flows from held-to-maturity securities.

NOTE 7—DERIVATIVE INSTRUMENTS: 
In the ordinary course of business, the Company is exposed to foreign currency risk, interest rate risk, equity risk 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 instruments to offset a portion of the risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates.
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivative are recorded in the Consolidated Statements of Operations as “Other income (expense), net” or as a component of “Accumulated other comprehensive income (loss)” in the Consolidated Balance Sheets, as discussed below.
As part of its risk management strategy, the Company uses short-term forward contracts to offset the foreign exchange risk on assets and liabilities denominated in currencies other than the functional currency of the respective entities. These forward-exchange contracts are not designated as hedging instruments. 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.
As of both February 28, 2018 and November 30, 2017, the Company had interest rate swaps with an aggregate notional amount of $600,000 to economically convert a portion of its variable-rate debt to fixed-rate debt. The swaps have maturities up to September 2022. These swaps are designated as cash flow hedges of the variability in interest payments due to changes in the contractually specified interest rates of the Company's debt. Gains and losses on cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of interest expense are recognized in “Interest expense and finance charges, net” in the same period as the related expense is recognized.
Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in “Accumulated other comprehensive income (loss)” associated with such derivative instruments are reclassified immediately into “Interest expense and finance charges, net.” Any subsequent changes in fair value of such derivative instruments are reflected in “Interest expense and finance charges, net” unless they are re-designated as hedges of other transactions.
Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s policy is not to allow the use of derivatives for trading or speculative purposes. The fair values of the Company’s derivative instruments are also disclosed in Note 8.

13
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the fair value of the Company’s derivative instruments as of February 28, 2018 and November 30, 2017:
 
 
 
Fair Value as of
 
Balance Sheet Line Item
 
February 28, 2018

 
November 30, 2017

Derivative instruments not designated as hedging instruments
 
 
 
 
Foreign exchange forward contracts
 
 
 
 
 
Other current assets
 
$
1,349

 
$
1,483

 
Other accrued liabilities
 
$
1,173

 
$
1,194

 
Other long-term liabilities
 
$
1,056

 
$
1,372

Derivative instruments designated as cash flow hedges
 
 
 
 
Interest rate swaps
 
 
 
 
 
Other current assets
 
$
77

 
$
—

 
Other assets
 
$
8,396

 
$
3,484

 
Other accrued liabilities
 
$
—

 
$
389

 
Other long-term liabilities
 
$
—

 
$
1,996

The notional amounts of the foreign exchange forward contracts that were outstanding as of February 28, 2018 and November 30, 2017 were $337,542 and $248,069, respectively. The notional amounts represent the gross amounts of foreign currency, including the Canadian Dollar, Brazilian Real, Indian Rupee, Chinese Yuan, Philippines Peso, Euro, Colombian Peso and British Pound, that will be bought or sold at maturity. The contracts mature or settle in six months or less. In relation to its forward contracts not designated as hedging instruments, the Company recorded losses of $3,034 and $2,197, respectively, during the three months ended February 28, 2018 and February 28, 2017, in “Other expense, net.”
During the three months ended February 28, 2018 and 2017, the Company recorded gains before taxes of $7,477 and $1,917, respectively, in “Other comprehensive income (loss)” related to changes in the fair value of its derivative instruments designated as cash flow hedging instruments. There are no existing gains or losses in "Accumulated other comprehensive income (loss)" that are expected to be reclassified into earnings in the normal course of business within the next twelve months.
The net effect on earnings of the interest rate swaps are presented in "Interest expense and finance charges, net." The net earnings effect is shown in the following table at settlement values:
Period
 
Gains/(losses) reclassified from Accumulated other comprehensive income (loss) into income
 
Total Interest expense and finance charges, net
Three months ended February 28, 2018
 
$
(240
)
 
$
(17,451
)
Three months ended February 28, 2017
 
$
(391
)
 
$
(8,182
)
In the Consolidated Balance Sheets, the Company does not offset derivative assets against liabilities in master netting arrangements. If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would have been reduced by $1,161 each as of February 28, 2018 and $1,352 each as of November 30, 2017.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. We manage the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions.


14
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 8—FAIR VALUE MEASUREMENTS: 
The Company’s fair value measurements are classified and disclosed in one of the following three categories:  
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
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 February 28, 2018
 
As of November 30, 2017
 
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
$
53,367

 
$
53,367

 
$
—

 
$
—

 
$
157,935

 
$
157,935

 
$
—

 
$
—

Available-for-sale securities
3,429

 
3,429

 
—

 
—

 
3,376

 
3,376

 
—

 
—

Forward foreign currency exchange contracts
1,349

 
—

 
1,349

 
—

 
1,483

 
—

 
1,483

 
—

Interest rate swaps
8,473

 
 
 
8,473

 
 
 
3,484

 
—

 
3,484

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
2,229

 
$
—

 
$
2,229

 
$
—

 
$
2,566

 
$
—

 
$
2,566

 
$
—

Interest rate swaps
—

 
—

 
—

 
—

 
2,385

 
—

 
2,385

 
—

Contingent consideration payable
33,098

 
—

 
—

 
33,098

 
33,098

 
—

 
—

 
33,098

 
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 of equity securities and are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of long-term foreign currency exchange contract and interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market transactions, including the London Interbank Offered Rate (“LIBOR”) spot and forward rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of February 28, 2018 and November 30, 2017.
Contingent consideration payable represents acquisition-related future potential earn-out payments. The fair value of the contingent consideration liability was based on a probabilistic analysis using an option pricing model as implemented via a Monte Carlo simulation. The model considered an expected case forecast for the remainder of the earn-out period, estimated volatility around the forecast, a measure of systematic risk as captured by a market price of risk adjustment, and a discount rate including non-performance risk. There was no change in fair value during the three months ended February 28, 2018.
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.

15
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

During the three months ended February 28, 2018, there were no transfers between the fair value measurement category levels.

NOTE 9—ACCOUNTS RECEIVABLE ARRANGEMENTS: 
The Company has an uncommitted supply-chain financing program with a global financial institution under which trade accounts receivable of certain customers and their affiliates may be acquired, without recourse, by the financial institution. Available capacity under this program is dependent on the level of our trade accounts receivable with these customers and the financial institution’s willingness to purchase such receivables. As of February 28, 2018 and November 30, 2017, accounts receivable sold to and held by the financial institution under this program were $32,397 and $49,826, respectively. Discount fees related to the sale of trade accounts receivable under this facility are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. During the three months ended February 28, 2018 and 2017, discount fees were not material to the Company's results of operations.
SYNNEX Infotec, the Company'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 February 28, 2018 and November 30, 2017 were $2,275 and $2,306, 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 Note 17 for further information.
The following table summarizes the net sales financed through flooring agreements and the flooring fees incurred: 
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Net sales financed
$
364,484

 
$
269,393

Flooring fees(1)
1,918

 
1,702

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of February 28, 2018 and November 30, 2017, accounts receivable subject to flooring agreements were $55,084 and $65,684, respectively.


16
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 10—BORROWINGS: 
Borrowings consist of the following:
 
As of
 
February 28, 2018
 
November 30, 2017
SYNNEX United States accounts receivable securitization arrangement
$
216,200

 
$
288,400

SYNNEX Canada accounts receivable securitization arrangement
15,586

 
19,389

Westcon-Comstor North America revolving line of credit facility
230,079

 
220,241

Westcon-Comstor Latin America revolving lines of credit facilities
45,745

 
78,407

SYNNEX Japan credit facility - revolving line of credit component
46,874

 
52,426

Concentrix India revolving lines of credit facilities
—

 
12,000

SYNNEX United States credit agreement - current portion of term loan component
60,000

 
60,000

SYNNEX Japan credit facility - current portion of term loan component
56,248

 
53,314

Other borrowings
23,828

 
21,294

Borrowings, current
$
694,560

 
$
805,471

 
 
 
 
SYNNEX United States credit agreement - term loan component
$
1,125,000

 
$
1,140,000

Other term debt
420

 
569

Long-term borrowings, before unamortized debt discount and issuance costs
1,125,420

 
1,140,569

Less: unamortized debt discount and issuance costs
(4,214
)
 
(4,480
)
Long-term borrowings
$
1,121,206

 
$
1,136,089

SYNNEX United States accounts receivable securitization arrangement
In the United States, the Company has an accounts receivable securitization program to provide additional capital for its operations (the “U.S. AR Arrangement”). The U.S. AR Arrangement expires on November 1, 2019. Under the terms of the U.S. AR Arrangement, the Company’s subsidiary that is the borrower under this facility can borrow up to a maximum of $600,000 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 $120,000. The effective borrowing cost under the U.S. AR Arrangement is a blended rate that includes prevailing dealer commercial paper rates and the daily LIBOR, plus 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 payable on the adjusted commitment of the lenders.
Under the terms of the U.S. AR Arrangement, the Company and one 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 borrowings under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets.
SYNNEX Canada accounts receivable securitization arrangement
In May 2017, SYNNEX Canada Limited (“SYNNEX Canada”) entered into an accounts receivable securitization program with a bank to transfer eligible trade accounts receivable, on an ongoing revolving basis, up to CAD65,000, or $50,655, through May 10, 2020. The program includes an accordion feature to allow a request to increase the lender's commitment by an additional CAD25,000, or $19,483. Any borrowings under this arrangement are recorded as debt on the Company's Consolidated Balance Sheets. The effective borrowing cost is based on the weighted average of the Canadian Dollar Offered Rate plus a margin of 2.00% per annum and the prevailing lender commercial paper rates. In addition, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. It will pay a fee of 0.40% per annum for any unused portion of the commitment below CAD25,000 and an additional 0.55% per annum if the unused portion exceeds CAD25,000.


17
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Westcon-Comstor North America revolving line of credit facility
In connection with the acquisition of Westcon-Comstor Americas effective September 1, 2017, the Company assumed a credit facility of some of the North American subsidiaries the Company acquired. The facility maintained with certain banks comprises a $350,000 commitment for a revolving credit facility and matures in January 2021. The Company may request incremental commitments to increase the principal amount of the revolving line of credit by $75,000. Advances under the Westcon-Comstor North America Facility are subject to a borrowing base calculation based on eligible accounts receivable and inventories of these subsidiaries and are secured by the assets of these borrowers and the stock of one of the Company’s subsidiaries which is their direct parent company. Interest on the Westcon-Comstor North America facility is based on LIBOR, plus a margin which could range from 1.25% to 1.75%, or an index rate, plus a margin which could range from 0.25% to 0.75%, at the borrowers option, and a commitment fee of 0.20%. The borrower subsidiaries under the Westcon-Comstor North America Facility are required to maintain a minimum fixed charge ratio covenant of 1.0x if excess availability falls below a certain level.
Westcon-Comstor Latin America revolving lines of credit facilities 
In connection with the acquisition of Westcon-Comstor Americas effective September 1, 2017, the Company also assumed credit facilities of some of the Central and South American subsidiaries the Company acquired (the "Westcon-Comstor LATAM facilities"). The Westcon-Comstor LATAM facilities maintained with financial institutions in the respective countries are denominated in local currency of such countries or United States Dollars and aggregate to $97,428 in revolving commitments. One of the Westcon-Comstor LATAM facilities comprising $40,000 in revolving commitments matures in February 2020. The remaining Westcon-Comstor LATAM facilities aggregating $57,428 in revolving commitments mature in one year or less. The Company guarantees the obligations under these credit facilities. The terms of borrowing under these lines of credit vary from country to country, depending on local market conditions, and the interest rates range from 3.70% to 14.01%.
SYNNEX Japan credit facility
SYNNEX Infotec has a credit agreement with a group of financial institutions for a maximum commitment of JPY14,000,000, or $131,246. The credit facility is comprised of a JPY6,000,000, or $56,248, term loan and a JPY8,000,000, or $74,998, short-term revolving credit facility. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin of 0.70% per annum. The unused line fee on the revolving credit facility is 0.10% per annum. This credit facility expires in November 2018. The term loan can be repaid at any time prior to the expiration date without penalty. The Company has guaranteed the obligations of SYNNEX Infotec under this 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.
SYNNEX United States credit agreement
In the United States, the Company has a senior secured credit agreement (the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement, as amended from time to time, includes a $600,000 commitment for revolving credit facility and $1,200,000 term loan. The Company may request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $400,000. 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. 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. Margin for LIBOR loans ranges from 1.25% to 2.00% and for base rate loans, ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.5%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A, as its “prime rate,” or (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

18
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

parent company’s and its United States domestic subsidiaries’ assets and are guaranteed by certain of our United States domestic subsidiaries.
There were no borrowings outstanding under the revolving credit facility as of either February 28, 2018 or November 30, 2017.
SYNNEX Canada revolving line of credit
In May 2017, SYNNEX Canada entered into an uncommitted revolving line of credit with a bank under which it can borrow up to CAD35,000, or $27,276. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S. Base Rate. As of both February 28, 2018, and November 30, 2017, there were no borrowings outstanding under this credit facility.
Other borrowings and other term debt
Other borrowings include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, building mortgages and book overdrafts. As of February 28, 2018, commitments for revolving credit aggregated $31,510. Interest rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions. Borrowings under these facilities are guaranteed by the Company or secured by eligible inventory or accounts receivable.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at February 28, 2018 exchange rates.
Future principal payments
As of February 28, 2018, future principal payments under the above loans are as follows: 
Fiscal Years Ending November 30,
 
2018 (remaining nine months)
$
679,560

2019
60,171

2020
60,158

2021
60,091

2022
960,000

 
$
1,819,980

Interest expense and finance charges
The total interest expense and finance charges for the Company's borrowings were $18,224 and $8,551, respectively, for the three months ended February 28, 2018, and February 28, 2017. The variable interest rates ranged between 0.70% and 12.74% during the three months ended February 28, 2018, and between 0.58% and 4.50% during the three months ended February 28, 2017.
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 February 28, 2018, the Company was in compliance with all material covenants for the above arrangements.


19
Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 11—EARNINGS PER COMMON SHARE: 
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated.  
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Basic earnings per common share:
 
 
 
Net income
$
24,434

 
$
61,789

Less: net income allocated to participating securities(1)
(223
)
 
(581
)
Net income attributable to common stockholders
$
24,211

 
$
61,208

Weighted-average number of common shares - basic
39,695

 
39,494

Basic earnings per common share
$
0.61

 
$
1.55

 
 
 
 
Diluted earnings per common share:
 
 
 
Net income
$
24,434

 
$
61,789

Less: net income allocated to participating securities(1)
(222
)
 
(578
)
Net income attributable common stockholders
$
24,212

 
$
61,211

Weighted-average number of common shares - basic
39,695

 
39,494

Effect of dilutive securities:
 
 
 
Stock options and restricted stock units
283

 
211

Weighted-average number of common shares - diluted
39,978

 
39,705

Diluted earnings per common share
$
0.61

 
$
1.54

 
 
 
 
Anti-dilutive shares excluded from diluted earnings per share calculation
30

 
10

_____________________________________
(1) Restricted stock awards granted to employees by the Company are considered participating securities.

NOTE 12—SEGMENT INFORMATION: 
Summarized financial information related to the Company’s reportable business segments for the three months ended February 28, 2018 and 2017 is shown below:
 
Technology Solutions
 
Concentrix
 
Inter-Segment
Elimination
 
Consolidated
Three months ended February 28, 2018
 
 
 
 
 
 
 
Revenue
$
4,048,819

 
$
507,737

 
$
(4,186
)
 
$
4,552,370

External revenue
4,048,763

 
503,607

 
 
 
4,552,370

Operating income
82,269

 
29,663

 
—

 
111,932

Three months ended February 28, 2017
 
 
 
 
 
 
 
Revenue
3,046,696

 
478,164

 
(3,991
)
 
3,520,869

External revenue
3,046,621

 
474,248

 
 
 
3,520,869

Operating income
80,421

 
21,316

 
22

 
101,759

Total assets as of February 28, 2018
$
6,864,463

 
$
1,639,596

 
$
(1,046,276
)
 
$
7,457,783

Total assets as of November 30, 2017
$
7,124,884

 
$
1,677,728

 
$
(1,104,086
)
 
$
7,698,526


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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Inter-segment elimination represents services and other transactions, principally intercompany loans, between the Company's reportable segments that are eliminated on consolidation.
Geographic information
Shown below is summarized financial information related to the geographic areas in which the Company operates. The revenue attributable to countries is based on the geography of the entities from where the products are delivered or from where customer service contracts are managed.
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Revenue:
 
 
 
United States
$
3,198,486

 
$
2,499,373

Canada
440,322

 
387,366

Others
913,562

 
634,130

Total
$
4,552,370

 
$
3,520,869

 
As of
 
February 28, 2018
 
November 30, 2017
Property and equipment, net:
 
 
 
United States
$
144,869

 
$
144,015

India
35,751

 
37,490

Others
166,085

 
165,084

Total
$
346,705

 
$
346,589

During the three months ended February 28, 2018 and 2017, no other country represented more than 10% of total revenue. As of February 28, 2018 and November 30, 2017, no other country represented more than 10% of total net property and equipment.

NOTE 13—RELATED PARTY TRANSACTIONS: 
The Company has a business relationship with MiTAC Holdings Corporation (“MiTAC Holdings”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became the Company's primary investor through its affiliates. As of February 28, 2018 and November 30, 2017, MiTAC Holdings and its affiliates beneficially owned approximately 22% and 24%, respectively, of the Company’s outstanding common stock. Mr. Matthew Miau, the Company’s Chairman Emeritus of the Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.

21
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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 22% of the Company’s outstanding common stock as of February 28, 2018. These shares are owned by the following entities:  
 
As of February 28, 2018
MiTAC Holdings(1)
4,998

Synnex Technology International Corp.(2)
3,860

Total
8,858

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 376 shares directly held by Mr. Matthew Miau and 216 shares indirectly held by Mr. Mathew Miau through a charitable remainder trust.
(2)
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.6% in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
MiTAC Holdings generally has significant influence over the Company regarding matters submitted to stockholders for consideration, including any merger or acquisition of the Company. Among other things, this could have the effect of delaying, deterring or preventing a change of control over the Company.
The Company purchased inventories from MiTAC Holdings and its affiliates totaling $52,165 and $51,016 during the three months ended February 28, 2018 and February 28, 2017, respectively. The Company’s sales to MiTAC Holdings and its affiliates during the three months ended February 28, 2018 and February 28, 2017, totaled $333 and $403, respectively. In addition, the Company received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings amounting to $36 and $33 during the three months ended February 28, 2018 and February 28, 2017, respectively.
The Company’s business relationship with MiTAC Holdings has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. The Company negotiates pricing and other material terms on a case-by-case basis with MiTAC Holdings. 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—PENSION AND EMPLOYEE BENEFITS 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 postemployment defined benefit plans to eligible employees in certain foreign subsidiaries. During the three months ended February 28, 2018 and 2017, net pension costs were $1,340 and $1,644, respectively, and the Company's contributions were $1,262 and $644, respectively. As of February 28, 2018 and November 30, 2017, these plans were unfunded by $17,715 and $17,214, respectively.
The Company has 401(k) plans in the United States under which eligible employees may contribute up to the maximum amount as provided by law. Employees become eligible to participate in these plans on the first day of the month after their employment date. The Company may make discretionary contributions under the plans. Employees in most of the Company's foreign subsidiaries are covered by government-mandated defined contribution plans. During the three months ended February 28, 2018 and 2017, the Company contributed $9,984 and $8,209, respectively, to defined contribution plans.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 February 28, 2018 and November 30, 2017, the deferred compensation liability balance was $6,841 and $6,800, respectively.

NOTE 15—EQUITY:
Share repurchase program 
In June 2017, the Board of Directors authorized a three-year $300,000 share repurchase program, effective July 1, 2017, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions. During the three months ended February 28, 2018, the Company repurchased shares aggregating 1 for a total cost of $154. The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes.
In June 2014, the Board of Directors authorized a three-year $100,000 share repurchase program 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 the program in June 2017, the Company had purchased 207 shares at a total cost of $15,654. 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 29, 2018, the Company announced a cash dividend of $0.35 per share payable on April 27, 2018 to stockholders of record as of April 13, 2018. Future dividends are subject to continued capital availability, compliance with the covenants and conditions in some of the Company's credit facilities and declaration by the Board of Directors.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Changes in equity
A reconciliation of the changes in equity for the three months ended February 28, 2018 and 2017 is presented below:
 
 
Three Months Ended February 28, 2018
 
Three Months Ended February 28, 2017
 
 
Attributable to  
SYNNEX
Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity
 
Attributable to SYNNEX Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity
Beginning balance:
 
$
2,283,695

 
$
—

 
$
2,283,695

 
$
1,975,776

 
$
22

 
$
1,975,798

Issuance of common stock on exercise of options
 
884

 
—

 
884

 
310

 
—

 
310

Issuance of common stock for employee stock purchase plan
 
720

 
—

 
720

 
627

 
—

 
627

Tax benefit from employee stock plans
 
—

 
—

 
—

 
1,411

 
—

 
1,411

Taxes paid for the settlement of equity awards
 
(1,488
)
 
—

 
(1,488
)
 
(3,033
)
 
—

 
(3,033
)
Share-based compensation
 
5,101

 


 
5,101

 
4,289

 
—

 
4,289

Changes in ownership of noncontrolling interest
 
—

 
—

 
—

 
85

 
(22
)
 
63

Repurchases of common stock
 
(154
)
 
—

 
(154
)
 
—

 
—

 
—

Dividends declared
 
(13,971
)
 
—

 
(13,971
)
 
(9,934
)
 
—

 
(9,934
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
24,434

 
—

 
24,434

 
61,789

 
—

 
61,789

Other comprehensive income (loss):
 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale securities, net of taxes
 
(142
)
 
—

 
(142
)
 
163

 
—

 
163

Change in unrealized gain (losses) in defined benefit plans, net of taxes
 
—

 
—

 
—

 
(69
)
 
—

 
(69
)
Unrealized gains (losses) on cash flow hedges, net of taxes
 
5,563

 
—

 
5,563

 
1,180

 
—

 
1,180

Foreign currency translation adjustments, net of taxes
 
10,797

 
—

 
10,797

 
5,625

 
—

 
5,625

Total other comprehensive income (loss)
 
16,218

 
—

 
16,218

 
6,899

 
—

 
6,899

Total comprehensive income
 
40,652

 
—

 
40,652

 
68,688

 
—

 
68,688

Ending balance:
 
$
2,315,439

 
$
—

 
$
2,315,439

 
$
2,038,219

 
$
—

 
$
2,038,219


NOTE 16—TAXES:
On December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (“the TCJA”) was enacted into law. The TCJA provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, that impact corporate taxation requirements. The TCJA significantly revises the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense), among other things. Due to the complexities involved in accounting for the TCJA, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118"), which allows a measurement period of up to one year after the enactment date of the TCJA to finalize the recording of the related tax impacts. SAB 118 requires that the company include in its financial statements the reasonable estimate of the impact of the TCJA on earnings to the extent such reasonable estimate has been determined. Accordingly, during the three months

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2018 and 2017
(currency and share amounts in thousands, except per share amounts)
(unaudited)

ended February 28, 2018, the company recorded a provisional adjustment of $67,623 for the transition tax expense for the mandatory repatriation and a $25,923 tax benefit from the remeasurement of the net deferred taxes due to the new U.S. tax rate. These estimates may be impacted by new guidance issued by regulators, additional information obtained related to earnings and profits in foreign jurisdictions and the impact of our financial position as of the measurement date of November 30, 2018. Excluding the impact of the adjustments related to the TCJA, the Company's effective tax rate for the first quarter of fiscal 2018 was 29.1%. The repatriation tax is payable in installments over eight years.
NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company leases certain of its facilities under operating lease agreements, which expire in various periods through 2028. Future minimum contractually required cash payment obligations under non-cancellable lease agreements as of February 28, 2018 were as follows:
Fiscal Years Ending November 30,
 
2018 (remaining nine months)
$
74,293

2019
88,920

2020
73,030

2021
49,396

2022
37,614

Thereafter
67,436

Total minimum lease payments
$
390,689

During the three months ended February 28, 2018 and 2017, rent expense was $31,673 and $27,992, respectively. Sublease income was immaterial for each of the periods presented and is immaterial for the amounts entitled to be received in future periods under non-cancellable sublease arrangements.
The Company was contingently liable as of February 28, 2018 under agreements to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by the Company's customers. These arrangements are described in Note 9—Accounts Receivable Arrangements 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 February 28, 2018 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 is currently not involved in any material proceedings.
In December 2009, the Company sold China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. In conjunction with this sale, the Company has recorded a contingent indemnification liability of $4,122.
Guarantees 
The Company, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35,035 in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The guarantee expires in fiscal year 2018.
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.


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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 this "Report", the words “believes,” “estimates,” “expects,” “allows,” “can,” “may,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about market trends, our business model and our services, our market strategy, including expansion of our product lines, our infrastructure, our investment in information technology, or IT, systems, our employee hiring, impact of MiTAC Holdings Corporation, or MiTAC Holdings, ownership interest in us, our revenue and operating results, our gross margins, our inventory, competition with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers, our international operations, foreign currency exchange rates, expansion of our operations and related effects, including our Concentrix business, our strategic acquisitions and divestitures of businesses and assets, including the integration of our Westcon-Comstor Americas acquisition and the calculation of contingent consideration, our goodwill and seasonality, adequacy of our cash resources to meet our capital needs, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of economic and industry trends, impact of our accounting policies and recently issued accounting pronouncements, impact of inventory repurchase obligations and commitments and contingencies, our tax rates and the impact of the Tax Cuts and Jobs Act, our share repurchase and dividend program, and statements regarding our securitization programs and revolving credit lines and our investments in working capital, personnel and our succession planning, facilities and operations. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT, and consumer electronics, or CE, industries, fluctuations in general economic conditions and other risk factors contained herein under Item 1A,if any, and in our Annual Report on Form 10-K for the year ended November 30, 2017. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview
We are a Fortune 500 corporation and a leading business process services company, providing a comprehensive range of distribution, logistics and integration services for the technology industry and providing outsourced services focused on customer engagement to a broad range of enterprises. We provide our products and services through two reportable business segments: Technology Solutions and Concentrix. Our Technology Solutions segment distributes peripherals, IT systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics, or CE, and complementary products. Within our Technology Solutions segment, we also provide systems design and integration solutions. Our Concentrix segment offers a portfolio of strategic solutions and end-to-end business services focused on customer engagement, process optimization, technology innovation, front and back-office automation and business transformation to clients in ten identified industry verticals.
In our Technology Solutions segment, we distribute more than 30,000 technology products (as measured by active SKUs) from more than 300 IT, CE and original equipment manufacturers, or OEM suppliers to more than 25,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Central and South America. We purchase peripherals, IT systems, system components, software, networking, communications 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, corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. We combine our core strengths in distribution with demand generation, supply chain management and design and integration solutions to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and after-market product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of print management, renewals, networking, logistics services and supply

26
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chain management. Additionally, we provide our customers with systems design and integration solutions for data center servers and networking solutions built specific to our customers' workloads and data center environments.
Our Technology Solutions business is characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. The market for IT and CE products is generally characterized by declining unit prices and short product life cycles. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide.
In our Concentrix segment, we provide a comprehensive range of strategic services and solutions to enhance our clients' customer life cycles to acquire, support and renew customer relationships, to automate and optimize processes, to maximize the value of every customer interaction and to improve business outcomes. Our portfolio of services includes end-to-end process outsourcing to customers in various industry vertical markets delivered through omni-channels that include both voice and non-voice mediums in more than 40 languages. Our portfolio of solutions and services support our clients and their customers globally.
From a geographic perspective, approximately 70% and 71% of our total revenue was from the United States for the three months ended February 28, 2018 and 2017, respectively. The revenue attributable to countries is based on geographical locations from where products are delivered or from where customer service contracts are managed. Approximately 42% of our net property and equipment was located in the United States as of both February 28, 2018 and November 30, 2017, respectively. As of February 28, 2018, we had approximately 110,000 full-time and temporary employees worldwide.
On March 1, 2018, Dennis Polk became our President and Chief Executive Officer following the retirement of Kevin Murai.
Critical Accounting Policies and Estimates
During the three months ended February 28, 2018, we adopted certain new accounting guidance. For more information on all of our critical accounting policies, please see the discussion in our Annual Report on Form 10-K for fiscal year ended November 30, 2017 and Note 2 to the Consolidated Financial Statements.
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, the services we provide to our customers and OEM suppliers, and expand our geographic footprint. In our Concentrix segment, we seek to further enhance our capabilities and domain expertise in our key verticals, and further expand into higher value service offerings. We are also strategically focused on further increasing our scale to support our customers.
Fiscal 2017 acquisitions
On September 1, 2017, we acquired the North America and Latin America distribution businesses, or the Westcon-Comstor Americas business, of Datatec Limited ("Datatec"), for a purchase price of approximately $633.6 million. The purchase price was comprised of $602.7 million paid in cash, fair value of contingent consideration payable of $33.1 million and a refund of $2.3 million receivable from Datatec towards the settlement of certain pre-acquisition intra Datatec group transactions. During the three months ended February 28, 2018, the Company received $2.3 million from Datatec. Contingent consideration of up to $200.0 million is payable in cash if certain gross profit targets were achieved for the twelve-month period ended February 28, 2018. We are in the process of finalizing the amount of contingent consideration payable, if any.
On July 31, 2017, the Company acquired 100% of Tigerspike Pty Ltd (“Tigerspike”), a digital products company, specializing in strategy, experience design, development and systems integration, for a preliminary purchase price of $68.5 million, including a holdback amount which was payable to the sellers upon the finalization of post-closing adjustments. During the three months ended February 28, 2018, the Company recorded certain immaterial measurement period adjustments to the fair value of assumed net tangible liabilities, decreasing goodwill by $0.6 million and the purchase price by $1.4 million, resulting in a final purchase price of $67.0 million.


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Results of Operations 
The following table sets forth, for the indicated periods, data as percentages of revenue: 
Statements of Operations Data:
Three Months Ended
 
February 28, 2018
 
February 28, 2017
Products revenue
88.94
 %
 
86.53
 %
Services revenue
11.06

 
13.47

Total revenue
100.00

 
100.00

Cost of products revenue
(84.00
)
 
(81.81
)
Cost of services revenue
(6.90
)
 
(8.48
)
Gross profit
9.10

 
9.71

Selling, general and administrative expenses
(6.63
)
 
(6.82
)
Operating income
2.47

 
2.89

Interest expense and finance charges, net
(0.38
)
 
(0.23
)
Other expense, net
(0.03
)
 
(0.01
)
Income before income taxes
2.06

 
2.65

Provision for income taxes
(1.51
)
 
(0.90
)
Net income
0.55
 %
 
1.75
 %
Certain non-GAAP financial information
In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States (“GAAP”), we also disclose certain non-GAAP financial information, including:
•
Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue for the three months ended February 28, 2018, in billing currency using their comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates.
•
Non-GAAP operating income, which is operating income as adjusted to exclude acquisition-related and integration expenses, 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, or adjusted EBITDA, which is non-GAAP operating income, as defined above, plus depreciation.
•
Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of (i) acquisition-related and integration expenses, (ii) restructuring costs, and (iii) amortization of intangible assets, and the per share amount of the net impact of the adjustments related to the Tax Cuts and Jobs Act of 2017.
We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not

28
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necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures, and should be used only as a complement to, and in conjunction with data presented in accordance with GAAP.
Non-GAAP Financial Information:
 
Three Months Ended
 
February 28, 2018
 
February 28, 2017
 
(in thousands, except per share amounts)
Consolidated
 
 
 
Revenue
$
4,552,370

 
$
3,520,869

Foreign currency translation
(38,097
)
 
 
Revenue in constant currency
$
4,514,273

 
$
3,520,869

 
 
 
 
Operating income
$
111,932

 
$
101,759

Acquisition-related and integration expenses
1,805

 
611

Amortization of intangibles
26,710

 
16,487

Non-GAAP operating income
$
140,447

 
$
118,857

Depreciation
21,924

 
19,460

Adjusted EBITDA
$
162,371

 
$
138,317

 
 
 
 
Operating margin
2.46
%
 
2.89
%
Non-GAAP operating margin
3.09
%
 
3.38
%
 
 
 
 
Technology Solutions
 
 
 
Revenue
$
4,048,819

 
$
3,046,696

Foreign currency translation
(24,430
)
 
 
Revenue in constant currency
$
4,024,389

 
$
3,046,696

 
 
 
 
Operating income
$
82,269

 
$
80,421

Acquisition-related and integration expenses
1,805

 
—

Amortization of intangibles
12,816

 
654

Non-GAAP operating income
$
96,890

 
$
81,075

Depreciation
4,834

 
3,476

Adjusted EBITDA
$
101,724

 
$
84,551

 
 
 
 
Concentrix
 
 
 
Revenue
$
507,737

 
$
478,164

Foreign currency translation
(13,667
)
 
 
Revenue in constant currency
$
494,070

 
$
478,164

 
 
 
 
Operating income
$
29,663

 
$
21,316

Acquisition-related and integration expenses
—

 
611

Amortization of intangibles
13,894

 
15,833

Non-GAAP operating income
$
43,557

 
$
37,760

Depreciation
17,090

 
16,007


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Three Months Ended
 
February 28, 2018
 
February 28, 2017
 
(in thousands, except per share amounts)
Adjusted EBITDA
$
60,647

 
$
53,767

 
 
 
 
Diluted EPS
$
0.61

 
$
1.54

Acquisition-related and integration expenses
0.04

 
0.02

Amortization of intangibles
0.66

 
0.41

Income taxes related to the above(1)
(0.21
)
 
(0.14
)
U.S. tax reform adjustment
$
1.03

 
—

Non-GAAP diluted EPS(2)
$
2.14

 
$
1.82

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

(2) The sum of the components of non-GAAP diluted EPS may not agree to totals, as presented, due to rounding.
Three Months Ended February 28, 2018 and 2017
Revenue 
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Revenue
$
4,552,370

 
$
3,520,869

 
29.3
%
Technology Solutions revenue
4,048,819

 
3,046,696

 
32.9
%
Concentrix revenue
507,737

 
478,164

 
6.2
%
Inter-segment elimination
(4,186
)
 
(3,991
)
 


Our revenues include sales of products and services. In our Technology Solutions segment, we distribute a comprehensive range of products for the technology industry. 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 rapid changes in product models and features. We also design and integrate data center servers. The revenue generated in our Concentrix segment relates to business services focused on process optimization, customer engagement strategy and back office automation. Inter-segment elimination represents services generated between our reportable segments that are eliminated on consolidation. Substantially all of the inter-segment revenue represents services provided by the Concentrix segment to the Technology Solutions segment.
Revenue in our Technology Solutions segment increased during the three months ended February 28, 2018 compared to the prior year period, primarily due to the Westcon-Comstor acquisition in September 2017. Revenue in our Technology Solutions segment during the three months ended February 28, 2018 also benefited from foreign currency translation, primarily from the strengthening of the Canadian Dollar and Japanese Yen. Excluding the impact of the Westcon-Comstor Americas acquisition, revenue in our Technology Solutions segment increased 11.4% on a constant currency basis during the three months ended February 28, 2018, and reflects broad-based strength in systems, peripherals, cloud-based solutions, networking and security.
Revenue in our Concentrix segment increased during the three months ended February 28, 2018, compared to the prior year period, primarily due to growth in our consumer electronics industry vertical and the Tigerspike acquisition on July 31, 2017. Revenue in the Concentrix segment was also benefitted by favorable currency translation, primarily from the

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strengthening of the British Pound, the Euro, the Indian Rupee and the Chinese Yuan. On a constant currency basis, revenue in our Concentrix segment increased 3.3% during the three months ended February 28, 2018 as compared to the prior year period. This increase was partially offset by revenue erosion from expired contracts.
Gross Profit
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Gross profit
$
413,951

 
$
341,783

 
21.1
%
Gross margin
9.10
%
 
9.71
%
 
 
Technology Solutions gross profit
224,723

 
166,143

 
35.3
%
Technology Solutions gross margin
5.55
%
 
5.45
%
 
 
Concentrix gross profit
190,905

 
177,686

 
7.4
%
Concentrix gross margin
37.60
%
 
37.16
%
 


Inter-segment elimination
(1,677
)
 
(2,046
)
 
 
Our Technology Solutions gross margin is affected by a variety of factors, including competition, selling prices, mix of products and services, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses, acquisition of business units and fluctuations in revenue. Concentrix margins, which are higher than those in our Technology Solutions segment, can be impacted by resource location, customer mix and pricing, additional lead time for programs to be fully scalable, and transition and initial set-up costs.
Gross profit and margin in our Technology Solutions segment increased during the three months ended February 28, 2018, compared to the prior year period, primarily due to the impact of the Westcon-Comstor Americas acquisition. This increase in gross margin was partially offset by lower gross margin from our system design and integration solutions business.
Gross profit and margin in our Concentrix segment increased during the three months ended February 28, 2018, compared to the prior year period, primarily due to the impact of the Tigerspike acquisition in July 2017, customer mix, and favorable foreign currency translation, primarily from the strengthening of the British Pound and the Euro, and a weakening of the Philippines Peso. The favorable foreign currency impact was partially offset by a strengthening of the Indian Rupee. We have large delivery service centers in India and the Philippines, and a strengthening in these currencies compared to the US Dollar, adversely impacts our costs and gross margin while a weakening favorably impacts our costs and gross margin.
Selling, General and Administrative Expenses
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
Selling, general and administrative expenses
$
302,019

 
$
240,024

 
25.8
%
Percentage of revenue
6.63
%
 
6.82
%
 
 
Technology Solutions selling, general and administrative expenses
142,454

 
85,722

 
66.2
%
Technology Solutions percentage of revenue
3.52
%
 
2.81
%
 
 
Concentrix selling, general and administrative expenses
161,242

 
156,369

 
3.1
%
Concentrix percentage of revenue
31.76
%
 
32.70
%
 
 
Inter-segment elimination
(1,677
)
 
(2,067
)
 
 
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,

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depreciation on certain of our capital equipment, bad debt expense, amortization of our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
The increase in our selling, general and administrative expenses during the three months ended February 28, 2018 as compared to the prior year period was primarily due to the acquisition of the Westcon-Comstor Americas business in September 2017 in our Technology Solutions segment and the Tigerspike acquisition in July 2017 in our Concentrix segment in July 2017. The decrease in our selling, general and administrative expenses as a percentage of revenue as compared to the prior year period is primarily due to the increase in the proportion of Technology Solutions selling, general and administrative expenses related to our total selling, general and administrative expenses due to the Westcon-Comstor Americas acquisition. As compared to our Concentrix segment, Technology Solutions is characterized by high sales volume and lower gross margin. Consequently, an increase in the relative proportion of Technology Solutions selling, general and administrative expenses, results in a decrease in such expenses as a percentage of revenue.
During the three months ended February 28, 2018, selling, general and administrative expenses in our Technology Solutions segment increased, in both dollars and as a percentage of revenue, compared to the prior year period, primarily due to the Westcon-Comstor Americas acquisition in September 2017, which included the amortization of intangible assets of $12.2 million and the incurrence of acquisition-related and integration expenses of $1.8 million.
The increase in selling, general and administrative expenses in our Concentrix segment during the three months ended February 28, 2018, compared to the prior year period, was due to the Tigerspike acquisition, the unfavorable impact of foreign currency translation, primarily from a strengthening of the Indian Rupee, the British Pound and the Euro, and geographic expansion. These increases were offset partially by a decrease in the amortization of intangible assets by $1.9 million and $0.6 million spent on acquisition-related and integration expenses in the prior year period. Selling, general and administrative expenses, as a percentage of revenue, in our Concentrix segment, decreased during the three months ended February 28, 2018, compared to the prior year period, primarily due to effective cost management and efficient operations achieved through our prior investments in infrastructure and facilities.
Operating income
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Operating income
$
111,932

 
$
101,759

 
10.0
%
Operating margin
2.47
%
 
2.89
%
 
 
Technology Solutions operating income
82,269

 
80,421

 
2.3
%
Technology Solutions operating margin
2.03
%
 
2.64
%
 
 
Concentrix operating income
29,663

 
21,316

 
39.2
%
Concentrix operating margin
5.84
%
 
4.46
%
 
 
Inter-segment eliminations
—

 
22

 


Operating income in our Technology Solutions segment increased during the three months ended February 28, 2018, compared to the prior year period, primarily due to the impact of the Westcon-Comstor Americas acquisition. This increase was substantially offset by a decrease in gross profit in our systems design and integration solutions business. Operating margin in our Technology Solutions segment decreased during the three months ended February 28, 2018 primarily due to the impact of the decrease in gross margin in our system design and integrations solutions business.
Operating income in our Concentrix segment increased during the three months ended February 28, 2018 compared to the prior year period, primarily due to the increase in revenue and margin as described earlier. Operating margin increased during the three months ended February 28, 2018 compared to the prior year period, primarily due to higher gross margin and effective cost management.

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Interest Expense and Finance Charges, Net
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Interest expense and finance charges, net
$
17,451

 
$
8,182

 
113.3
%
Percentage of revenue
0.38
%
 
0.23
%
 
 
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, offset by income earned on our cash investments.
During the three months ended February 28, 2018, our interest expense and finance charges, net, increased compared to the prior year period, primarily due to higher interest expense as a result of additional borrowings to fund the Westcon-Comstor Americas and Tigerspike acquisitions and support growth in our Technology Solutions segment. Our borrowings are primarily at variable rates and our interest expense has also increased with the increase in benchmark interest rates.
Other Expense, Net
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Other expense, net
$
1,178

 
$
323

 
264.7
%
Percentage of revenue
0.03
%
 
0.01
%
 
 
Amounts recorded as other expense, net include foreign currency transaction gains and losses, investment gains and losses and other non-operating gains and losses.
The increase in other expense, net, during the three months ended February 28, 2018 compared to the prior year period was primarily due to higher foreign currency exchange losses.
Provision for Income Taxes
 
Three Months Ended
 
 
 
February 28, 2018
 
February 28, 2017
 
Percent Change
 
(in thousands)
 
 
Provision for income taxes
$
68,869

 
$
31,465

 
118.9
%
Percentage of income before income taxes
73.81
%
 
33.74
%
 
 
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
The increase in the effective tax rate during the three months ended February 28, 2018 compared to the prior year period is due to the discrete impact of a provisional net adjustment of $41.7 million related to the TCJA. This adjustment includes a $67.6 million transition tax expense for mandatory repatriation, partially offset by a $25.9 million tax benefit from the remeasurement of our net deferred tax balance to the new U.S. tax rate enacted under the TCJA. We have not provided U.S. taxes for all foreign earnings because we plan to reinvest some of those earnings indefinitely outside the United States. As discussed in the Note 16 to the Consolidated Financial Statements, we have not yet completed our analysis of the full impact of the TCJA. Excluding the impact of the adjustments related to the TCJA, our effective tax rate for the first quarter of fiscal 2018 was 29.1%. The current quarter tax rate, compared to the prior year period, is lower primarily due to the impact of the lower tax rate under the TCJA.


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Liquidity and Capital Resources
Cash Conversion Cycle
 
 
Three Months Ended
 
 
February 28, 2018
 
February 28, 2017
 
 
(in thousands)
Days sales outstanding
 
 
 
 
Revenue (products and services)
(a)
$
4,552,370

 
$
3,520,869

Accounts receivable, including receivable from related parties
(b)
2,621,544

 
1,724,942

Days sales outstanding
(c) = (b)/((a)/the number of days during the period)
52

 
44

 
 
 
 
 
Days inventory outstanding
 
 
 
 
Cost of revenue (products and services)
(d)
$
4,138,419

 
$
3,179,086

Inventories
(e)
2,323,259

 
1,853,901

Days inventory outstanding
(f) = (e)/((d)/the number of days during the period)
51

 
52

 
 
 
 
 
Days payable outstanding
 
 
 
 
Cost of revenue (products and services)
(g)
$
4,138,419

 
$
3,179,086

Accounts payable, including payable to related parties
(h)
2,448,478

 
1,502,142

Days payable outstanding
(i) = (h)/((g)/the number of days during the period)
53

 
43

 
 
 
 
 
Cash conversion cycle
 
50

 
53

Cash Flows
Our Technology Solutions business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, accounts receivable arrangements, our securitization programs and our revolver programs for our working capital needs. We have financed our growth and cash needs to date primarily through cash generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. Our cash conversion cycle was 50 days and 53 days as of February 28, 2018 and February 28, 2017, 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 decrease, compared to the prior year period, was primarily a result of the Westcon-Comstor Americas acquisition, where lower days of inventory supply are required to service the business, as well as working capital improvements throughout fiscal 2017 in our systems design and integrations solutions business.
To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.
Net cash used in operating activities was $5.7 million during the three months ended February 28, 2018, primarily due to an increase in inventories of $154.7 million and a decrease in accounts payable of $200.1 million. These cash outflows were partially offset by net income of $24.4 million, adjustments for non-cash items of $31.1 million, a decrease in accounts

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receivable of $236.4 million, and a net change in other assets and liabilities of $57.3 million. The increase in inventories was primarily in anticipation of continued demand in our Technology Solutions segment including Westcon-Comstor Americas. The decrease in accounts receivable and accounts payable was primarily due to lower revenue in our Technology Solutions segment during the three months ended February 28, 2018 following a seasonally high fourth quarter of fiscal year 2017. The adjustments for non-cash items consist primarily of amortization and depreciation and stock-based compensation expense, offset partially by the deferred tax benefit related to the remeasurement of deferred tax assets and liabilities to the new U.S. tax rate due to the enactment of the TCJA.
Net cash used in operating activities was $185.6 million during the three months ended February 28, 2017, primarily due to a decrease in accounts payable of $214.0 million and an increase in inventories of $109.1 million. These cash outflows were partially offset by net income of $61.8 million, adjustments for non-cash items of $37.8 million, and a decrease in accounts receivable of $36.7 million. The decrease in accounts payable was primarily due to timing of purchases and payments in our Technology Solutions segment. The increase in inventory was primarily due to strong demand for our systems design and integration solutions. The decrease in accounts receivable was primarily due to lower revenue in our Technology Solutions segment during the three months ended February 28, 2017 following a seasonally high fourth quarter of fiscal year 2016. The adjustments for non-cash items consist primarily of amortization, depreciation and stock-based compensation expense.
Net cash used in investing activities during the three months ended February 28, 2018 was $27.9 million, primarily due to capital expenditures of $22.4 million, related substantially to our Concentrix segment. In addition, we made a final payment of $8.2 million for the acquisition of Tigerspike and received a refund of $2.3 million from Datatec towards the settlement of certain pre-acquisition intra Datatec group transactions related to our acquisition of Westcon-Comstor Americas.
Net cash used in investing activities during the three months ended February 28, 2017 was $22.1 million, primarily due to capital expenditures of $21.6 million, related substantially to growth in our Concentrix segment.
Net cash used in financing activities during the three months ended February 28, 2018 was $146.4 million, consisting primarily of $139.5 million of net repayments under our borrowing arrangements by utilizing the cash generated from operations during the fourth fiscal quarter of 2017 and $14.0 million of dividend payments.
Net cash provided by financing activities during the three months ended February 28, 2017 was $32.4 million, consisting primarily of $43.6 million of net proceeds from our borrowing arrangements, partially offset by $9.9 million of dividend payments.
Capital Resources 
Our cash and cash equivalents totaled $372.3 million and $550.7 million as of February 28, 2018 and November 30, 2017, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $241.6 million and $267.2 million as of February 28, 2018 and November 30, 2017, respectively. Repatriation of the cash held by our foreign subsidiaries would be subject to United States federal income taxes. Also, repatriation of some foreign balances is restricted by local laws. However, we have historically fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change and we repatriate the cash back to the United States, we will report in our consolidated financial statements the impact of the applicable taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.
We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations and our existing sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.
Historically, we have renewed our accounts receivable securitization program and our U.S. credit facility agreement described below on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.

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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. The U.S. AR Arrangement expires on November 1, 2019. One of our subsidiaries, which is the borrower under the U.S. AR Arrangement, can borrow up to a maximum of $600.0 million 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. The effective borrowing cost under the U.S. AR Arrangement is a blended rate that includes prevailing dealer commercial paper rates and the daily London Interbank Offered Rate, or LIBOR, plus 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 payable on the adjusted commitment of the lenders. As of February 28, 2018 and November 30, 2017, $216.2 million and $288.4 million, respectively, were outstanding under the U.S. AR Arrangement.
Under the terms of the U.S. AR Arrangement, we and one of our United States 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 borrowings under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets.
SYNNEX Canada Limited, or SYNNEX Canada, has an accounts receivable securitization program with a bank to transfer eligible trade accounts receivable, on an ongoing revolving basis, up to CAD65.0 million, or $50.7 million, through May 10, 2020. The program includes an accordion feature to allow a request to increase the lender's commitment by an additional CAD25.0 million, or $19.5 million. Any borrowings under this arrangement are recorded as debt on our Consolidated Balance Sheets. The effective borrowing cost is based on the weighted average of the Canadian Dollar Offered Rate plus a margin of 2.00% per annum and the prevailing lender commercial paper rates. In addition, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. We will pay a fee of 0.40% per annum for any unused portion of the commitment below CAD25.0 million and an additional 0.55% per annum if the unused portion exceeds CAD25.0 million. As of February 28, 2018 and November 30, 2017, borrowings outstanding under this arrangement were $15.6 million and $19.4 million, respectively.
Our Westcon-Comstor North American subsidiaries have a revolving credit facility with certain banks (the "Westcon-Comstor N.A. facility"). The facility comprises a $350.0 million commitment for a revolving credit facility and matures in January 2021. We may request incremental commitments to increase the principal amount of the revolving line of credit by $75.0 million. Advances under the Westcon-Comstor N.A. facility are subject to a borrowing base calculation based on eligible accounts receivable and inventories of these subsidiaries and are secured by the assets of these borrowers and the stock of one of our subsidiaries which is the direct parent company of the acquired entities. Interest on the Westcon-Comstor N.A. facility is based on LIBOR, plus a margin which could range from 1.25% to 1.75%, or an index rate, plus a margin which could range from 0.25% to 0.75%, at the borrowers option, and a commitment fee of 0.20%. The borrower subsidiaries under the Westcon-Comstor N.A. facility are required to maintain a minimum fixed charge ratio covenant of 1.0x if excess availability falls below a certain level. As of February 28, 2018 and November 30, 2017, borrowings outstanding under the Westcon-Comstor N.A. facility were $230.1 million and $220.2 million, respectively.
Certain of our Westcon-Comstor Latin American subsidiaries have revolving credit facilities with financial institutions in their respective countries (the "Westcon-Comstor LATAM facilities"). The Westcon-Comstor LATAM facilities are denominated in local currency of such countries or United States Dollars and aggregate to $97.4 million in revolving commitments. One of the Westcon-Comstor LATAM facilities, comprising $40.0 million in revolving commitments, matures in February 2020. The remaining Westcon-Comstor LATAM facilities, aggregating $57.4 million in revolving commitments, mature in one year or less. We guarantee the obligations under these credit facilities. The terms of borrowing under these lines of credit vary from country to country, depending on local market conditions, and the interest rates range from 3.70% to 14.01%. As of February 28, 2018 and November 30, 2017, the aggregate balance outstanding under the Westcon-Comstor LATAM facilities was $45.7 million and $78.4 million, respectively.
SYNNEX Infotec has a credit agreement with a group of financial institutions for a maximum commitment of JPY14.0 billion, or $131.2 million. The credit agreement is comprised of a JPY6.0 billion, or $56.2 million, term loan and a JPY8.0 billion, or $75.0 million, short-term revolving credit facility. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate plus a margin of 0.70% per annum. The unused line fee on the revolving credit facility is 0.10% per annum. This credit facility expires in November 2018. As of February 28, 2018 and November 30, 2017,

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the balances outstanding under the term loan component of the facility were 56.2 million and 53.3 million, respectively. Balances outstanding under the revolving credit facility were 46.9 million and 52.4 million, respectively, as of February 28, 2018 and November 30, 2017. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations of SYNNEX Infotec under this facility.
Our Indian subsidiaries have credit facilities with a financial institution to borrow up to an aggregate amount of $22.0 million. The interest rate under the credit facilities is the higher of the bank's minimum lending rate or LIBOR plus a margin of 0.9% per annum. The credit facilities can be terminated at any time by our Indian subsidiaries or the financial institution. We guarantee the obligations under these credit facilities. As of February 28, 2018, there were no borrowings outstanding under these facilities. As of November 30, 2017, borrowings outstanding under these credit facilities were $12.0 million.
In the United States, we have a senior secured credit agreement with a group of banks (the "U.S. Credit Agreement"). The U.S. Credit Agreement, as amended from time to time, comprises of a $600.0 million revolving credit facility and a $1,200.0 million term loan. We can request incremental commitments to increase the principal amount of the revolving line of credit or term loan available under the U.S. Credit Agreement by $400.0 million. The U.S. Credit Agreement matures in September 2022. The outstanding principal amount of the term loan is repayable in quarterly installments of $15.0 million, with the unpaid balance due in full on the September 2022 maturity date. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. Margin for LIBOR loans can range from 1.25% to 2.00% and for base rate loans can range from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. 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,” or (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 our applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio as calculated under the U.S. Credit Agreement. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets and are guaranteed by certain of our United States domestic subsidiaries. As of February 28, 2018 and November 30, 2017, balances outstanding under the term loan component of the U.S. Credit Agreement were $1,185.0 million and $1,200.0 million, respectively. There were no borrowings outstanding under the revolving credit facility as of either February 28, 2018 or November 30, 2017.
SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD35.0 million, or $27.3 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 US Base Rate. As of February 28, 2018 and November 30, 2017, there were no borrowings outstanding under this credit facility.
We also maintain other local currency denominated lines of credit and accounts receivable factoring arrangements with financial institutions at certain locations outside the United States aggregating commitments of $31.5 million. Interest rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions. Borrowings under these facilities are guaranteed by us or secured by eligible inventory or accounts receivable. As of February 28, 2018 and November 30, 2017, borrowings outstanding under these facilities were $10.6 million and $15.2 million, respectively.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at February 28, 2018 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 February 28, 2018 and November 30, 2017, we had a total of $34.7 million and $52.1 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

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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 February 28, 2018, 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 (already recorded on our Consolidated Balance Sheet), and operating lease arrangements. As of February 28, 2018, there have been no material changes from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2017. For more information on our future minimum rental obligations under noncancellable lease agreements as of February 28, 2018, see Note 17 to the Consolidated Financial Statements.
As discussed in Note 16 to the Consolidated Financial Statements, pursuant to the enactment of the TCJA, during the three months ended February 28, 2018, we recorded an estimated one-time transition tax of $67.6 million on mandatory repatriation. This repatriation tax is payable in installments over eight years.
Guarantees
We, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35.0 million in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The guarantee expires in fiscal year 2018.
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 February 28, 2018 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 February 28, 2018 and November 30, 2017, accounts receivable subject to flooring arrangements were $55.1 million and $65.7 million, respectively. For more information on our third-party revolving short-term financing arrangements, see Note 9 to the Consolidated Financial Statements.
Related Party Transactions 
We have a business relationship with MiTAC Holdings, a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of February 28, 2018 and November 30, 2017, MiTAC Holdings and its affiliates beneficially owned approximately 22% and 24%, respectively, 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.

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The shares owned by MiTAC Holdings are held by the following entities:
 
As of February 28, 2018
 
(in thousands)
MiTAC Holdings(1)
4,998

Synnex Technology International Corp.(2)
3,860

Total
8,858

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 376 thousand shares directly held by Mr. Matthew Miau and 216 thousand shares indirectly held by Mr. Matthew Miau through a charitable remainder trust.
(2)
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.6% in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
MiTAC Holdings generally has significant influence over us regarding matters submitted to stockholders for consideration, including any merger or acquisition of ours. Among other things, this could have the effect of delaying, deterring or preventing a change of control over us.  
We purchased inventories from MiTAC Holdings and its affiliates totaling $52.2 million and $51.0 million, respectively, during the three months ended February 28, 2018 and February 28, 2017, respectively. Our sales to MiTAC Holdings, and its affiliates totaled $0.3 million and $0.4 million, respectively, during the three months ended February 28, 2018 and February 28, 2017, respectively. In addition, we received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings amounting to $36,000 and $33,000 during the three months ended February 28, 2018 and February 28, 2017, respectively.
Our business relationship with MiTAC Holdings and its affiliates has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate pricing and other material terms on a case-by-case basis with MiTAC Holdings. We have adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition, Mr. 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, see Note 2 to the Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 
There have been no material changes in our quantitative and qualitative disclosures about market risk during the three months ended February 28, 2018 from our Annual Report on Form 10-K for the fiscal year ended November 30, 2017. 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,

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summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II - OTHER INFORMATION
 
ITEM 1A. Risk Factors 
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I-Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended November 30, 2017. There have been no material changes from the risk factors disclosed in our 2017 Annual Report on Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 

(a)    None.

(b)    None.

(c)    Issuer Purchases of Equity Securities:

Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
December 1, 2017 to December 31, 2017
 
—

 
$
—

 
—

 
$
300,000,000

January 1, 2018 to January 31, 2018
 
—

 
$
—

 
—

 
$
300,000,000

February 1, 2018 to February 28, 2018
 
1,400

 
$
110.01

 
1,400

 
$
299,845,981

 
 
1,400

 
$
110.01

 
1,400

 
 

In June 2017, we announced that our Board of Directors authorized a three-year $300,000,000 share repurchase program 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 February 28, 2018, we had repurchased 1,400 shares of our common stock at an average price of $110.01 per share for an aggregate purchase price of $154,019 since inception of the stock repurchase program, and the remaining authorized amount for stock repurchases under this program was $299,845,981 by June 2020.

For the majority of restricted stock awards and units granted by us, the number of shares issued on the date the restricted stock awards and units vest is net of shares withheld to meet applicable tax withholding requirements. Although these withheld shares are not issued or considered common stock repurchases under our stock repurchase program and therefore are not included in the preceding table, they are treated as common stock repurchases in our financial statements as they reduce the number of shares that would have been issued upon vesting (see Note 15 to the Consolidated Financial Statements).

The covenants of the Company's borrowings limit our ability to pay dividends, make other types of distributions and repurchase the Company's stock (see Note 10 to the Consolidated Financial Statements). We were in compliance with all material covenants as of February 28, 2018.

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ITEM 6. Exhibits
Exhibit
Number
 
Description of Document
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
31.1
 
 
 
31.2
 
 
 
32.1*
 
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.

 _____________________________________________

* 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.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: April 6, 2018

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

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


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