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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 7/07/21 Synnex Corp. 10-Q 5/31/21 105:13M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.33M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 36K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 35K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 32K
11: R1 Document and Entity Information HTML 83K
12: R2 Consolidated Balance Sheets HTML 138K
13: R3 Consolidated Balance Sheets (Parenthetical) HTML 47K
14: R4 Consolidated Statements of Operations HTML 121K
15: R5 Consolidated Statements of Comprehensive Income HTML 65K
(Loss)
16: R6 Consolidated Statements of Comprehensive Income HTML 42K
(Loss) (Parenthetical)
17: R7 Consolidated Statements of Stockholders' Equity HTML 84K
18: R8 Consolidated Statements of Cash Flows HTML 117K
19: R9 Organization and Basis of Presentation HTML 38K
20: R10 Summary of Significant Accounting Policies HTML 48K
21: R11 Discontinued Operations HTML 125K
22: R12 Share-Based Compensation HTML 146K
23: R13 Balance Sheet Components HTML 228K
24: R14 Derivative Instruments HTML 173K
25: R15 Fair Value Measurements HTML 140K
26: R16 Accounts Receivable Arrangements HTML 64K
27: R17 Borrowings HTML 108K
28: R18 Earnings Per Common Share HTML 223K
29: R19 Geographic Information HTML 89K
30: R20 Related Party Transactions HTML 87K
31: R21 Employee Benefit Plans HTML 38K
32: R22 Equity HTML 34K
33: R23 Leases HTML 133K
34: R24 Commitments and Contingencies HTML 38K
35: R25 Pending Merger HTML 36K
36: R26 Summary of Significant Accounting Policies HTML 67K
(Policies)
37: R27 Discontinued Operations (Tables) HTML 127K
38: R28 Share-Based Compensation (Tables) HTML 146K
39: R29 Balance Sheet Components (Tables) HTML 240K
40: R30 Derivative Instruments (Tables) HTML 167K
41: R31 Fair Value Measurements (Tables) HTML 135K
42: R32 Accounts Receivable Arrangements (Tables) HTML 54K
43: R33 Borrowings (Tables) HTML 86K
44: R34 Earnings Per Common Share (Tables) HTML 222K
45: R35 Geographic Information (Tables) HTML 85K
46: R36 Related Party Transactions (Tables) HTML 83K
47: R37 Leases (Tables) HTML 141K
48: R38 Organization and Basis of Presentation - HTML 42K
Additional Information (Details)
49: R39 Summary of Significant Accounting Policies - HTML 47K
Concentration of Credit Risk and Revenue
Recognition - Additional Information (Details)
50: R40 Summary of Significant Accounting Policies - HTML 57K
Additional Information (Details)
51: R41 Discontinued Operations - Schedule of Discontinued HTML 54K
Operations Income Statement (Details)
52: R42 Discontinued Operations - Additional Information HTML 41K
(Details)
53: R43 Discontinued Operations - Summary of Non-Cash HTML 44K
Items and Capital Expenditures of Discontinued
Operations (Details)
54: R44 Discontinued Operations - Schedule of Discontinued HTML 93K
Operations Consolidated Balance Sheet (Details)
55: R45 Share-Based Compensation - Summary of Share-based HTML 44K
Awards Granted (Details)
56: R46 Share-Based Compensation - Share-based HTML 40K
Compensation Expenses (Details)
57: R47 Share-Based Compensation - Additional Information HTML 33K
(Details)
58: R48 Balance Sheet Components - Cash, Cash Equivalents HTML 39K
and Restricted Cash (Details)
59: R49 Balance Sheet Components - Accounts Receivable, HTML 38K
Net (Details)
60: R50 Balance Sheet Components - Receivables from HTML 35K
Vendors, Net (Details)
61: R51 Balance Sheet Components - Property and Equipment, HTML 49K
Net (Details)
62: R52 Balance Sheet Components - Additional Information HTML 35K
(Details)
63: R53 Balance Sheet Components - Goodwill (Details) HTML 35K
64: R54 Balance Sheet Components - Intangible Assets HTML 45K
(Details)
65: R55 Balance Sheet Components - Schedule of Estimated HTML 46K
Future Amortization Expense of Intangible Assets
Including Preliminary Estimate of Amortization of
Assets Acquired (Details)
66: R56 Balance Sheet Components - Summary of Accumulated HTML 55K
Other Comprehensive Income (Loss) ("Aoci")
(Details)
67: R57 Derivative Instruments - Additional Information HTML 44K
(Details)
68: R58 Derivative Instruments - Summary of Fair Values of HTML 54K
Derivative Instruments (Details)
69: R59 Derivative Instruments - Effect of Derivative HTML 62K
Instruments on AOCI and Consolidated Statements of
Operations (Details)
70: R60 Fair Value Measurements - Schedule of Valuation of HTML 54K
Investments and Financial Instruments Measured at
Fair Value on Recurring Basis (Details)
71: R61 Fair Value Measurements - Additional Information HTML 33K
(Details)
72: R62 Accounts Receivable Arrangements - Additional HTML 49K
Information (Details)
73: R63 Accounts Receivable Arrangements - Schedule of Net HTML 42K
Sales Financed through Financing Agreement
(Details)
74: R64 Borrowings - Schedule of Borrowings (Details) HTML 54K
75: R65 Borrowings - SYNNEX United States Accounts HTML 54K
Receivable Securitization Arrangement - Additional
Information (Details)
76: R66 Borrowings - SYNNEX Canada Accounts Receivable HTML 66K
Securitization Arrangement - Additional
Information (Details)
77: R67 Borrowings - SYNNEX Japan Credit Facility - HTML 46K
Additional Information (Details)
78: R68 Borrowings - SYNNEX United States Credit Agreement HTML 59K
- Additional Information (Details)
79: R69 Borrowings - SYNNEX United States Term Loan Credit HTML 51K
Agreement - Additional Information (Details)
80: R70 Borrowings - SYNNEX New Credit Agreement - HTML 72K
Additional Information (Details)
81: R71 Borrowings - SYNNEX Canada Revolving Line of HTML 44K
Credit - Additional Information (Details)
82: R72 Borrowings - Other Borrowings and Term Debt - HTML 34K
Additional Information (Details)
83: R73 Borrowings - Schedule of Future Principal Payments HTML 39K
(Details)
84: R74 Borrowings - Interest Expense and Finance Charges HTML 39K
- Additional Information (Details)
85: R75 Earnings Per Common Share - Schedule of Basic and HTML 99K
Diluted Earnings Per Common Share (Details)
86: R76 Geographic Information - Summary of Revenue and HTML 50K
Property and Equipment, Net (Details)
87: R77 Related Party Transactions - Additional HTML 34K
Information (Details)
88: R78 Related Party Transactions - Schedule of HTML 39K
Beneficial Ownership of Company's Common Stock by
Related Party (Details)
89: R79 Related Party Transactions - Schedule of HTML 45K
Beneficial Ownership of Company's Common Stock by
Related Party (Parenthetical) (Details)
90: R80 Related Party Transactions - Schedule of Related HTML 39K
Party Transactions (Details)
91: R81 Related Party Transactions - Schedule of HTML 38K
Receivable from Payable To and Investment On
Related Party (Details)
92: R82 Employee Benefit Plans - Additional Information HTML 34K
(Details)
93: R83 Equity - Share Repurchase Program - Additional HTML 38K
Information (Details)
94: R84 Equity - Dividends - Additional Information HTML 41K
(Details)
95: R85 Leases - Additional Information (Details) HTML 31K
96: R86 Leases - Schedule of Various Components of Lease HTML 42K
Costs (Details)
97: R87 Leases - Schedule of Maturity Analysis of Expected HTML 50K
Undiscounted Cash Flows for Operating Leases on an
Annual Basis (Details)
98: R88 Leases - Schedule of Amounts Recorded in HTML 43K
Consolidated Balance Sheet (Details)
99: R89 Leases - Schedule of Supplemental Cash Flow HTML 35K
Information Related to Operating Leases (Details)
100: R90 Leases - Schedule of Weighted-Average Remaining HTML 34K
Lease Term and Discount Rate (Details)
101: R91 Pending Merger - Additional Information (Details) HTML 66K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
|
i ☒ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i May 31, i 2021 /
OR
|
i ☐ |
|
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: i 001-31892
i SYNNEX CORPORATION
(Exact name of registrant as specified in its charter)
|
i Delaware |
|
i 94-2703333 |
|
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
|
|
|
|
|
i 44201 Nobel Drive i Fremont, i California |
|
i 94538 |
|
(Address of principal executive offices) |
|
(Zip Code) |
( i 510) i 656-3333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
i Common Stock, par value $0.001 per share |
i SNX |
i The New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i 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.
|
i Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
Emerging growth company |
i ☐ |
|
|
|
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 i ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
|
Class |
|
Outstanding as of June 30, 2021 |
|
Common Stock, $0.001 par value |
|
i 51,934,555 |
SYNNEX CORPORATION
FORM 10-Q
INDEX
|
|
|||
|
|
|
Page |
|
|
PART I |
3 |
||
|
Item 1. |
3 |
||
|
|
Consolidated Balance Sheets (unaudited) as of May 31, 2021 and November 30, 2020 |
3 |
|
|
|
4 |
||
|
|
5 |
||
|
|
6 |
||
|
|
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended May 31, 2021 and 2020 |
7 |
|
|
|
8 |
||
|
|
8 |
||
|
|
8 |
||
|
|
10 |
||
|
|
11 |
||
|
|
12 |
||
|
|
14 |
||
|
|
16 |
||
|
|
17 |
||
|
|
18 |
||
|
|
22 |
||
|
|
22 |
||
|
|
23 |
||
|
|
24 |
||
|
|
24 |
||
|
|
24 |
||
|
|
26 |
||
|
|
27 |
||
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
|
|
Item 3. |
40 |
||
|
Item 4. |
41 |
||
|
|
|
|
|
|
PART II |
42 |
||
|
Item 1A. |
42 |
||
|
Item 6. |
45 |
||
|
|
46 |
||
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYNNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except par value)
(unaudited)
|
|
|
|
|
|
||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 1,656,874 |
|
|
$ |
i 1,412,016 |
|
|
Accounts receivable, net |
|
|
i 2,451,877 |
|
|
|
i 2,791,703 |
|
|
Receivables from vendors, net |
|
|
i 278,501 |
|
|
|
i 286,327 |
|
|
Inventories |
|
|
i 2,684,681 |
|
|
|
i 2,684,076 |
|
|
Other current assets |
|
|
i 167,824 |
|
|
|
i 173,940 |
|
|
Current assets of discontinued operations |
|
|
i — |
|
|
|
i 1,421,065 |
|
|
Total current assets |
|
|
i 7,239,756 |
|
|
|
i 8,769,127 |
|
|
Property and equipment, net |
|
|
i 154,741 |
|
|
|
i 157,645 |
|
|
Goodwill |
|
|
i 428,429 |
|
|
|
i 423,885 |
|
|
Intangible assets, net |
|
|
i 168,483 |
|
|
|
i 186,047 |
|
|
Deferred tax assets |
|
|
i 34,181 |
|
|
|
i 39,636 |
|
|
Other assets, net |
|
|
i 134,308 |
|
|
|
i 138,070 |
|
|
Noncurrent assets of discontinued operations |
|
|
i — |
|
|
|
i 3,754,180 |
|
|
Total assets |
|
$ |
i 8,159,898 |
|
|
$ |
i 13,468,590 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Borrowings, current |
|
$ |
i 66,033 |
|
|
$ |
i 124,958 |
|
|
Accounts payable |
|
|
i 3,503,036 |
|
|
|
i 3,751,240 |
|
|
Accrued compensation and benefits |
|
|
i 94,020 |
|
|
|
i 103,075 |
|
|
Other accrued liabilities |
|
|
i 588,080 |
|
|
|
i 618,616 |
|
|
Income taxes payable |
|
|
i 19,161 |
|
|
|
i 46,363 |
|
|
Current liabilities of discontinued operations |
|
|
i — |
|
|
|
i 985,840 |
|
|
Total current liabilities |
|
|
i 4,270,330 |
|
|
|
i 5,630,092 |
|
|
Long-term borrowings |
|
|
i 1,497,325 |
|
|
|
i 1,496,700 |
|
|
Other long-term liabilities |
|
|
i 131,097 |
|
|
|
i 130,296 |
|
|
Deferred tax liabilities |
|
|
i 5,478 |
|
|
|
i 5,836 |
|
|
Noncurrent liabilities of discontinued operations |
|
|
i — |
|
|
|
i 1,866,807 |
|
|
Total liabilities |
|
|
i 5,904,230 |
|
|
|
i 9,129,730 |
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i 0.001 / par value, i i 5,000 / shares authorized, i i i i no / / / shares issued or outstanding |
|
|
i — |
|
|
|
i — |
|
|
Common stock, $ i i 0.001 / par value, i i 100,000 / shares authorized, i 53,775 and i 53,671 shares issued as of May 31, 2021 and November 30, 2020, respectively |
|
|
i 54 |
|
|
|
i 54 |
|
|
Additional paid-in capital |
|
|
i 1,605,676 |
|
|
|
i 1,591,536 |
|
|
Treasury stock, i 2,548 and i 2,538 shares as of May 31, 2021 and November 30, 2020, respectively |
|
|
( i 192,171 |
) |
|
|
( i 191,216 |
) |
|
Accumulated other comprehensive income (loss) |
|
|
( i 145,169 |
) |
|
|
( i 194,571 |
) |
|
Retained earnings |
|
|
i 987,277 |
|
|
|
i 3,133,058 |
|
|
Total stockholders' equity |
|
|
i 2,255,668 |
|
|
|
i 4,338,860 |
|
|
Total liabilities and equity |
|
$ |
i 8,159,898 |
|
|
$ |
i 13,468,590 |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
3
SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except per share amounts)
(unaudited)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Revenue |
|
$ |
i 5,856,825 |
|
|
$ |
i 4,470,928 |
|
|
$ |
i 10,795,839 |
|
|
$ |
i 8,551,952 |
|
|
Cost of revenue |
|
|
( i 5,527,650 |
) |
|
|
( i 4,196,312 |
) |
|
|
( i 10,162,097 |
) |
|
|
( i 8,022,232 |
) |
|
Gross profit |
|
|
i 329,175 |
|
|
|
i 274,616 |
|
|
|
i 633,742 |
|
|
|
i 529,721 |
|
|
Selling, general and administrative expenses |
|
|
( i 181,274 |
) |
|
|
( i 186,472 |
) |
|
|
( i 344,094 |
) |
|
|
( i 341,132 |
) |
|
Operating income |
|
|
i 147,901 |
|
|
|
i 88,144 |
|
|
|
i 289,649 |
|
|
|
i 188,589 |
|
|
Interest expense and finance charges, net |
|
|
( i 22,563 |
) |
|
|
( i 20,992 |
) |
|
|
( i 45,401 |
) |
|
|
( i 39,784 |
) |
|
Other expense, net |
|
|
( i 755 |
) |
|
|
( i 174 |
) |
|
|
( i 2,089 |
) |
|
|
( i 1,029 |
) |
|
Income from continuing operations before income taxes |
|
|
i 124,583 |
|
|
|
i 66,978 |
|
|
|
i 242,159 |
|
|
|
i 147,776 |
|
|
Provision for income taxes |
|
|
( i 31,481 |
) |
|
|
( i 16,786 |
) |
|
|
( i 61,235 |
) |
|
|
( i 29,069 |
) |
|
Income from continuing operations |
|
|
i 93,102 |
|
|
|
i 50,192 |
|
|
|
i 180,924 |
|
|
|
i 118,706 |
|
|
Income from discontinued operations, net of taxes |
|
|
i — |
|
|
|
i 6,768 |
|
|
|
i — |
|
|
|
i 60,838 |
|
|
Net income |
|
$ |
i 93,102 |
|
|
$ |
i 56,960 |
|
|
$ |
i 180,924 |
|
|
$ |
i 179,544 |
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
i 1.79 |
|
|
$ |
i 0.98 |
|
|
$ |
i 3.49 |
|
|
$ |
i 2.31 |
|
|
Discontinued operations |
|
|
i — |
|
|
|
i 0.13 |
|
|
|
i — |
|
|
|
i 1.18 |
|
|
Net income |
|
$ |
i 1.79 |
|
|
$ |
i 1.11 |
|
|
$ |
i 3.49 |
|
|
$ |
i 3.49 |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
i 1.78 |
|
|
$ |
i 0.97 |
|
|
$ |
i 3.46 |
|
|
$ |
i 2.29 |
|
|
Discontinued operations |
|
|
i — |
|
|
|
i 0.13 |
|
|
|
i — |
|
|
|
i 1.18 |
|
|
Net income |
|
$ |
i 1.78 |
|
|
$ |
i 1.10 |
|
|
$ |
i 3.46 |
|
|
$ |
i 3.47 |
|
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
i 51,192 |
|
|
|
i 50,849 |
|
|
|
i 51,169 |
|
|
|
i 50,832 |
|
|
Diluted |
|
|
i 51,707 |
|
|
|
i 51,047 |
|
|
|
i 51,636 |
|
|
|
i 51,137 |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
4
SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(currency in thousands)
(unaudited)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income |
|
$ |
i 93,102 |
|
|
$ |
i 56,960 |
|
|
$ |
i 180,924 |
|
|
$ |
i 179,544 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses of defined benefit plans, net of taxes of $ i i i i 0 / / / for the three and six months ended May 31, 2021 and May 31, 2020 |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 217 |
|
|
Unrealized gains (losses) on cash flow hedges during the period, net of taxes of $ i 579 and $ i 541 for the three and six months ended May 31, 2021, respectively, and $ i 6,210 and $ i 16,174 for the three and six months ended May 31, 2020, respectively |
|
|
( i 1,821 |
) |
|
|
( i 24,429 |
) |
|
|
i 1,196 |
|
|
|
( i 49,413 |
) |
|
Reclassification of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of ($ i 2,621) and ($ i 5,159) for the three and six months ended May 31, 2021, respectively, and ($ i 904) and ($ i 557) for the three and six months ended May 31, 2020, respectively |
|
|
i 8,036 |
|
|
|
i 2,833 |
|
|
|
i 15,824 |
|
|
|
i 1,638 |
|
|
Total change in unrealized gains (losses) on cash flow hedges, net of taxes |
|
|
i 6,215 |
|
|
|
( i 21,596 |
) |
|
|
i 17,020 |
|
|
|
( i 47,775 |
) |
|
Foreign currency translation adjustments, net of taxes of ($ i 400) and ($ i 1,244) for the three and six months ended May 31, 2021, respectively, and $ i 148 and $ i 294 for the three and six months ended May 31, 2020, respectively |
|
|
i 28,589 |
|
|
|
( i 61,723 |
) |
|
|
i 28,569 |
|
|
|
( i 80,641 |
) |
|
Other comprehensive income (loss) |
|
|
i 34,804 |
|
|
|
( i 83,319 |
) |
|
|
i 45,589 |
|
|
|
( i 128,199 |
) |
|
Comprehensive income (loss) |
|
$ |
i 127,906 |
|
|
$ |
( i 26,359 |
) |
|
$ |
i 226,513 |
|
|
$ |
i 51,345 |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
5
SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(currency in thousands, except per share amounts)
(unaudited)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total Stockholders' equity, beginning balance |
|
$ |
i 2,129,298 |
|
|
$ |
i 3,855,688 |
|
|
$ |
i 4,338,860 |
|
|
$ |
i 3,788,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
i 1,596,652 |
|
|
|
i 1,558,226 |
|
|
|
i 1,591,590 |
|
|
|
i 1,545,474 |
|
|
Share-based compensation |
|
|
i 6,750 |
|
|
|
i 7,423 |
|
|
|
i 11,637 |
|
|
|
i 16,212 |
|
|
Common stock issued for employee benefit plans |
|
|
i 2,329 |
|
|
|
i 1,168 |
|
|
|
i 2,503 |
|
|
|
i 5,131 |
|
|
Ending balance |
|
|
i 1,605,730 |
|
|
|
i 1,566,817 |
|
|
|
i 1,605,730 |
|
|
|
i 1,566,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( i 192,010 |
) |
|
|
( i 175,107 |
) |
|
|
( i 191,216 |
) |
|
|
( i 172,627 |
) |
|
Repurchases of common stock for tax withholdings on equity awards |
|
|
( i 161 |
) |
|
|
( i 97 |
) |
|
|
( i 955 |
) |
|
|
( i 2,577 |
) |
|
Repurchases of common stock |
|
|
i — |
|
|
|
( i 3,405 |
) |
|
|
i — |
|
|
|
( i 3,405 |
) |
|
Ending balance |
|
|
( i 192,171 |
) |
|
|
( i 178,609 |
) |
|
|
( i 192,171 |
) |
|
|
( i 178,609 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
i 904,629 |
|
|
|
i 2,726,525 |
|
|
|
i 3,133,058 |
|
|
|
i 2,624,680 |
|
|
Separation of Concentrix |
|
|
i — |
|
|
|
i — |
|
|
|
( i 2,305,982 |
) |
|
|
i — |
|
|
Net income |
|
|
i 93,102 |
|
|
|
i 56,960 |
|
|
|
i 180,924 |
|
|
|
i 179,544 |
|
|
Cash dividends declared |
|
|
( i 10,454 |
) |
|
|
( i 36 |
) |
|
|
( i 20,723 |
) |
|
|
( i 20,775 |
) |
|
Ending balance |
|
|
i 987,277 |
|
|
|
i 2,783,449 |
|
|
|
i 987,277 |
|
|
|
i 2,783,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
( i 179,973 |
) |
|
|
( i 253,957 |
) |
|
|
( i 194,572 |
) |
|
|
( i 209,077 |
) |
|
Separation of Concentrix |
|
|
i — |
|
|
|
i — |
|
|
|
i 3,813 |
|
|
|
i — |
|
|
Other comprehensive income (loss) |
|
|
i 34,804 |
|
|
|
( i 83,319 |
) |
|
|
i 45,589 |
|
|
|
( i 128,199 |
) |
|
Ending balance |
|
|
( i 145,169 |
) |
|
|
( i 337,276 |
) |
|
|
( i 145,169 |
) |
|
|
( i 337,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity, ending balance |
|
$ |
i 2,255,668 |
|
|
$ |
i 3,834,381 |
|
|
$ |
i 2,255,668 |
|
|
$ |
i 3,834,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
|
$ |
i 0.20 |
|
|
$ |
i — |
|
|
$ |
i 0.40 |
|
|
$ |
i 0.40 |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
6
SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
|
|
|
Six Months Ended |
|
|||||
|
|
|
|
|
|
||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 180,924 |
|
|
$ |
i 179,544 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
i 31,500 |
|
|
|
i 167,184 |
|
|
Share-based compensation |
|
|
i 11,637 |
|
|
|
i 16,212 |
|
|
Provision for doubtful accounts |
|
|
i 2,676 |
|
|
|
i 39,859 |
|
|
Deferred income taxes |
|
|
( i 550 |
) |
|
|
( i 11,305 |
) |
|
Unrealized foreign exchange (gains) losses |
|
|
i 2,502 |
|
|
|
( i 4,240 |
) |
|
Other |
|
|
i 2,797 |
|
|
|
i 6,607 |
|
|
Changes in operating assets and liabilities, net of the impact of Concentrix separation: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
i 376,523 |
|
|
|
i 621,684 |
|
|
Receivables from vendors, net |
|
|
( i 5,532 |
) |
|
|
i 59,919 |
|
|
Inventories |
|
|
i 8,314 |
|
|
|
( i 495,572 |
) |
|
Accounts payable |
|
|
( i 268,522 |
) |
|
|
i 227,221 |
|
|
Other operating assets and liabilities |
|
|
( i 37,952 |
) |
|
|
i 419,366 |
|
|
Net cash provided by operating activities |
|
|
i 304,318 |
|
|
|
i 1,226,481 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( i 9,114 |
) |
|
|
( i 84,620 |
) |
|
Acquisition of businesses |
|
|
i — |
|
|
|
( i 2,635 |
) |
|
Other |
|
|
i 1,599 |
|
|
|
( i 4,704 |
) |
|
Net cash used in investing activities |
|
|
( i 7,515 |
) |
|
|
( i 91,960 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
i 515,708 |
|
|
|
i 3,543,446 |
|
|
Repayments of borrowings |
|
|
( i 569,684 |
) |
|
|
( i 3,756,839 |
) |
|
Dividends paid |
|
|
( i 20,723 |
) |
|
|
( i 20,775 |
) |
|
Repurchases of common stock |
|
|
i — |
|
|
|
( i 3,405 |
) |
|
Increase (decrease) in book overdraft |
|
|
i 1,139 |
|
|
|
( i 2,627 |
) |
|
Proceeds from issuance of common stock |
|
|
i 2,503 |
|
|
|
i 5,131 |
|
|
Repurchases of common stock for tax withholdings on equity awards |
|
|
( i 955 |
) |
|
|
( i 2,577 |
) |
|
Net transfer of cash and cash equivalents to Concentrix |
|
|
( i 149,948 |
) |
|
|
i — |
|
|
Net cash used in financing activities |
|
|
( i 221,960 |
) |
|
|
( i 237,646 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
i 13,740 |
|
|
|
( i 10,875 |
) |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
i 88,583 |
|
|
|
i 886,000 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
i 1,568,870 |
|
|
|
i 231,149 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
i 1,657,454 |
|
|
$ |
i 1,117,149 |
|
|
Supplemental disclosure of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
Accrued costs for property and equipment purchases |
|
$ |
i 881 |
|
|
$ |
i 4,642 |
|
|
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Net assets transferred to Concentrix |
|
$ |
i 2,322,598 |
|
|
$ |
i — |
|
(Amounts may not add due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
7
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
iNOTE 1—ORGANIZATION AND BASIS OF PRESENTATION:
SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX” or the “Company”) is a leading provider of a comprehensive range of distribution, systems design and integration solutions for the technology industry, headquartered in Fremont, California and has operations in North and South America, Asia-Pacific and Europe.
On i December 1, 2020, the Company completed the previously announced separation of its customer experience services business (the “Separation”), in a tax-free transaction for federal income tax purposes, which was accomplished by the distribution of one hundred per cent of the outstanding common stock of Concentrix Corporation (“Concentrix”) to SYNNEX stockholders as of the close of business on i November 17, 2020, the record date for the distribution. SYNNEX stockholders received i one share of Concentrix common stock for every share of SYNNEX common stock held at the close of business on the record date. The Company distributed i 51,602 shares of Concentrix common stock to its stockholders. Concentrix is now an independent public company trading under the symbol “CNXC” on the Nasdaq Stock Market. After the Separation, SYNNEX does not beneficially own any shares of Concentrix’ common stock. Beginning December 1, 2020, the Company no longer consolidates Concentrix within its financial results or reflects the financial results of Concentrix within its continuing results of operations.
The financial results of Concentrix for the three and six months ended May 31, 2020 are presented as income from discontinued operations, net of taxes on the Consolidated Statements of Operations and its assets and liabilities as of November 30, 2020 are presented as discontinued operations in the Consolidated Balance Sheets. The historical statements of comprehensive income, cash flows and the balances in stockholders' equity have not been revised to reflect the effect of the Separation. For further information on discontinued operations, see Note 3 - Discontinued Operations. Unless noted otherwise, discussion in the Notes to the Consolidated Financial Statements pertain to continuing operations.
In connection with the Separation, the Company and Concentrix entered into a separation and distribution agreement as well as various other agreements that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide certain limited services to SYNNEX following the Separation.
The accompanying interim unaudited Consolidated Financial Statements as of May 31, 2021 and for the three and six months ended May 31, 2021 and 2020 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. The amounts as of November 30, 2020 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, 2020.
Interim results of operations are not necessarily indicative of financial results for a full year, and the Company makes no representations related thereto. Certain columns and rows may not add due to the use of rounded numbers.
/ iNOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For a discussion of the Company’s significant accounting policies, refer to the discussion in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2020. Accounting pronouncements adopted during the six months ended May 31, 2021 are discussed below.
iUse of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The Company evaluates these estimates on a regular basis and bases them on historical experience and on various assumptions that the Company believes are reasonable. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and work force participation and created volatility and disruption of financial markets, the impact of which was most acute during the second quarter of fiscal year 2020. As of May 31, 2021, due to the ongoing impact of the COVID-19 pandemic on the Company’s business, many of the estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change in future periods. Actual results could differ from the estimates.
/8
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, accounts receivable, receivables from vendors and derivative instruments.
The Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through May 31, 2021, the Company has not experienced any credit losses on such deposits and derivative instruments.
Accounts receivable include amounts due from customers, including related party customers. Receivables from vendors, net, includes amounts due from original equipment manufacturer (“OEM”) vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for expected credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of its receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. The Company also considers risks attributed to COVID-19 in establishing the required allowances. Through May 31, 2021, such losses have been within management’s expectations.
i i i i One / / / customer accounted for i 25% and i 22% of the Company’s total revenue during the three and six months ended May 31, 2021, respectively. The same customer accounted for i 23% and i 21% of the Company’s total revenue during the three and six months ended May 31, 2020, respectively. Products purchased from the Company’s largest OEM supplier, HP Inc., accounted for approximately i 13% and i 14% of total revenue during the three and six months ended May 31, 2021, respectively, and approximately i i 15 / % of total revenue during both the three and six months ended May 31, 2020.
As of May 31, 2021 and November 30, 2020, i i one / customer comprised i 20% and i 15%, respectively, of the consolidated accounts receivable balance.
/ iInventories
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 projects and integration-based completed systems. Work-in-process inventories are not material to the Consolidated Financial Statements.
iSegments
Operating segments are based on components of the Company that engage in business activities that earn revenues and incur expenses (a) whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resource allocation and performance and (b) for which discrete financial information is available.
The Company had two reportable segments: Technology Solutions and Concentrix. After giving effect to the Separation of the Concentrix segment, the Company now operates a single reportable segment, which represents an aggregation of four geographic operating segments of United States, Canada, Japan and Latin America. The Company distributes peripherals, IT systems, including data center servers, system components, software, networking, communications and security equipment, consumer electronics and complementary products to a variety of customers, including value-added resellers, system integrators and retailers. The Company also designs and integrates data center equipment built specific to the customers' data center environment.
iRevenue Recognition
The Company generates revenue primarily from the sale of various IT products.
The Company recognizes revenues from the sale of IT hardware and software as control is transferred to customers, which is at the point in time when the product is shipped or delivered. The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Binding purchase orders from customers together with agreement to the Company's terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer. Products sold by the Company are delivered via shipment from the Company’s facilities, drop-shipment directly from the vendor, or by electronic delivery of software products. In situations where arrangements include customer acceptance provisions, revenue is recognized when the Company can objectively verify the products comply with specifications underlying acceptance and the customer has control of the products. Revenue is presented net of taxes collected from customers and remitted to government authorities. The Company generally invoices a customer upon shipment, or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Service revenues represents less than i 10% of the total revenue for the periods presented.
/9
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers, which are considered variable consideration, at the time of sale based on an evaluation of the contract terms and historical experience.
The Company recognizes revenue on a net basis on certain contracts, where the Company’s performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which the Company does not assume the risks and rewards of ownership, by recognizing the margins earned in revenue with no associated cost of revenue. Such arrangements include supplier service contracts, post-contract software support services and extended warranty contracts.
The Company considers shipping and handling activities as costs to fulfill the sale of products. Shipping revenue is included in revenue when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of revenue.
iRecently adopted accounting pronouncements
In August 2018, the Financial Accounting Standard Board (“FASB”) issued new guidance to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendment requires the Company to disclose the weighted-average interest crediting rates used in cash balance pension plans. It also requires the Company to disclose the reasons for significant changes in the benefit obligation or plan assets including significant gains and losses affecting the benefit obligation for the period. The adoption of this new guidance did not have a material impact on the Company's Consolidated Financial Statements.
In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. This guidance was applicable to the Company at the beginning of fiscal year 2021 and its adoption did not have a material impact on the Company's Consolidated Financial Statements.
In June 2016, the FASB issued a new credit loss standard to replace the incurred loss impairment methodology. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. This new standard is to be adopted by way of a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. This guidance was applicable to the Company at the beginning of fiscal year 2021 and its adoption did not have a material impact on the Company's Consolidated Financial Statements.
Recently issued accounting pronouncements
In March 2020, the FASB issued optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The Company is currently evaluating the impact of the new guidance.
In December 2019, the FASB issued new guidance that simplifies the accounting for income taxes. The guidance is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those reporting periods. Certain amendments should be applied prospectively, while other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.
i
NOTE 3—DISCONTINUED OPERATIONS:
iThe following table summarizes the financial results from discontinued operations of Concentrix included in the Consolidated Statement of Operations:
|
|
|
Three months ended |
|
|
Six months ended |
|
||
|
|
|
|
|
|
||||
|
Revenue |
|
$ |
i 1,066,363 |
|
|
$ |
i 2,254,982 |
|
|
Costs and expenses |
|
|
( i 1,042,783 |
) |
|
|
( i 2,143,192 |
) |
|
Interest expense and finance charges and others, net |
|
|
( i 11,288 |
) |
|
|
( i 25,637 |
) |
|
Income from discontinued operations before taxes |
|
|
i 12,292 |
|
|
|
i 86,153 |
|
|
Provision for income taxes |
|
|
( i 5,524 |
) |
|
|
( i 25,315 |
) |
|
Income from discontinued operations, net of taxes |
|
$ |
i 6,768 |
|
|
$ |
i 60,838 |
|
/
10
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
There were i i i i no / / / revenues earned or cost and expenses incurred of discontinued operations during the three and six months ended May 31, 2021. There were i i no / non-cash items or capital expenditures of discontinued operations during the six months ended May 31, 2021. i During the six months ended May 31, 2020, significant non-cash items and capital expenditures of discontinued operations included in the consolidated statement of cash flows are outlined below:
|
|
|
Six months ended |
|
|
|
|
|
|
||
|
Operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
$ |
i 135,336 |
|
|
Share-based compensation |
|
|
i 7,988 |
|
|
Provision for doubtful accounts |
|
|
i 6,118 |
|
|
Deferred income taxes |
|
|
( i 11,210 |
) |
|
Unrealized foreign exchange (gains) losses |
|
|
( i 3,678 |
) |
|
Investing activities: |
|
|
|
|
|
Purchases of property and equipment |
|
$ |
i 69,241 |
|
i
The following table presents assets and liabilities that were transferred to Concentrix as of December 1, 2020 and presented as discontinued operations in the Consolidated Balance Sheet as of November 30, 2020:
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
i 152,656 |
|
|
Accounts receivable, net |
|
|
i 1,079,086 |
|
|
Other current assets |
|
|
i 189,323 |
|
|
Current assets of discontinued operations |
|
$ |
i 1,421,065 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
i 451,649 |
|
|
Goodwill |
|
|
i 1,836,050 |
|
|
Intangible assets, net |
|
|
i 798,959 |
|
|
Deferred tax assets |
|
|
i 47,423 |
|
|
Other assets |
|
|
i 620,099 |
|
|
Noncurrent assets of discontinued operations |
|
$ |
i 3,754,180 |
|
|
|
|
|
|
|
|
Borrowings, current |
|
$ |
i 33,756 |
|
|
Accounts payable |
|
|
i 140,575 |
|
|
Accrued compensation and benefits |
|
|
i 419,715 |
|
|
Other accrued liabilities |
|
|
i 371,069 |
|
|
Income taxes payable |
|
|
i 20,725 |
|
|
Current liabilities of discontinued operations |
|
$ |
i 985,840 |
|
|
|
|
|
|
|
|
Long-term borrowings |
|
$ |
i 1,111,362 |
|
|
Other long-term liabilities |
|
|
i 601,885 |
|
|
Deferred tax liabilities |
|
|
i 153,560 |
|
|
Noncurrent liabilities of discontinued operations |
|
$ |
i 1,866,807 |
|
/
In connection with the Separation, $ i 3,813 of accumulated other comprehensive income, net of income taxes, related to foreign currency translation adjustments, cash flow hedges and pension plan obligations was transferred to Concentrix on the Separation date. Refer to Note 5 - Balance Sheet Components for more information.
i
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.
i /11
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
The following table summarizes the number of share-based awards granted under the Company’s stock incentive plans, during the three and six months ended May 31, 2021 and 2020, and the measurement-date fair value of those awards:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
|
Shares awarded |
|
|
Fair value of grants |
|
|
Shares awarded |
|
|
Fair value of grants |
|
|
Shares awarded |
|
|
Fair value of grants |
|
|
Shares awarded |
|
|
Fair value of grants |
|
||||||||
|
Stock options |
|
|
i — |
|
|
$ |
i — |
|
|
|
i — |
|
|
$ |
i — |
|
|
|
i 98 |
|
|
$ |
i 2,995 |
|
|
|
i — |
|
|
$ |
i — |
|
|
Restricted stock awards |
|
|
i 15 |
|
|
|
i 1,696 |
|
|
|
i 24 |
|
|
|
i 1,688 |
|
|
|
i 254 |
|
|
|
i 23,334 |
|
|
|
i 29 |
|
|
|
i 2,445 |
|
|
Restricted stock units |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 99 |
|
|
|
i 7,662 |
|
|
|
i — |
|
* |
|
i 25 |
|
|
|
|
|
i 15 |
|
|
$ |
i 1,696 |
|
|
|
i 24 |
|
|
$ |
i 1,688 |
|
|
|
i 451 |
|
|
$ |
i 33,991 |
|
|
|
i 29 |
|
|
$ |
i 2,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Less than a thousand units.
iThe Company recorded share-based compensation expense in the Consolidated Statements of Operations for the three and six months ended May 31, 2021 and 2020 as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total share-based compensation (recorded in selling, general and administrative expenses) |
|
$ |
i 6,750 |
|
|
$ |
i 3,626 |
|
|
$ |
i 11,637 |
|
|
$ |
i 8,225 |
|
|
Tax benefit recorded in the provision for income taxes |
|
|
( i 1,669 |
) |
|
|
( i 898 |
) |
|
|
( i 2,891 |
) |
|
|
( i 2,046 |
) |
|
Effect on net income |
|
$ |
i 5,081 |
|
|
$ |
i 2,728 |
|
|
$ |
i 8,746 |
|
|
$ |
i 6,179 |
|
In connection with the Separation, as required by the SYNNEX stock incentive plans, the Company made certain adjustments to outstanding employee equity awards with the intention of preserving the intrinsic value of the awards prior to the Separation. There were i 1,452 awards outstanding at November 30, 2020. In accordance with the employee matters agreement, each exercisable and non-exercisable stock option and unvested restricted stock award was modified into similar awards of both SYNNEX and Concentrix and the exercise price of outstanding stock options was adjusted to preserve the intrinsic value of the awards. Certain restricted stock units and performance-contingent awards were modified to provide the holders restricted stock units and performance contingent awards in the company that employs such employee following the Separation. When settled wholly in the employer’s shares, the ratio was based on the closing stock price of SYNNEX at November 30, 2020 compared to the opening stock price of the respective entity on December 1, 2020. The options strike prices were adjusted in the same manner. The modification of these awards did not result in material incremental compensation cost.
i
NOTE 5—BALANCE SHEET COMPONENTS:
Cash, cash equivalents and restricted cash:
iThe 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 |
|
|||||
|
|
|
|
|
|
||||
|
Cash and cash equivalents |
|
$ |
i 1,656,874 |
|
|
$ |
i 1,412,016 |
|
|
Restricted cash included in other current assets |
|
|
i 580 |
|
|
|
i 504 |
|
|
Cash, cash equivalents and restricted cash |
|
$ |
i 1,657,454 |
|
|
$ |
i 1,412,520 |
|
Accounts receivable, net:
|
|
|
As of |
|
|||||
|
|
|
|
|
|
||||
|
Accounts receivable |
|
$ |
i 2,515,803 |
|
|
$ |
i 2,859,064 |
|
|
Less: Allowance for doubtful accounts |
|
|
( i 63,926 |
) |
|
|
( i 67,361 |
) |
|
Accounts receivable, net |
|
$ |
i 2,451,877 |
|
|
$ |
i 2,791,703 |
|
/ i
Receivables from vendors, net:
|
|
|
As of |
|
|||||
|
|
|
|
|
|
||||
|
Receivables from vendors |
|
$ |
i 284,741 |
|
|
$ |
i 291,453 |
|
|
Less: Allowance for doubtful accounts |
|
|
( i 6,240 |
) |
|
|
( i 5,125 |
) |
|
Receivables from vendors, net |
|
$ |
i 278,501 |
|
|
$ |
i 286,327 |
|
12
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
Property and equipment, net:
|
|
|
As of |
|
|||||
|
|
|
|
|
|
||||
|
Land |
|
$ |
i 18,768 |
|
|
$ |
i 18,400 |
|
|
Equipment, computers and software |
|
|
i 151,403 |
|
|
|
i 143,791 |
|
|
Furniture and fixtures |
|
|
i 31,177 |
|
|
|
i 30,355 |
|
|
Buildings, building improvements and leasehold improvements |
|
|
i 149,342 |
|
|
|
i 147,830 |
|
|
Construction-in-progress |
|
|
i 2,014 |
|
|
|
i 1,732 |
|
|
Total property and equipment, gross |
|
$ |
i 352,704 |
|
|
$ |
i 342,108 |
|
|
Less: Accumulated depreciation |
|
|
( i 197,963 |
) |
|
|
( i 184,464 |
) |
|
Property and equipment, net |
|
$ |
i 154,741 |
|
|
$ |
i 157,645 |
|
Depreciation expense was $ i 5,668 and $ i 11,167, respectively, for the three and six months ended May 31, 2021 and $ i 5,837 and $ i 11,701, respectively, for the three and six months ended May 31, 2020.
i
Goodwill:
|
|
|
Amount |
|
|
|
|
Balance as of November 30, 2020 |
|
$ |
i 423,885 |
|
|
|
Foreign exchange translation |
|
|
i 4,544 |
|
|
|
Balance as of May 31, 2021 |
|
$ |
i 428,429 |
|
|
Intangible assets, net:
|
|
|
As of May 31, 2021 |
|
|
As of November 30, 2020 |
|
||||||||||||||||||
|
|
|
Gross Amounts |
|
|
Accumulated Amortization |
|
|
Net Amounts |
|
|
Gross Amounts |
|
|
Accumulated Amortization |
|
|
Net Amounts |
|
||||||
|
Customer relationships and lists |
|
$ |
i 176,759 |
|
|
$ |
( i 110,365 |
) |
|
$ |
i 66,394 |
|
|
$ |
i 175,812 |
|
|
$ |
( i 101,095 |
) |
|
$ |
i 74,717 |
|
|
Vendor lists |
|
|
i 178,489 |
|
|
|
( i 90,933 |
) |
|
|
i 87,557 |
|
|
|
i 177,555 |
|
|
|
( i 82,187 |
) |
|
|
i 95,368 |
|
|
Trade name and others |
|
|
i 28,527 |
|
|
|
( i 13,995 |
) |
|
|
i 14,532 |
|
|
|
i 28,349 |
|
|
|
( i 12,387 |
) |
|
|
i 15,962 |
|
|
Total |
|
$ |
i 383,776 |
|
|
$ |
( i 215,293 |
) |
|
$ |
i 168,483 |
|
|
$ |
i 381,716 |
|
|
$ |
( i 195,669 |
) |
|
$ |
i 186,047 |
|
Amortization expense was $ i 9,373 and $ i 18,742, respectively, for the three and six months ended May 31, 2021 and $ i 9,947 and $ i 20,135, respectively, for the three and six months ended May 31, 2020.
iEstimated future amortization expense of the Company’s intangible assets is as follows:
|
Fiscal years ending November 30, |
|
|
|
|
|
2021 (remaining six months) |
|
$ |
i 18,829 |
|
|
2022 |
|
|
i 34,580 |
|
|
2023 |
|
|
i 30,739 |
|
|
2024 |
|
|
i 25,786 |
|
|
2025 |
|
|
i 22,318 |
|
|
Thereafter |
|
|
i 36,231 |
|
|
Total |
|
$ |
i 168,483 |
|
13
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Accumulated other comprehensive income (loss):
iThe components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, were as follows:
|
|
|
Unrecognized gains (losses) on defined benefit plans, net of taxes |
|
|
Unrealized gains (losses) on cash flow hedges, net of taxes |
|
|
Foreign currency translation adjustment and other, net of taxes |
|
|
Total |
|
||||
|
Balance as of November 30, 2020 |
|
$ |
( i 37,584 |
) |
|
$ |
( i 60,147 |
) |
|
$ |
( i 96,840 |
) |
|
$ |
( i 194,571 |
) |
|
Transferred to Concentrix |
|
|
i 38,655 |
|
|
|
( i 29,240 |
) |
|
|
( i 5,602 |
) |
|
|
i 3,813 |
|
|
Other comprehensive income (loss) before reclassification |
|
|
i — |
|
|
|
i 1,196 |
|
|
|
i 28,569 |
|
|
|
i 29,765 |
|
|
Reclassification of (gains) losses from Other comprehensive income (loss) |
|
|
i — |
|
|
|
i 15,824 |
|
|
|
i — |
|
|
|
i 15,824 |
|
|
Balance as of May 31, 2021 |
|
$ |
i 1,071 |
|
|
$ |
( i 72,367 |
) |
|
$ |
( i 73,873 |
) |
|
$ |
( i 145,169 |
) |
/
Refer to Note 6 - Derivative Instruments for the location of gains and losses reclassified from other comprehensive income to the Consolidated Statements of Operations.
Foreign currency translation adjustment and other, net of taxes, is comprised of foreign currency translation adjustments and unrealized gains and losses on Concentrix’ available-for-sale debt securities prior to the Separation.
iNOTE 6—DERIVATIVE INSTRUMENTS:
In the ordinary course of business, the Company is exposed to foreign currency risk, interest rate risk, equity risk, commodity price changes and credit risk. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity’s functional currency. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset a portion of the risk on expected future cash flows, earnings, net investments in certain international subsidiaries and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s hedging program is not used for trading or speculative purposes.
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded in the Consolidated Statements of Operations, or as a component of AOCI in the Consolidated Balance Sheets, as discussed below.
Cash Flow Hedges
The Company uses interest rate derivative contracts to economically convert a portion of its variable-rate debt to fixed-rate debt. The swaps have maturities at various dates through i October 2023. Gains and losses on cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of interest payments are recognized in “Interest expense and Finance charges, net” in the same period as the related expense is recognized. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into earnings in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are recorded in earnings unless they are re-designated as hedges of other transactions.
/14
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Non-Designated Derivatives
The Company uses short-term forward contracts to offset the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency of the respective entities. These contracts, which are not designated as hedging instruments, mature or settle within i twelve months. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
iThe fair values of the Company’s derivative instruments are disclosed in Note 7 - Fair Value Measurements and summarized in the table below:
|
|
|
Value as of |
|
|||||
|
Balance Sheet Line Item |
|
|
|
|
||||
|
Derivative instruments not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts (notional value) |
|
$ |
i 299,432 |
|
|
$ |
i 274,181 |
|
|
Other current assets |
|
|
i 471 |
|
|
|
i 209 |
|
|
Other accrued liabilities |
|
|
i 5,112 |
|
|
|
i 3,232 |
|
|
Interest rate swap (notional value) |
|
$ |
i — |
|
|
$ |
i 100,000 |
|
|
Other accrued liabilities |
|
|
i — |
|
|
|
i 128 |
|
|
Derivative instruments designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
Interest rate swaps (notional value) |
|
$ |
i 1,500,000 |
|
|
$ |
i 1,500,000 |
|
|
Other accrued liabilities |
|
|
i 94,080 |
|
|
|
i 115,598 |
|
Volume of Activity
The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Canadian Dollar, the Brazilian Real, the Euro, the Colombian Peso, the Chilean Peso, the Indian Rupee, the Chinese Yuan and the Japanese Yen, that will be bought or sold at maturity. The term and notional amount of interest rate swaps are determined based on management’s assessment of future interest rates and other factors such as debt maturities. The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.
15
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations
iThe following table shows the gains and losses, before taxes, of the Company’s derivative instruments designated as cash flow hedges and not designated as hedging instruments in Other Comprehensive Income (“OCI”), and the Consolidated Statements of Operations for the periods presented:
|
|
|
|
|
Three Months Ended, |
|
|
Six Months Ended, |
|
||||||||||
|
|
|
Location of Gains (Losses) in Income |
|
|
|
|
|
|
|
|
||||||||
|
Interest expense and finance charges, net |
|
|
|
$ |
( i 22,563 |
) |
|
$ |
( i 20,992 |
) |
|
$ |
( i 45,401 |
) |
|
$ |
( i 39,784 |
) |
|
Other expense, net |
|
|
|
|
( i 755 |
) |
|
|
( i 174 |
) |
|
|
( i 2,089 |
) |
|
|
( i 1,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments designated as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized in OCI on interest rate swaps |
|
|
|
$ |
( i 2,400 |
) |
|
$ |
( i 34,020 |
) |
|
$ |
i 655 |
|
|
$ |
( i 66,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on interest rate swaps reclassified from AOCI into income |
|
Interest expense and finance charges, net |
|
$ |
( i 10,657 |
) |
|
$ |
( i 8,320 |
) |
|
$ |
( i 20,983 |
) |
|
$ |
( i 13,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) recognized from foreign exchange forward contracts, net(1) |
|
Other expense, net |
|
$ |
( i 8,431 |
) |
|
$ |
i 2,916 |
|
|
$ |
( i 9,128 |
) |
|
$ |
i 5,361 |
|
|
Gains (losses) recognized from interest rate swaps, net |
|
Interest expense and finance charges, net |
|
|
i — |
|
|
|
( i 533 |
) |
|
|
( i 128 |
) |
|
|
( i 1,104 |
) |
|
Total |
|
|
|
$ |
( i 8,431 |
) |
|
$ |
i 2,383 |
|
|
$ |
( i 9,256 |
) |
|
$ |
i 4,257 |
|
|
|
(1) |
The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies. |
There were no material gain or loss amounts excluded from the assessment of effectiveness. Existing net losses in AOCI that are expected to be reclassified into earnings in the normal course of business within the next twelve months are $ i 39,413.
Offsetting of Derivatives
The Company’s derivative instruments are generally governed by standard International Swaps and Derivatives Association, Inc. master agreements, which generally do not require the Company to post any collateral, and specify netting rights, and other customary provisions including events of defaults and termination rights.
i 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 Balance Sheets, the total derivative asset and liability positions would have been reduced by $ i 257 each as of May 31, 2021 and $ i 139 each as of November 30, 2020.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s obligations to the counterparties. The Company manages the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions.
i
NOTE 7—FAIR VALUE MEASUREMENTS:
The Company’s fair value measurements are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
i /16
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 May 31, 2021 |
|
|
As of November 30, 2020 |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
Fair value measurement category |
|
|
|
|
|
|
Fair value measurement category |
|
||||||||||||||||||
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
i 402 |
|
|
$ |
i 402 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 7,915 |
|
|
$ |
i 7,915 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
Marketable equity securities |
|
|
i 2,924 |
|
|
|
i 2,924 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 3,050 |
|
|
|
i 3,050 |
|
|
|
i — |
|
|
|
i — |
|
|
Forward foreign currency exchange contracts |
|
|
i 471 |
|
|
|
i — |
|
|
|
i 471 |
|
|
|
i — |
|
|
|
i 209 |
|
|
|
i — |
|
|
|
i 209 |
|
|
|
i — |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
$ |
i 5,112 |
|
|
$ |
i — |
|
|
$ |
i 5,112 |
|
|
$ |
i — |
|
|
$ |
i 3,232 |
|
|
$ |
i — |
|
|
$ |
i 3,232 |
|
|
$ |
i — |
|
|
Interest rate swaps |
|
|
i 94,080 |
|
|
|
i — |
|
|
|
i 94,080 |
|
|
|
i — |
|
|
|
i 115,725 |
|
|
|
i — |
|
|
|
i 115,725 |
|
|
|
i — |
|
The Company’s cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of i three months or less. The carrying values of cash equivalents approximate fair value since they are near their maturity. Investments in marketable equity securities, primarily comprising investments in other companies’ equity securities as per local customary business practice, are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of 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 LIBOR spot and forward rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of May 31, 2021 and November 30, 2020.
The carrying values of 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 carrying value of the Company’s term loans approximate their fair value since they bear interest rates that are similar to existing market rates.
During the six months ended May 31, 2021, there were i no transfers between the fair value measurement category levels.
i
NOTE 8—ACCOUNTS RECEIVABLE ARRANGEMENTS:
The Company has an uncommitted supply-chain financing program with a global financial institution under which trade accounts receivable of certain customers and their affiliates may be acquired, without recourse, by the financial institution. Available capacity under this program is dependent on the level of the Company’s trade accounts receivable with these customers and the financial institution’s willingness to purchase such receivables. As of May 31, 2021 and November 30, 2020, accounts receivable sold to and held by the financial institution under this program were $ i 13,872 and $ i 15,572, respectively. Discount fees related to the sale of trade accounts receivable under this facility are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. During the three and six months ended May 31, 2021 and 2020, discount fees were not material to the Company’s results of operations.
SYNNEX Japan, the Company’s Japanese subsidiary, has arrangements with financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amounts outstanding under these arrangements that were sold, but not collected, as of May 31, 2021 and November 30, 2020 were $ i 58,254 and $ i 5,798, respectively. Discount fees related to the sale of trade accounts and notes receivable under this facility are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. During the three and six months ended May 31, 2021 and 2020, discount fees were not material to the Company’s results of operations.
The Company also has other financing agreements in North America with financial institutions (“Flooring Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay to the Company the selling price of products sold to various customers, less a discount, within approximately i 15 to i 30 days from the date of sale. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. See Note 16 - Commitments and Contingencies for further information.
/17
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
The following table summarizes the net sales financed through flooring agreements and the flooring fees incurred:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net sales financed |
|
$ |
i 578,062 |
|
|
$ |
i 524,986 |
|
|
$ |
i 1,091,647 |
|
|
$ |
i 927,528 |
|
|
Flooring fees(1) |
|
|
i 3,813 |
|
|
|
i 3,091 |
|
|
|
i 7,146 |
|
|
|
i 5,873 |
|
|
|
(1) |
Flooring fees are included within “Interest expense and finance charges, net.” |
As of May 31, 2021 and November 30, 2020, accounts receivable subject to flooring agreements were $ i 38,940 and $ i 49,461, respectively.
iNOTE 9—BORROWINGS:
iBorrowings consist of the following:
|
|
|
As of |
|
|||||
|
|
|
|
|
|
||||
|
SYNNEX Japan credit facility - revolving line of credit component |
|
$ |
i — |
|
|
$ |
i 31,627 |
|
|
SYNNEX Japan credit agreement - term loan component |
|
|
i 63,874 |
|
|
|
i 67,088 |
|
|
Other borrowings |
|
|
i 2,159 |
|
|
|
i 26,243 |
|
|
Borrowings, current |
|
$ |
i 66,033 |
|
|
$ |
i 124,958 |
|
|
|
|
|
|
|
|
|
|
|
|
SYNNEX United States credit agreement - term loan component |
|
$ |
i 500,000 |
|
|
$ |
i 500,000 |
|
|
SYNNEX United States term loan credit agreement |
|
|
i 1,000,000 |
|
|
|
i 1,000,000 |
|
|
Other term debt |
|
|
i — |
|
|
|
i 85 |
|
|
Long-term borrowings, before unamortized debt discount and issuance costs |
|
$ |
i 1,500,000 |
|
|
$ |
i 1,500,085 |
|
|
Less: unamortized debt discount and issuance costs |
|
|
( i 2,675 |
) |
|
|
( i 3,385 |
) |
|
Long-term borrowings |
|
$ |
i 1,497,325 |
|
|
$ |
i 1,496,700 |
|
SYNNEX United States accounts receivable securitization arrangement
In the United States, the Company has an accounts receivable securitization program to provide additional capital for its operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, which expires in i May 2022, the Company’s subsidiary that is the borrower under this facility could borrow up to a maximum of $ i 650,000 based upon eligible trade accounts receivable. In addition, the U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $ i 150,000. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders, that includes prevailing dealer commercial paper rates and a rate based upon LIBOR. In addition, a program fee payable on the used portion of the lenders’ commitment, accrues at i 1.25% per annum in the case of lender groups who fund their advances based on prevailing commercial paper rates, and i 1.30% per annum in the case of lender groups who fund their advances based on LIBOR (subject to a i 0.50% per annum floor). A facility fee is payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between i 0.35% per annum and i 0.45% per annum depending on the amount of outstanding advances from time to time.
Under the terms of the U.S. Arrangement, the Company and two of its U.S. subsidiaries sell, on a revolving basis, their receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by the Company's bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets.
/18
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
SYNNEX Canada accounts receivable securitization arrangement
SYNNEX Canada Limited (“SYNNEX Canada”), the Company's subsidiary in Canada, has an accounts receivable securitization program with a bank to provide additional capital for its operations. Under the terms of this program, which matures in i May 2023, SYNNEX Canada can borrow up to CAD i 100,000, or $ i 82,884, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis. The program includes an accordion feature that allows SYNNEX Canada to request an increase in the bank's commitment up to an additional CAD i 50,000, or $ i 41,442. Any amounts received under this arrangement are recorded as debt on the Company's Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables to the bank. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of i 1.00% per annum and the prevailing lender commercial paper rates. In addition, prior to an event of termination, SYNNEX Canada is obligated to pay a program fee of i 0.75% per annum based on the used portion of the commitment. After an event of termination, the program fee shall be the sum of the base rate and i 2.50% per annum, based on the used portion of the commitment. SYNNEX Canada pays a fee of i 0.40% per annum for any unused portion of the commitment up to CAD i 60,000, or $ i 49,731, and when the unused portion exceeds CAD i 60,000, or $ i 49,731, a fee of i 0.55% per annum of the unused portion of the commitment. As of both May 31, 2021 and November 30, 2020, there was i i no / outstanding balance under this arrangement.
The Company has guaranteed the performance obligations of SYNNEX Canada under this facility.
SYNNEX Japan credit facility
SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY i 15,000,000, or $ i 136,874. The credit agreement is comprised of a JPY i 7,000,000, or $ i 63,874, term loan and a JPY i 8,000,000, or $ i 72,999, revolving credit facility and expires in i November 2021. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on the Company’s consolidated leverage ratio, and currently equals i 0.70% per annum. The unused line fee on the revolving credit facility is currently i 0.10% per annum based on the Company's consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. The Company has guaranteed the obligations of SYNNEX Japan under this facility.
SYNNEX United States credit agreement
In the United States, the Company has a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement includes a $ i 600,000 commitment for a revolving credit facility and a term loan in the original principal amount of $ i 1,200,000. The Company may request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $ i 500,000, plus an additional amount which is dependent upon the Company's pro forma first lien leverage ratio, as calculated under the U.S. Credit Agreement. The U.S. Credit Agreement matures in i September 2022. The remaining outstanding principal of the term loan is payable on maturity. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at the Company's option, plus a margin. The margin for LIBOR loans ranges from i 1.25% to i 2.00% and the margin for base rate loans ranges from i 0.25% to i 1.00%, provided that LIBOR shall not be less than i zero. The base rate is a variable-rate which is the highest of (a) the Federal Funds Rate, plus a margin of i 0.5%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus i 1.0%. The unused revolving credit facility commitment fee ranges from i 0.175% to i 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on the Company’s consolidated leverage ratio, as calculated under the U.S. Credit Agreement. The Company’s obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of the Company's United States domestic subsidiaries.
SYNNEX United States term loan credit agreement
The Company has a senior secured term loan credit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions in the original principal amount of $ i 1,800,000. The U.S. Term Loan Credit Agreement matures in i October 2023. The remaining outstanding principal is payable on maturity. Interest on borrowings under the U.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at the Company’s option, plus a margin. The margin for LIBOR loans ranges from i 1.25% to i 1.75% and the margin for base rate loans ranges from i 0.25% to i 0.75%, provided that LIBOR shall not be less than i zero. The base rate is a variable-rate which is the highest of (a) i 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus i 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. During the period in which the term loans were available to be drawn, the Company paid term loan commitment fees. The margins above the Company's applicable interest rates are, and the term loan commitment fee were, based on the Company's consolidated leverage ratio as calculated under the U.S. Term Loan Credit Agreement. The Company's obligations under the U.S. Term Loan Credit Agreement are secured by substantially all of the Company’s and certain of its domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of its domestic subsidiaries.
19
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
SYNNEX new credit agreement
In connection with the Merger Agreement described in Note 17 - Pending Merger, the Company has entered into a new credit agreement, dated as of April 16, 2021 (the “New Credit Agreement”) with the lenders party thereto and Citibank, N.A., as agent, pursuant to which the Company has received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $ i 3,500,000, including a $ i 200,000 letter of credit sub-facility, which revolving credit facility (the “new revolving credit facility”) may, subject to the lenders’ discretion, potentially be increased by up to an aggregate amount of $ i 500,000 and for the extension of a senior unsecured term loan (the “new term loan” and, together with the new revolving credit facility, the “new credit facilities”) in an aggregate principal amount not to exceed $ i 1,500,000. The commitments under the new credit facilities are subject to customary conditions. The borrower under the new credit facilities is the Company. There are no guarantors of the new credit facilities.
i The commitments under the new credit facilities terminate upon the earliest to occur of (i) with respect to the revolving commitments, the fifth anniversary of the closing date (subject to two one-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date), (ii) in the event SYNNEX voluntarily elects to reduce such commitments to zero, on such date, or subject to certain conditions, following an event of default, (iii) if the closing does not occur prior to such date, five business days after the termination date of the Merger Agreement, and (iv) the date that the Merger Agreement is terminated by SYNNEX in a signed writing in accordance with the terms of the Merger Agreement.
The funding under the new credit facilities is subject to customary closing conditions.
The proceeds of the loans under the new term loan will be used to provide a portion of the debt financing required to refinance certain indebtedness of the Company and Tech Data, which is required to consummate the proposed transactions related to the Merger, together with the payment of related fees and expenses, and the borrowings (if any) under the new revolving credit facility on the closing date of the proposed transactions will be used to pay fees and expenses related to the Merger and related transactions. After the closing date, the revolving credit facility will, subject to customary conditions, be available for general corporate purposes or any other purpose not prohibited by the New Credit Agreement.
i The outstanding principal amount of the term loan will be, once advanced, payable in quarterly installments in an amount equal to 1.25% of the original principal balance commencing on the last day of the first full fiscal quarter after the closing date of the new credit facilities, with the outstanding principal amount of the term loans due in full on the maturity date. Loans borrowed under the New Credit Agreement bear interest, in the case of LIBOR (or successor) rate loans, at a per annum rate equal to the applicable LIBOR (or successor) rate, plus the applicable margin, which may range from i 1.125% to i 1.75%, based on the Company’s public debt rating (as defined in the New Credit Agreement). The applicable margin on base rate loans is i 1.00% less than the corresponding margin on LIBOR (or successor rate) based loans. In addition to these borrowing rates, there is a commitment fee which ranges from i 0.125% to i 0.300% on any unused commitment under the new revolving credit facility based on the Company’s public debt rating.
The New Credit Agreement contains various loan covenants that will restrict the ability of the Company and its subsidiaries to take certain actions that are customary for similar facilities for similarly rated borrowers. The New Credit Agreement also contains financial covenants which will require compliance with a maximum debt to EBITDA ratio and a minimum interest coverage ratio, in each case tested on the last day of any fiscal quarter commencing with the first full fiscal quarter to occur after the closing date of the new credit facilities. The New Credit Agreement also contains various customary events of default, including with respect to a change of control of the Company.
On March 22, 2021, the Company had entered into a debt commitment letter (the “Commitment Letter”), under which Citigroup Global Markets Inc. and certain other financing institutions joining thereto pursuant to the terms thereof committed to provide (i) a $ i 1.5 billion senior unsecured term bridge facility (the "Term Loan A Bridge Facility"), (ii) a $ i 2.5 billion senior unsecured term bridge facility (the “Bridge Facility”) and (iii) a $ i 3.5 billion senior unsecured revolving bridge facility (the "Bridge Revolving Facility"), subject to the satisfaction of certain customary closing conditions. On April 16, 2021, (i) the $ i 1.5 billion commitment with respect to Term Loan A Bridge Facility under the Commitment Letter and (ii) the $ i 3.5 billion commitment with respect to Bridge Revolving Facility under the Commitment Letter were reduced to i zero, in each case, as a result of SYNNEX entering into the New Credit Agreement.
SYNNEX Canada revolving line of credit
SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD i 50,000, or $ i 41,442. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from i 0.50% to i 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 May 31, 2021 and November 30, 2020, there were i i no / borrowings outstanding under this credit facility.
20
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Other borrowings and term debt
Other borrowings and term debt include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As of May 31, 2021, commitments for these revolving credit facilities aggregated $ i 45,625. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these lines of credit facilities are guaranteed by the Company or secured by eligible accounts receivable.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at May 31, 2021 exchange rates.
Future principal payments
iAs of May 31, 2021, future principal payments under the above loans are as follows:
|
Fiscal Years Ending November 30, |
|
|
|
|
|
2021 (remaining six months) |
|
$ |
i 66,084 |
|
|
2022 |
|
|
i 500,000 |
|
|
2023 |
|
|
i 1,000,000 |
|
|
Total |
|
$ |
i 1,566,084 |
|
Interest expense and finance charges
The total interest expense and finance charges for the Company's borrowings were $ i 23,561 and $ i 47,866, respectively, for the three and six months ended May 31, 2021, and $ i 34,855 and $ i 72,303, respectively for the three and six months ended May 31, 2020. The variable interest rates ranged between i i 0.77 / % and i i 4.46 / % during both the three and six months ended May 31, 2021 and between i i 0.77 / % and i i 8.41 / % during both the three and six months ended May 31, 2020.
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 intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase the Company’s stock, create liens, cancel debt owed to the Company, enter into agreements with affiliates, modify the nature of the Company’s business, enter into sale-leaseback transactions, make certain investments, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of May 31, 2021, the Company was in compliance with all material covenants for the above arrangements.
21
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
NOTE 10—EARNINGS PER COMMON SHARE:
iThe following table sets forth the computation of basic and diluted earnings per common share for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common stockholders(1) |
|
$ |
i 91,869 |
|
|
$ |
i 49,619 |
|
|
$ |
i 178,807 |
|
|
$ |
i 117,254 |
|
|
Income from discontinued operations attributable to common stockholders(1) |
|
|
i — |
|
|
|
i 6,691 |
|
|
|
i — |
|
|
|
i 60,142 |
|
|
Net income attributable to common stockholders(1) |
|
$ |
i 91,869 |
|
|
$ |
i 56,309 |
|
|
$ |
i 178,807 |
|
|
$ |
i 177,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares - basic |
|
|
i 51,192 |
|
|
|
i 50,849 |
|
|
|
i 51,169 |
|
|
|
i 50,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
i 1.79 |
|
|
$ |
i 0.98 |
|
|
$ |
i 3.49 |
|
|
$ |
i 2.31 |
|
|
Discontinued operations |
|
|
i — |
|
|
|
i 0.13 |
|
|
|
i — |
|
|
|
i 1.18 |
|
|
Total basic net earnings per share |
|
$ |
i 1.79 |
|
|
$ |
i 1.11 |
|
|
$ |
i 3.49 |
|
|
$ |
i 3.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common stockholders(1) |
|
$ |
i 91,879 |
|
|
$ |
i 49,621 |
|
|
$ |
i 178,823 |
|
|
$ |
i 117,260 |
|
|
Income from discontinued operations attributable to common stockholders(1) |
|
|
i — |
|
|
|
i 6,691 |
|
|
|
i — |
|
|
|
i 60,146 |
|
|
Net income attributable to common stockholders(1) |
|
$ |
i 91,879 |
|
|
$ |
i 56,312 |
|
|
$ |
i 178,823 |
|
|
$ |
i 177,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares - basic |
|
|
i 51,192 |
|
|
|
i 50,849 |
|
|
|
i 51,169 |
|
|
|
i 50,832 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units |
|
|
i 516 |
|
|
|
i 198 |
|
|
|
i 467 |
|
|
|
i 305 |
|
|
Weighted-average number of common shares - diluted |
|
|
i 51,707 |
|
|
|
i 51,047 |
|
|
|
i 51,636 |
|
|
|
i 51,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
i 1.78 |
|
|
$ |
i 0.97 |
|
|
$ |
i 3.46 |
|
|
$ |
i 2.29 |
|
|
Discontinued operations |
|
|
i — |
|
|
|
i 0.13 |
|
|
|
i — |
|
|
|
i 1.18 |
|
|
Total basic net earnings per share |
|
$ |
i 1.78 |
|
|
$ |
i 1.10 |
|
|
$ |
i 3.46 |
|
|
$ |
i 3.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted earnings per share calculation |
|
|
i 3 |
|
|
|
i 194 |
|
|
|
i 11 |
|
|
|
i 104 |
|
|
|
(1) |
Restricted stock awards granted by the Company are considered participating securities. Income available to participating securities was immaterial in all periods presented. |
NOTE 11—GEOGRAPHIC INFORMATION:
iThe Company attributes revenues from external customers to the country from where products are delivered. Shown below are the countries accounted for 10% or more of the Company’s revenue and property and equipment, net, for the periods presented:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
i 4,320,725 |
|
|
$ |
i 3,426,822 |
|
|
$ |
i 7,953,903 |
|
|
$ |
i 6,463,866 |
|
|
Others |
|
|
i 1,536,100 |
|
|
|
i 1,044,106 |
|
|
|
i 2,841,936 |
|
|
|
i 2,088,086 |
|
|
Total |
|
$ |
i 5,856,825 |
|
|
$ |
i 4,470,928 |
|
|
$ |
i 10,795,839 |
|
|
$ |
i 8,551,952 |
|
22
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
|
|
|
As of |
|
|||||
|
|
|
|
|
|
||||
|
Property and equipment, net: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
i 122,947 |
|
|
$ |
i 126,160 |
|
|
Others |
|
|
i 31,794 |
|
|
|
i 31,485 |
|
|
Total |
|
$ |
i 154,741 |
|
|
$ |
i 157,645 |
|
i
NOTE 12—RELATED PARTY TRANSACTIONS:
The Company has a business relationship with MiTAC Holdings Corporation (“MiTAC Holdings”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became the Company's primary investor through its affiliates. As of both May 31, 2021 and November 30, 2020, MiTAC Holdings and its affiliates beneficially owned approximately i i 18 / % of the Company’s outstanding common stock. Mr. Matthew Miau, Chairman Emeritus of the Company’s Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.
Beneficial ownership of the Company’s common stock by MiTAC Holdings
iAs noted above, MiTAC Holdings and its affiliates in the aggregate beneficially owned approximately 18% of the Company’s outstanding common stock as of May 31, 2021. These shares are owned by the following entities:
|
|
|
|
|
As of May 31, 2021 |
|
|
|
MiTAC Holdings(1) |
|
|
i 5,300 |
|
||
|
Synnex Technology International Corp.(2) |
|
|
i 3,860 |
|
||
|
Total |
|
|
i 9,160 |
|
||
_________________________
|
(1) |
|
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes i 192 shares held directly by Mr. Miau, i 217 shares indirectly held by Mr. Miau through a charitable remainder trust, and i 190 shares held by his spouse. |
|
(2) |
|
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of i 14.05% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of i 15.65% 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 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.
iThe following table presents the Company's transactions with MiTAC Holdings and its affiliates for the periods indicated:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Purchases of inventories and services |
|
$ |
i 48,602 |
|
|
$ |
i 55,328 |
|
|
$ |
i 89,759 |
|
|
$ |
i 98,573 |
|
|
Sale of products to MiTAC Holdings and affiliates |
|
|
i 242 |
|
|
|
i 189 |
|
|
|
i 460 |
|
|
|
i 453 |
|
|
Payments made for rent and overhead costs for use of facilities of MiTAC Holdings and affiliates, net |
|
|
i 47 |
|
|
|
i 34 |
|
|
|
i 79 |
|
|
|
i 64 |
|
The following table presents the Company’s receivable from and payable to MiTAC Holdings and its affiliates for the periods presented:
|
|
|
|
|
|
||||
|
Receivable from related parties (included in Accounts receivable, net) |
|
$ |
i 13,015 |
|
|
$ |
i 26,133 |
|
|
Payable to related parties (included in Accounts payable) |
|
|
i 23,617 |
|
|
|
i 49,603 |
|
The Company’s business relationship with MiTAC Holdings and its affiliates has been informal and is generally not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. The Company negotiates pricing and other material terms on a case-by-case basis with MiTAC Holdings and affiliates. The Company has adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by its Audit Committee, which is composed solely of independent directors. In addition, Mr. Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors.
/23
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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.
i
NOTE 13—EMPLOYEE BENEFIT PLANS:
The Company has 401(k) plans in the United States under which eligible employees may contribute up to the maximum amount as provided by law. Employees become eligible to participate in these plans on the first day of the month after their employment date. The Company may make discretionary contributions under the plans. Employees in certain international subsidiaries of the Company are covered by government-mandated defined contribution plans. During the three and six months ended May 31, 2021, the Company contributed $ i 1,529 and $ i 2,564, respectively, to defined contribution plans. During the three and six months ended May 31, 2020, the Company contributed $ i 1,250 and $ i 2,216, respectively, to defined contribution plans.
The Company has a deferred compensation plan for certain directors and officers. Distributions under the plan are subject to Section 409A of the United States Tax Code. The Company may invest balances in the plan in trading securities reported on recognized exchanges. As of May 31, 2021 and November 30, 2020, the deferred compensation liability balance was $ i 4,698 and $ i 4,628, respectively.
Defined Benefit Plans
The Company’s defined benefit plans sponsored by certain international subsidiaries are not material to operations.
/i
NOTE 14—EQUITY:
Share repurchase program
In June 2020, the Board of Directors authorized a three-year $ i 400,000 share repurchase program, effective July 1, 2020, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions. As of May 31, 2021, the Company had i not repurchased any shares under this program.
Dividends
On i June 24, 2021, the Company announced a cash dividend of $ i 0.20 per share payable on i July 30, 2021 to stockholders of record as of i July 16, 2021. Future dividends are subject to continued capital availability, compliance with the covenants and conditions in some of the Company's credit facilities and declaration by the Board of Directors in the best interest of the Company’s stockholders.
/ i
NOTE 15—LEASES:
The Company leases certain of its facilities and equipment under operating lease agreements, which expire in various periods through i 2030. The Company’s finance leases are not material.
iThe following table presents the various components of lease costs.
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Operating lease cost |
|
$ |
i 6,111 |
|
|
$ |
i 5,505 |
|
|
$ |
i 12,385 |
|
|
$ |
i 10,977 |
|
|
Short-term lease cost |
|
|
i 26 |
|
|
|
i 152 |
|
|
|
i 32 |
|
|
|
i 277 |
|
|
Variable lease cost |
|
|
i 756 |
|
|
|
i 836 |
|
|
|
i 1,550 |
|
|
|
i 1,949 |
|
|
Sublease income |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
( i 7 |
) |
|
Total operating lease cost |
|
$ |
i 6,893 |
|
|
$ |
i 6,493 |
|
|
$ |
i 13,967 |
|
|
$ |
i 13,196 |
|
24
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next five years and thereafter as of May 31, 2021:
|
Fiscal Years Ending November 30, |
|
|
|
|
|
2021 (remaining six months) |
|
$ |
i 12,174 |
|
|
2022 |
|
|
i 22,126 |
|
|
2023 |
|
|
i 16,200 |
|
|
2024 |
|
|
i 12,703 |
|
|
2025 |
|
|
i 7,479 |
|
|
Thereafter |
|
|
i 12,009 |
|
|
Total payments |
|
$ |
i 82,691 |
|
|
Less: imputed interest* |
|
|
i 7,188 |
|
|
Total present value of lease payments |
|
$ |
i 75,503 |
|
*Imputed interest represents the difference between undiscounted cash flows and discounted cash flows.
/ iThe following amounts were recorded in the Company's Consolidated Balance Sheet as of:
|
Operating leases |
|
Balance sheet location |
|
|
|
|
||||
|
Operating lease Right of Use ("ROU") assets |
|
Other assets, net |
|
$ |
i 69,779 |
|
|
$ |
i 70,575 |
|
|
Current operating lease liabilities |
|
Other accrued liabilities |
|
|
i 23,868 |
|
|
|
i 23,055 |
|
|
Noncurrent operating lease liabilities |
|
Other long-term liabilities |
|
|
i 51,635 |
|
|
|
i 53,130 |
|
i
The following table presents supplemental cash flow information related to the Company's operating leases for the six months ended May 31, 2021 and May 31, 2020. Cash payments related to variable lease costs and short-term leases are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below:
|
|
|
Six months ended |
|
|||||
|
Cash flow information |
|
|
|
|
||||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
i 12,370 |
|
|
$ |
i 11,177 |
|
|
Non-cash ROU assets obtained in exchange for lease liabilities (subsequent to initial adoption) |
|
|
i 11,066 |
|
|
|
i 1,296 |
|
i
The weighted-average remaining lease term and discount rate were as follows:
|
|
|
Six months ended |
|
|||||
|
Operating lease term and discount rate |
|
|
|
|
||||
|
Weighted-average remaining lease term (years) |
|
|
4.49 |
|
|
|
4.50 |
|
|
Weighted-average discount rate |
|
|
i 3.73 |
% |
|
|
i 4.40 |
% |
25
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
NOTE 16—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of May 31, 2021 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 8 - 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 May 31, 2021 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to these inventory repurchase obligations is remote.
From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, from time to time, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company evaluates these claims and records the related liabilities. It is possible that the ultimate liabilities could differ from the amounts recorded.
Under the separation and distribution agreement with Concentrix that was entered into in connection with the Separation, SYNNEX agreed to indemnify Concentrix, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to SYNNEX as part of the Separation. Similarly, Concentrix agreed to indemnify SYNNEX, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Concentrix as part of the Separation. SYNNEX expects Concentrix to fully perform under the terms of the separation and distribution agreement.
Under the separation and distribution agreement, SYNNEX and Concentrix agreed to cooperate with each other in managing litigation related to both companies' businesses. The separation and distribution agreement also included provisions that assign to each company responsibility for managing pending and future litigation related to the general corporate matters of SYNNEX arising prior to the Separation.
Under the tax matters agreement with Concentrix that was entered into in connection with the Separation, if the spin-off fails to qualify for tax-free treatment, Concentrix is generally required to indemnify the Company for any taxes resulting from the spin-off (and related costs and other damages) to the extent such amounts result from (1) an acquisition of all or a portion of the Concentrix’ equity securities or assets by any means, (2) any action or failure to act by Concentrix after the distribution affecting the voting rights of Concentrix’ stock, (3) other actions or failures to act by Concentrix’, or (4) certain breaches of the Concentrix’ agreements and representations in the tax matters agreement.
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.
26
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three and six months ended May 31, 2021 and 2020
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
NOTE 17—PENDING MERGER:
On March 22, 2021, the Company announced that it had entered into an agreement and plan of merger (the “Merger Agreement”) to acquire i 100% of the parent company of Tech Data Corporation, a Delaware Corporation ("Tech Data") in a cash and stock transaction (the "Merger"). The consideration payable to the stockholder that owns Tech Data in connection with the Merger (the “Merger Consideration”) consists of $ i 1.61 billion in cash and i 44 million shares of common stock of SYNNEX. Following the proposed Merger, the sole stockholder of Tech Data will own approximately i 45.9% of SYNNEX common stock on a fully diluted basis, based on the Company’s shares outstanding as of May 31, 2021. If the Merger is not consummated, then under certain circumstances the Company would be obligated to pay Tech Data a termination fee ranging from approximately $ i 41 million to $ i 132 million.
The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities. For the twelve months ended January 31, 2021, Tech Data generated $ i 36.37 billion in revenue and approximately $ i 21 million of net income.
The Company and Tech Data filed their respective notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the Merger with the Federal Trade Commission and Department of Justice. The waiting period for filings made by both SYNNEX and Tech Data expired on June 4, 2021.
On June 30, 2021, the Company received stockholder approval for the issuance of shares of SYNNEX common stock in connection with the initial merger contemplated by the Merger Agreement. Certain foreign regulatory approvals are pending. The Company expects the transaction to close in the second half of the calendar year 2021.
As discussed in Note 9 – Borrowings, the Company has secured financing arrangements to finance the Merger.
Additionally, prior to the completion of the proposed merger, the Company's ability to issue dividends outside its normal practice or repurchase shares of common stock is limited.
/27
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. Amounts in certain tables may not add or compute due to rounding.
When used in this Quarterly Report on Form 10-Q, or this “Report”, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “allows,” “can,” “may,” “could,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about market trends, our business model and our services, our business and market strategy, future growth, including expansion of our product and service lines, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring; and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, our revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers and suppliers, customer and supplier contract terms, customer forecasts and its impact on us, relationships with our suppliers, adequacy of our facilities, ability to obtain comparable leases, ability to manage and communicate with international resources, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, expansion of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, including our proposed acquisition of Tech Data and the timing and impact thereof, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, including the impact of any change to our credit rating, cash held by our international subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, dependency on personnel, pricing pressures, cybersecurity and compliance with related rules and regulations, impact of rules and regulations affecting public companies, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of our accounting policies and recently issued accounting pronouncements, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, our securitization programs and credit facilities, our investments in working capital and personnel and our succession planning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein and risks related to the separation, the COVID-19 global pandemic, 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, change in the market for our customers' products, employee turnover, changes in value of foreign currencies and interest rates and other risk factors contained below under Part I, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We do not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, unless otherwise required by law.
In the sections of this Report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all references to “SYNNEX,” “we,” “us,” “our” or the “Company” mean SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments.
SYNNEX, the SYNNEX Logo, and all other SYNNEX company, product and services names and slogans are trademarks or registered trademarks of SYNNEX Corporation. SYNNEX, and the SYNNEX Logo Reg. U.S. Pat. & Tm. Off. Other names and marks are the property of their respective owners.
Overview
We are a Fortune 200 corporation and a leading provider of a comprehensive range of distribution, systems design and integration solutions for the technology industry.
On March 22, 2021, we announced that we had entered into an agreement and plan of merger (the “Merger Agreement”) to acquire 100% of the parent company of Tech Data Corporation, a Delaware Corporation ("Tech Data") in a cash and stock transaction (the "Merger"). The consideration payable to the stockholder that owns Tech Data consists of $1.61 billion in cash and 44 million shares of our common stock (the “Merger Consideration”). Following the proposed transaction, the sole stockholder of Tech Data will own approximately 45.9% of our stock on a fully diluted basis as of May 31, 2021. If the Merger is not consummated, then under certain circumstances we would be obligated to pay Tech Data a termination fee ranging from $40.9 million to $131.7 million.
The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities. For the twelve months ended January 31, 2021, Tech Data generated approximately $36 billion in revenue and approximately $21 million of net income.
28
Tech Data and we filed their respective notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the Merger with the Federal Trade Commission and Department of Justice. The waiting period for filings made by both Tech Data and us expired on June 4, 2021.
On June 30, 2021, we received stockholder approval for the issuance of shares of SYNNEX common stock in connection with the initial merger contemplated by the Merger Agreement. Certain foreign regulatory approvals are pending. We expect the transaction to close in the second half of the calendar year 2021.
As discussed in Note 9 – Borrowings to the Consolidated Financial Statements, we have secured financing arrangements to finance the Merger.
On December 1, 2020, we completed the previously announced separation of our customer experience services business (the “Separation”), which was accomplished by the distribution of one hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”) to our stockholders as of the close of business on November 17, 2020, the record date for the distribution. Our stockholders received one share of Concentrix common stock for every share of our common stock held at the close of business on the record date. Concentrix is now an independent public company trading under the symbol “CNXC” on the Nasdaq Stock Market. After the Separation, we do not beneficially own any shares of Concentrix’ common stock and beginning December 1, 2020, we no longer consolidate Concentrix within our financial results or reflect the financial results of Concentrix within our continuing results of operations. We distributed a total of approximately 51.6 million shares of Concentrix common stock to our stockholders. In connection with the Separation, we have entered into a separation and distribution agreement, as well as various other agreements with Concentrix that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide certain limited services to us following the Separation.
The historical results of operations and financial positions of Concentrix are reported as discontinued operations in our Consolidated Financial Statements. For further information on discontinued operations, see Note 3 - Discontinued Operations, to the Consolidated Financial Statements in Item 1 of Part I. Pursuant to the Separation of the Concentrix segment, we operate in a single reportable segment, which represents an aggregation of our four geographic operating segments of United States, Canada, Japan and Latin America.
We distribute peripherals, information technology (“IT”) systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics (“CE”) and complementary products. We also provide systems design and integration solutions.
We distribute more than 40,000 technology products (as measured by active SKUs) from more than 500 IT, CE and original equipment manufacturers (“OEM”), suppliers to more than 25,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan, Mexico 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, 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 aftermarket 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, logistics services and supply chain management. Additionally, we provide our customers with systems design and integration solutions for data center servers and networking solutions built specific to our customers’ workloads and data center environments.
Our 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 business, we are highly dependent on the end-market demand for IT and CE products, and on our partners’ strategic initiatives and business models. This end-market demand is influenced by many factors including the introduction of new IT and CE products and software by OEMs, replacement cycles for existing IT and CE products, trends toward cloud computing, overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT and CE industries and increased price-based competition.
We have been in business since 1980 and are headquartered in Fremont, California. We have significant operations in North and South America, Asia-Pacific, Europe and Africa. We were originally incorporated in the State of California as COMPAC Microelectronics, Inc. in November 1980, and we changed our name to SYNNEX Information Technologies, Inc. in February 1994. We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003. As of May 31, 2021, we had over 8,800 full-time and temporary employees worldwide.
In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”), which was characterized as a pandemic by the World Health Organization in March 2020. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets. The impact of the COVID-19 pandemic on our business is discussed at the appropriate places in the discussion of the results of our operations for the three and
29
six months ended May 31, 2021. The disruptions due to COVID-19 have impacted our business including logistics operations. We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, vendors or customers and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in the preparation of the financial statements included in this report on Form 10-Q, required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.
Critical Accounting Policies and Estimates
During the six months ended May 31, 2021, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2020, except as such policies relate to the Concentrix business.
During the six months ended May 31, 2021, we adopted certain other new accounting pronouncements. The impact of adoption of these pronouncements was not material to our consolidated financial statements. See Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements for further information.
Acquisitions
We continually seek to augment organic growth in our business with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. 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. We are also strategically focused on further increasing our scale to support our customers.
Results of Operations
The following table sets forth, for the indicated periods, data as percentages of total revenue:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
Statements of Operations Data: |
|
|
|
|
|
|
|
|
||||||||
|
Revenue |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
Cost of Revenue |
|
|
(94.38 |
)% |
|
|
(93.86 |
)% |
|
|
(94.13 |
)% |
|
|
(93.81 |
)% |
|
Gross profit |
|
|
5.62 |
% |
|
|
6.14 |
% |
|
|
5.87 |
% |
|
|
6.19 |
% |
|
Selling, general and administrative expenses |
|
|
(3.10 |
)% |
|
|
(4.17 |
)% |
|
|
(3.19 |
)% |
|
|
(3.99 |
)% |
|
Operating income from continuing operations |
|
|
2.53 |
% |
|
|
1.97 |
% |
|
|
2.68 |
% |
|
|
2.21 |
% |
|
Interest expense and finance charges, net |
|
|
(0.39 |
)% |
|
|
(0.47 |
)% |
|
|
(0.42 |
)% |
|
|
(0.47 |
)% |
|
Other expense, net |
|
|
(0.01 |
)% |
|
|
(0.00 |
)% |
|
|
(0.02 |
)% |
|
|
(0.01 |
)% |
|
Income from continuing operations before income taxes |
|
|
2.13 |
% |
|
|
1.50 |
% |
|
|
2.24 |
% |
|
|
1.73 |
% |
|
Provision for income taxes |
|
|
(0.54 |
)% |
|
|
(0.38 |
)% |
|
|
(0.57 |
)% |
|
|
(0.34 |
)% |
|
Income from continuing operations |
|
|
1.59 |
% |
|
|
1.12 |
% |
|
|
1.68 |
% |
|
|
1.39 |
% |
|
Income from discontinued operations, net of taxes |
|
|
0.00 |
% |
|
|
0.15 |
% |
|
|
0.00 |
% |
|
|
0.71 |
% |
|
Net income |
|
|
1.59 |
% |
|
|
1.27 |
% |
|
|
1.68 |
% |
|
|
2.10 |
% |
The financial results of the former Concentrix business are presented as income from discontinued operations, net of taxes in the Statements of Operations data.
Due to the ongoing impact of the COVID-19 pandemic, current results and financial condition discussed herein may not be indicative of future operating results and trends.
30
Certain non-GAAP financial information
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
|
|
• |
Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue for the three and six months ended May 31, 2021 in the billing currency using their comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. |
|
|
• |
Non-GAAP operating income, which is operating income adjusted to exclude transaction-related and integration expenses, amortization of intangible assets and share-based compensation expense. |
|
|
• |
Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue. |
|
|
• |
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is net income before interest, taxes, depreciation and amortization, adjusted to exclude other expense, net, transaction-related and integration expenses, share-based compensation expense and income from discontinued operations, net of taxes. |
|
|
• |
Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of (i) transaction-related and integration expenses, (ii) amortization of intangible assets, (iii) share-based compensation. |
Transaction-related expenses typically consist of acquisition, integration, and divestiture related costs and are expensed as incurred. These expenses primarily represent costs for legal, regulatory, consulting and advisory services. From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses.
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. These non-GAAP financial measures also exclude amortization of intangible assets. Our acquisition activities have resulted in the recognition of intangible assets which consist primarily of customer relationships, vendor lists and technology. Definite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations within each segment. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the sale of our products and the services performed for our clients. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP adjustments which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and our investors’ ability to compare our past financial performance with current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with data presented in accordance with GAAP.
In prior periods, SYNNEX has excluded other items relevant to those periods for purposes of its non-GAAP financial measures.
31
Non-GAAP Financial Information:
The following table provides the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
|
Revenue |
|
$ |
5,856,825 |
|
|
$ |
4,470,928 |
|
|
$ |
10,795,839 |
|
|
$ |
8,551,952 |
|
|
Foreign currency translation |
|
|
(61,513 |
) |
|
|
|
|
|
|
(76,769 |
) |
|
|
|
|
|
Revenue in constant currency |
|
$ |
5,795,312 |
|
|
$ |
4,470,928 |
|
|
$ |
10,719,070 |
|
|
$ |
8,551,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
147,901 |
|
|
$ |
88,144 |
|
|
$ |
289,649 |
|
|
$ |
188,589 |
|
|
Transaction-related and integration expenses |
|
|
5,935 |
|
|
|
63 |
|
|
|
5,935 |
|
|
|
354 |
|
|
Amortization of intangibles |
|
|
9,373 |
|
|
|
9,947 |
|
|
|
18,742 |
|
|
|
20,135 |
|
|
Share-based compensation |
|
|
6,750 |
|
|
|
3,626 |
|
|
|
11,637 |
|
|
|
8,225 |
|
|
Non-GAAP operating income |
|
$ |
169,959 |
|
|
$ |
101,780 |
|
|
$ |
325,963 |
|
|
$ |
217,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin |
|
|
2.53 |
% |
|
|
1.97 |
% |
|
|
2.68 |
% |
|
|
2.21 |
% |
|
Non-GAAP operating margin |
|
|
2.90 |
% |
|
|
2.28 |
% |
|
|
3.02 |
% |
|
|
2.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
93,102 |
|
|
$ |
56,960 |
|
|
$ |
180,924 |
|
|
$ |
179,544 |
|
|
Interest expense and finance charges, net |
|
|
22,563 |
|
|
|
20,992 |
|
|
|
45,401 |
|
|
|
39,784 |
|
|
Provision for income taxes |
|
|
31,481 |
|
|
|
16,786 |
|
|
|
61,235 |
|
|
|
29,069 |
|
|
Depreciation |
|
|
5,668 |
|
|
|
5,837 |
|
|
|
11,167 |
|
|
|
11,713 |
|
|
Amortization of intangibles |
|
|
9,373 |
|
|
|
9,947 |
|
|
|
18,742 |
|
|
|
20,135 |
|
|
EBITDA |
|
$ |
162,187 |
|
|
$ |
110,522 |
|
|
$ |
317,469 |
|
|
$ |
280,245 |
|
|
Other expense, net |
|
|
755 |
|
|
|
174 |
|
|
|
2,089 |
|
|
|
1,029 |
|
|
Transaction-related and integration expenses |
|
|
5,935 |
|
|
|
63 |
|
|
|
5,935 |
|
|
|
354 |
|
|
Share-based compensation |
|
|
6,750 |
|
|
|
3,626 |
|
|
|
11,637 |
|
|
|
8,225 |
|
|
Income from discontinued operations |
|
|
— |
|
|
|
(6,768 |
) |
|
|
— |
|
|
|
(60,838 |
) |
|
Adjusted EBITDA |
|
$ |
175,627 |
|
|
$ |
107,617 |
|
|
$ |
337,130 |
|
|
$ |
229,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS from continuing operations |
|
$ |
1.78 |
|
|
$ |
0.97 |
|
|
$ |
3.46 |
|
|
$ |
2.29 |
|
|
Transaction-related and integration expenses |
|
|
0.11 |
|
|
|
— |
|
|
|
0.11 |
|
|
|
0.01 |
|
|
Amortization of intangibles |
|
|
0.18 |
|
|
|
0.19 |
|
|
|
0.36 |
|
|
|
0.39 |
|
|
Share-based compensation |
|
|
0.13 |
|
|
|
0.07 |
|
|
|
0.22 |
|
|
|
0.16 |
|
|
Income taxes related to the above (1) |
|
|
(0.11 |
) |
|
|
0.02 |
|
|
|
(0.18 |
) |
|
|
(0.17 |
) |
|
Non-GAAP diluted EPS from continuing operations |
|
$ |
2.09 |
|
|
$ |
1.26 |
|
|
$ |
3.98 |
|
|
$ |
2.68 |
|
|
|
(1) |
The tax effect of taxable and deductible non-GAAP adjustments was calculated using the effective year-to-date tax rate during the respective periods. |
Three and six Months Ended May 31, 2021 and May 31, 2020
The three months ended May 31, 2020 were the first full fiscal quarter impacted by the COVID-19 pandemic. Given the significant adverse impact of the pandemic on our fiscal 2020 second quarter results, the period over period comparisons that we discuss below are greater in magnitude than normal trends in our business.
Revenue
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||||||
|
Revenue |
|
$ |
5,856,825 |
|
|
$ |
4,470,928 |
|
|
|
31.0 |
% |
|
$ |
10,795,839 |
|
|
$ |
8,551,952 |
|
|
|
26.2 |
% |
Our revenue includes sales of products. We distribute a comprehensive range of products for the technology industry and design and integrate data center equipment. The prices of our products are highly dependent on the volumes purchased within a product category. The products we sell from one period to the next are often not comparable due to changes in product models, features and customer demand requirements.
Revenue increased during the three and six months ended May 31, 2021, as compared to the prior year period, due to continued demand for remote capability and digital transformation investments, as well as return-to-office and data center buying as businesses began to open as a
32
result of shelter in place restrictions lifting. Consequently, we experienced strong growth in notebooks, Chromebooks, cloud and collaboration solutions as well as increased demand for our projects and integration-based services.
Gross Profit
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||||||
|
Gross profit |
|
$ |
329,175 |
|
|
$ |
274,616 |
|
|
|
19.9 |
% |
|
$ |
633,742 |
|
|
$ |
529,721 |
|
|
|
19.6 |
% |
|
Gross margin |
|
|
5.62 |
% |
|
|
6.14 |
% |
|
|
|
|
|
|
5.87 |
% |
|
|
6.19 |
% |
|
|
|
|
Our 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.
Our gross profit increased, during the three and six months ended May 31, 2021, as compared to the prior year period, due to higher revenue. The decrease in gross margin during the three and six months ended May 31, 2021, as compared to the prior year period, is primarily due to product mix, driven mainly by higher volumes of notebooks and Chromebooks sold during the current fiscal quarter.
Selling, General and Administrative Expenses
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||||||
|
Selling, general and administrative expenses |
|
$ |
181,274 |
|
|
$ |
186,472 |
|
|
|
(2.8 |
)% |
|
$ |
344,094 |
|
|
$ |
341,132 |
|
|
|
0.9 |
% |
|
Percentage of revenue |
|
|
3.10 |
% |
|
|
4.17 |
% |
|
|
|
|
|
|
3.19 |
% |
|
|
3.99 |
% |
|
|
|
|
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 and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
During the three months ended May 31, 2021, selling, general and administrative expenses decreased, compared to the prior year period, primarily due to lower incremental COVID-19 related expenses and amortization of intangible assets, partially offset by higher transaction-related and integration expenses and an increase in employee related expenses. Selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period, primarily due to scale.
During the six months ended May 31, 2021, selling, general and administrative expenses increased, compared to the prior year period, primarily due to higher employee related expenses and higher transaction-related and integration expenses, partially offset by lower incremental COVID-19 related expenses and amortization of intangible assets. Selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period, primarily due to scale.
Operating Income
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||||||
|
Operating income |
|
$ |
147,901 |
|
|
$ |
88,144 |
|
|
|
67.8 |
% |
|
$ |
289,649 |
|
|
$ |
188,589 |
|
|
|
53.6 |
% |
|
Operating margin |
|
|
2.53 |
% |
|
|
1.97 |
% |
|
|
|
|
|
|
2.68 |
% |
|
|
2.21 |
% |
|
|
|
|
Operating income and margin increased during the three and six months ended May 31, 2021, compared to the prior year period, primarily due to broad-based growth across our product portfolio and reduction of expenses incurred due to the COVID-19 pandemic.
Interest Expense and Finance Charges, Net
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
|
|
||||||||||||
|
Interest expense and finance charges, net |
|
$ |
22,563 |
|
|
$ |
20,992 |
|
|
|
7.5 |
% |
|
$ |
45,401 |
|
|
$ |
39,784 |
|
|
|
14.1 |
% |
|
Percentage of revenue |
|
|
0.39 |
% |
|
|
0.47 |
% |
|
|
|
|
|
|
0.42 |
% |
|
|
0.47 |
% |
|
|
|
|
33
Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit and term loans, fees associated with third party accounts receivable flooring arrangements and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments.
During the three and six months ended May 31, 2021, our interest expense and finance charges, net, increased compared to the prior year period, primarily due to an increase in the average outstanding borrowings primarily due to the distribution to our stockholders by way of funding Concentrix in connection with the Separation. Interest expense and finance charges, net, decreased as a percentage of revenue, compared to the prior year period, primarily due to efficient working capital management.
Other Expense, Net
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
(in thousands) |
|
|
|
||||||||||||||
|
Other expense, net |
|
$ |
(755 |
) |
|
$ |
(174 |
) |
|
|
333.9 |
% |
|
$ |
(2,089 |
) |
|
$ |
(1,029 |
) |
|
|
(103.0 |
)% |
|
Percentage of revenue |
|
|
(0.01 |
)% |
|
|
(0.00 |
)% |
|
|
|
|
|
|
(0.02 |
)% |
|
|
(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, such as settlements received from class actions lawsuits.
The increase in other expense, net during the three and six months ended May 31, 2021, as compared to the prior year period, was primarily due to higher foreign currency exchange losses.
Provision for Income Taxes
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
|
|
(in thousands) |
|
|
|
||||||||||||
|
Provision for income taxes |
|
$ |
31,481 |
|
|
$ |
16,786 |
|
|
|
87.5 |
% |
|
$ |
61,235 |
|
|
$ |
29,069 |
|
|
|
110.7 |
% |
|
Percentage of income from continuing operations before income taxes |
|
|
25.27 |
% |
|
|
25.06 |
% |
|
|
|
|
|
|
25.29 |
% |
|
|
19.67 |
% |
|
|
|
|
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the basis of an estimated annual effective tax rate.
During the three and six months ended May 31, 2021, our income tax expense increased compared to the prior year period, due to higher income during the three and six months ended May 31, 2021. The effective tax rate was consistent during the three months ended May 31, 2021 as compared with the prior year period. The effective tax rate is lower during the six months ended May 31, 2020, due to tax benefits received from the exercising of stock options by employees and the reversal of uncertain tax positions.
Discontinued Operations
|
|
|
Three Months Ended |
|
|
Percent |
|
|
Six Months Ended |
|
|
Percent |
|
||||||||||||
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
Change |
|
||||||||||
|
|
|
(in thousands) |
|
|
|
|
|
|
(in thousands) |
|
|
|
||||||||||||
|
Income from discontinued operations, net of taxes |
|
$ |
— |
|
|
$ |
6,768 |
|
|
|
(100.0 |
)% |
|
$ |
— |
|
|
$ |
60,838 |
|
|
|
(100.0 |
)% |
|
Percentage of revenue |
|
|
0.00 |
% |
|
|
0.15 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.71 |
% |
|
|
|
|
Income from discontinued operation includes net income from Concentrix during the three and six months ended May 31, 2020. Concentrix was separated on December 1, 2020, consequently, there was no revenue earned or cost incurred during the three and six months ended May 31, 2021 related to the discontinued operations.
34
Liquidity and Capital Resources
Cash Conversion Cycle
|
|
|
|
|
Three Months Ended |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
(Amounts in thousands) |
|
|||||||||
|
Days sales outstanding ("DSO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
(a) |
|
$ |
5,856,825 |
|
|
$ |
6,118,571 |
|
|
$ |
4,470,928 |
|
|
Accounts receivable, net(1) |
|
(b) |
|
|
2,451,877 |
|
|
|
2,808,125 |
|
|
|
2,346,539 |
|
|
Days sales outstanding |
|
(c) = (b)/((a)/the number of days during the period) |
|
|
39 |
|
|
|
42 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days inventory outstanding ("DIO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
(d) |
|
$ |
5,527,650 |
|
|
$ |
5,752,179 |
|
|
$ |
4,196,312 |
|
|
Inventories(1) |
|
(e) |
|
|
2,684,681 |
|
|
|
2,684,076 |
|
|
|
3,033,320 |
|
|
Days inventory outstanding |
|
(f) = (e)/((d)/the number of days during the period) |
|
|
45 |
|
|
|
42 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days payable outstanding ("DPO") |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
(g) |
|
$ |
5,527,650 |
|
|
$ |
5,752,179 |
|
|
$ |
4,196,312 |
|
|
Accounts payable(1) |
|
(h) |
|
|
3,503,036 |
|
|
|
3,753,634 |
|
|
|
3,302,707 |
|
|
Days payable outstanding |
|
(i) = (h)/((g)/the number of days during the period) |
|
|
58 |
|
|
|
59 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash conversion cycle ("CCC") |
|
(j) = (c)+(f)-(i) |
|
|
26 |
|
|
|
25 |
|
|
|
43 |
|
(1) Accounts receivable, inventories and accounts payable as of November 30, 2020 and May 31, 2020 are based on pro forma presentation to reflect the separation of the Company’s erstwhile Concentrix reportable segment into an independent public company on December 1, 2020.
Cash Flows
Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, accounts receivable arrangements, our securitization programs, and our revolver programs for our working capital needs. We have financed our growth and cash needs to date primarily through cash generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. Our cash conversion cycle was 26 days and 43 days as of May 31, 2021, and 2020, respectively. The decrease in CCC as of May 31, 2021, as compared to the prior year period, was primarily due to faster turnover of our inventories and the improved collections of accounts receivables. This decrease was partially offset by the timing of payments of accounts payable.
To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions, such as the pending acquisition of Tech Data. We expect that any such expansions would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.
Net cash provided by operating activities was $304.3 million during the six months ended May 31, 2021, primarily due to a decrease in accounts receivable of $376.5 million, our net income of $180.9 million and adjustments to net income for non-cash items of $50.6 million. These cash inflows were partially offset by a decrease in accounts payable of $268.5 million, receivables from vendors of $5.5 million and a net change of $38.0 million in other operating assets and liabilities. The decrease in accounts receivable is due to efficient collections during the three months ended May 31, 2021 as well as lower revenue compared to a seasonally high fourth quarter of fiscal year 2020. The decrease in accounts payable is primarily due to timing of payments. The adjustments for non-cash items consist primarily of amortization and depreciation and share-based compensation expense.
Net cash provided by operating activities was $1.226 billion during the six months ended May 31, 2020, primarily due to net income of $179.5 million, adjustments for non-cash items of $214.3 million, decreases in accounts receivable of $621.7 million and receivables from vendors of $59.9 million, an increase in accounts payable of $227.2 million and a net change of $419.4 million in other operating assets and liabilities. These cash inflows were substantially offset by an increase in inventories of $495.6 million. The decrease in accounts receivable and vendor receivables is primarily due to lower revenue in our business including discontinuing operations during the three months ended May 31, 2020 following a seasonally high fourth quarter of fiscal year 2019. Notwithstanding the current economic uncertainties due to the impact of COVID-19, DSO in our business also decreased by approximately 3 days from the end of fiscal year 2019. The increase in accounts payable
35
and cash inflow from changes in other operating assets and liabilities reflects primarily efficient working capital management and prepayments from customers received in our business. The increase in inventories was driven by purchases related to larger projects expected to transact in subsequent quarters. The adjustments for non-cash items consist primarily of amortization and depreciation, share-based compensation expense, provision for doubtful accounts and deferred tax benefit related to both our continuing operations as well as discontinued operations.
Net cash used in investing activities during the six months ended May 31, 2021 was $7.5 million, primarily due to capital expenditures related to infrastructure investments to support growth in our business.
Net cash used in investing activities during the six months ended May 31, 2020 was $92.0 million, primarily due to capital expenditures of $84.6 million related to infrastructure investments to support growth in both of our business including discontinued operations and $2.6 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition, being paid in accordance with the original vesting schedule.
Net cash used in financing activities during the six months ended May 31, 2021 was $222.0 million, representing primarily net transfer of cash and cash equivalents of $149.9 million to Concentrix in connection with the Separation and $54.0 million representing a pay down of our revolving lines of credit with cash generated from operations. In addition, we paid stockholders dividends of $20.7 million.
Net cash used in financing activities during the six months ended May 31, 2020 was $237.6 million, representing primarily a pay down of our revolving lines of credit with cash generated from operations and scheduled quarterly repayments of our term loans aggregating $213.4 million. In addition, we paid dividends of $20.8 million in January 2020, prior to suspension of our dividends program due to the COVID-19 related economic uncertainties in March 2020.
Capital Resources
Our cash and cash equivalents totaled $1.7 billion and $1.4 billion as of May 31, 2021 and November 30, 2020, respectively. Of our total cash and cash equivalents, the cash held by our international subsidiaries was $415.9 million and $434.8 million as of May 31, 2021 and November 30, 2020, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our Consolidated Financial Statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.
We believe that our available cash and cash equivalents balances, cash flows from operations and our existing sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies, including for the proposed acquisition of Tech Data. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.
Historically, we have renewed our accounts receivable securitization program and our U.S. credit facility agreement described below on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed or replaced as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.
On-Balance Sheet Arrangements
In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, which has a maturity date of May 2022, our subsidiary, which is the borrower under this facility, can borrow up to a maximum of $650.0 million based upon eligible trade accounts receivable. In addition, the U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $150.0 million. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders that included prevailing dealer commercial paper rates and a rate based upon LIBOR. In addition, a program fee of 1.25% per annum is payable on the used portion of the lenders’ commitment, in the case of lender groups who fund their advances based on prevailing commercial paper rates, and 1.30% per annum in the case of lender groups who fund their advances based on LIBOR (subject to a 0.50% per annum floor). A facility fee is payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between 0.35% per annum and 0.45% per annum depending on the amount of outstanding advances from time to time.
Under the terms of the U.S. AR Arrangement, we and two of our U.S. subsidiaries sell, on a revolving basis, our receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by our bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. As of both May 31, 2021 and November 30, 2020, there were no borrowings outstanding under this facility.
In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, as renewed in March 2020, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to CAD100.0 million, or $82.9 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 2023. The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additional CAD50.0 million, or $41.4 million. Any amounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables to the bank. We guarantee the performance obligations of SYNNEX Canada under this arrangement. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of 1.00% per annum and the prevailing lender commercial paper rates. In addition, prior to an event of termination, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. After an event of termination, the program fee shall be the sum of the base rate and 2.50% per annum, based on the used portion of the commitment. SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up to CAD60.0 million, or $49.7 million, and when the unused portion exceeds CAD60.0 million, or $49.7 million, a fee of 0.55% per annum on the remaining unused commitment. As of both May 31, 2021 and November 30, 2020, there was no outstanding balance under this arrangement.
36
SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or $136.9 million. The credit agreement is comprised of a JPY7.0 billion, or $63.9 million, term loan and a JPY8.0 billion, or $73.0 million, revolving credit facility and expires in November 2021. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on our consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on our consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations of SYNNEX Japan under this facility. As of May 31, 2021 and November 30, 2020, the balances outstanding under the term loan component of these facilities were $63.9 million and $67.1 million respectively. There was no outstanding under the revolving credit facility as of May 31, 2021, and $31.6 million as of November 30, 2020
In the United States, we have a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement includes a $600.0 million commitment for a revolving credit facility and a term loan in the original principal amount of $1.2 billion. We can request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $500.0 million, plus an additional amount which is dependent upon our pro forma first lien leverage ratio, as calculated under the U.S. Credit Agreement. The U.S. Credit Agreement matures in September 2022. The remaining outstanding principal of the term loan is payable on maturity. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable-rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.50%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus 1.00%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio, as calculated under the U.S. Credit Agreement. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of our United States domestic subsidiaries. As of both May 31, 2021 and November 30, 2020, the balance outstanding under the term loan component of the U.S. Credit Agreement was $500.0 million. There were no borrowings outstanding under the revolving line of credit under the U.S. Credit Agreement as of both May 31, 2021 and November 30, 2020.
We have a senior secured term loan credit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, in the original principal amount of $1.8 billion. The U.S. Term Loan Credit Agreement matures in October 2023. The remaining outstanding principal amount of the term loan is payable on maturity. Interest on borrowings under the U.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loan ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable-rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. During the period in which the term loans were available to be drawn, we paid term loan commitment fees. The margins above our applicable interest rates are, and the term loan commitment fee were, based on our consolidated leverage ratio as calculated under the U.S. Term Loan Credit Agreement. Our obligations under the U.S. Term Loan Credit Agreement are secured by substantially all of the parent company and certain of its domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. As of both May 31, 2021 and November 30, 2020, the balance outstanding under the U.S. Term Loan Credit Agreement was $1.0 billion.
In connection with the Merger, we have entered into a credit agreement, dated as of April 16, 2021 (the “New Credit Agreement”) with the lenders party thereto and Citibank, N.A., as agent, pursuant to which we have received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, including a $200 million letter of credit sub-facility, which revolving credit facility (the “new revolving credit facility”) may, subject to the lenders’ discretion, potentially be increased by up to an aggregate amount of $500 million and for the extension of a senior unsecured term loan (the “new term loan” and, together with the new revolving credit facility, the “new credit facilities”) in an aggregate principal amount not to exceed $1.5 billion. The commitments under the new credit facilities are subject to customary conditions. The borrower under the new credit facilities is the Company. There are no guarantors of the new credit facilities.
The commitments under the new credit facilities terminate upon the earliest to occur of (i) with respect to the revolving commitments, the fifth anniversary of the closing date (subject to two one-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date), (ii) in the event SYNNEX voluntarily elects to reduce such commitments to zero, on such date, or subject to certain conditions, following an event of default, (iii) if the closing does not occur prior to such date, five business days after the
37
termination date of the Merger Agreement, and (iv) the date that the Merger Agreement is terminated by SYNNEX in a signed writing in accordance with the terms of the Merger Agreement.
The funding under the new credit facilities is subject to customary closing conditions.
The proceeds of the loans under the new term loan will be used to provide a portion of the debt financing required to refinance certain indebtedness of the Company and Tech Data, which is required to consummate the proposed transactions related to the Merger, together with the payment of related fees and expenses, and the borrowings (if any) under the new revolving credit facility on the closing date of the proposed transactions will be used to pay fees and expenses related to the Merger and related transactions. After the closing date, the revolving credit facility will, subject to customary conditions, be available for general corporate purposes or any other purpose not prohibited by the New Credit Agreement.
The outstanding principal amount of the term loan will be, once advanced, payable in quarterly installments in an amount equal to 1.25% of the original principal balance commencing on the last day of the first full fiscal quarter after the closing date of the new credit facilities, with the outstanding principal amount of the term loans due in full on the maturity date. Loans borrowed under the New Credit Agreement bear interest, in the case of LIBOR (or successor) rate loans, at a per annum rate equal to the applicable LIBOR (or successor) rate, plus the applicable margin, which may range from 1.125% to 1.75%, based on the Company’s public debt rating (as defined in the New Credit Agreement). The applicable margin on base rate loans is 1.00% less than the corresponding margin on LIBOR (or successor rate) based loans. In addition to these borrowing rates, there is a commitment fee which ranges from 0.125% to 0.300% on any unused commitment under the new revolving credit facility based on the Company’s public debt rating.
The New Credit Agreement contains various loan covenants that will restrict the ability of the Company and its subsidiaries to take certain actions that are customary for similar facilities for similarly rated borrowers. The New Credit Agreement also contains financial covenants which will require compliance with a maximum debt to EBITDA ratio and a minimum interest coverage ratio, in each case tested on the last day of any fiscal quarter commencing with the first full fiscal quarter to occur after the closing date of the new credit facilities. The New Credit Agreement also contains various customary events of default, including with respect to a change of control of the Company.
On March 22, 2021, we had entered into a debt commitment letter (the “Commitment Letter”), under which Citigroup Global Markets Inc. and certain other financing institutions joining thereto pursuant to the terms thereof committed to provide (i) a $1.5 billion senior unsecured term bridge facility (the "Term Loan A Bridge Facility"), (ii) a $2.5 billion senior unsecured term bridge facility (the “Bridge Facility”) and (iii) a $3.5 billion senior unsecured revolving bridge facility (the "Bridge Revolving Facility"), subject to the satisfaction of certain customary closing conditions. On April 16, 2021, (i) the $1.5 billion commitment with respect to Term Loan A Bridge Facility under the Commitment Letter and (ii) the $3.5 billion commitment with respect to Bridge Revolving Facility under the Commitment Letter were reduced to zero, in each case, as a result of us entering into the New Credit Agreement.
SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50.0 million, or $41.4 million. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S. Base Rate. As of both May 31, 2021 and November 30, 2020, there were no borrowings outstanding under this credit facility.
38
Other borrowings and term debt include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As of May 31, 2021, commitments for these revolving credit facilities aggregated $45.6 million. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are generally guaranteed by us or secured by eligible accounts receivable. As of May 31, 2021 and November 30, 2020, the balances outstanding under these revolving credit facilities were $0.6 million and $25.8 million, respectively.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at May 31, 2021 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 May 31, 2021 and November 30, 2020, we had a total of $72.1 million and $21.4 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.
Covenant Compliance
Our credit facilities have a number of covenants and restrictions that, among other things, require us to maintain specified financial ratios and satisfy certain financial condition tests. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of May 31, 2021, we were in compliance with all material covenants for the above arrangements, and we do not believe we are at material risk of not meeting such covenants.
Contractual Obligations
Our contractual obligations consist of future payments due under our loans, payments for our operating lease commitments and repatriation tax under the Tax Cuts and Jobs Act (“the TCJA”) which are already recorded on our Consolidated Balance Sheet. In addition, our contractual obligations include interest on our debt. The following table summarizes our contractual obligations as at May 31, 2021 (prepared on a fiscal year basis with the remaining six months of fiscal 2021 representing the less than 1 year obligations):
|
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
|
Total |
|
|
Less than 1 Year |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
> 5 Years |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||||||
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal debt payments |
|
$ |
1,566,084 |
|
|
$ |
66,084 |
|
|
$ |
1,500,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest on debt |
|
|
129,926 |
|
|
|
32,455 |
|
|
|
97,471 |
|
|
|
— |
|
|
|
— |
|
|
Repatriation tax under the TCJA |
|
|
40,462 |
|
|
|
— |
|
|
|
19,357 |
|
|
|
21,105 |
|
|
|
— |
|
|
Non-cancellable operating leases |
|
|
82,691 |
|
|
|
12,174 |
|
|
|
38,326 |
|
|
|
20,182 |
|
|
|
12,009 |
|
|
Total |
|
$ |
1,819,163 |
|
|
$ |
110,713 |
|
|
$ |
1,655,154 |
|
|
$ |
41,287 |
|
|
$ |
12,009 |
|
Interest on debt, in the table above, includes estimated interest on our term loans at rates of interest applicable at the end of our fiscal period.
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 May 31, 2021 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 May 31, 2021, and November 30, 2020, accounts receivable subject to flooring arrangements were $38.9 million and $49.5 million, respectively. For more information on our third-party revolving short-term financing arrangements, see Note 8 - Accounts Receivable Arrangements to the Consolidated Financial Statements included in Item 1 of Part I of this Report.
As of May 31, 2021, we have established a reserve of $12.0 million for unrecognized tax benefits.
As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities.
In addition, refer to Note 17 – Pending Merger to the Consolidated Financial Statements for contractual obligations under the Merger Agreement and Credit Agreement entered in relation to our proposed acquisition of Tech Data.
39
Related Party Transactions
We have a business relationship with MiTAC Holdings, a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of both May 31, 2021 and November 30, 2020, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock. Mr. Matthew Miau, the Chairman Emeritus of our Board of Directors and a director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates.
The shares owned by MiTAC Holdings are held by the following entities:
|
|
|
As of May 31, 2021 |
|
|
|
|
|
(in thousands) |
|
|
|
MiTAC Holdings(1) |
|
|
5,300 |
|
|
Synnex Technology International Corp.(2) |
|
|
3,860 |
|
|
Total |
|
|
9,160 |
|
|
(1) |
|
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 192 thousand shares held directly by Mr. Miau, 217 thousand shares indirectly held by Mr. Miau through a charitable remainder trust, and 190 thousand shares held by his spouse. |
|
(2) |
|
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 14.05% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 15.65% 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 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 the Company.
We purchased inventories and services from MiTAC Holdings and its affiliates totaling $48.6 million and $89.8 million during the three and six months ended May 31, 2021, respectively and totaling $55.3 million and $98.6 million during the three and six months ended May 31, 2020, respectively. Our sales to MiTAC Holdings and its affiliates totaled $0.2 million and $0.5 million during the three and six months ended May 31, 2021, respectively, and totaled $0.2 million and $0.5 million during the three and six months ended May 31, 2020, respectively. In addition, we paid for reimbursement of rent and overhead costs for the use of facilities of MiTAC Holdings and its affiliates amounting to $47 thousand and $79 thousand during the three and six months ended May 31, 2021, respectively, and $34 thousand and $64 thousand during the three and six months ended May 31, 2020, respectively.
As of May 31, 2021 and November 30, 2020, our payables to MiTAC Holdings and its affiliates were $23.6 million and $49.6 million, respectively. As of May 31, 2021 and November 30, 2020, our receivables from MiTAC Holdings and its affiliates were $13.0 million and $26.1 million, respectively.
Our business relationship with MiTAC Holdings and its affiliates has been informal and is generally not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate pricing and other material terms on a case-by-case basis with MiTAC Holdings. We have adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition, Mr. 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 - Summary of Significant Accounting Policies to the Consolidated Financial Statements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
We are exposed to foreign currency risk in the ordinary course of business in our continuing operations. We manage cash flow exposures for our major countries and the foreign currency impact of assets and liabilities denominated in non-functional currencies using a combination of forward contracts. Principal currencies hedged are the Canadian Dollar, the Brazilian Real, the Euro, the Colombian Peso, the Chilean Peso, the Indian Rupee, the Chinese Yuan and the Japanese Yen. We do not hold or issue derivative financial instruments for trading purposes.
40
The following table presents the hypothetical changes in fair values of our outstanding foreign currency derivative instruments related to our continuing operations as of May 31, 2021 and November 30, 2020, arising from an instantaneous strengthening or weakening of the U.S. dollar by 5%, 10% and 15% (in thousands):
|
|
|
Loss on Derivative Instruments Given a Weakening of U.S. dollar by X Percent |
|
|
Gain (Loss) Assuming No Change in Exchange Rate |
|
|
Gain on Derivative Instruments Given a Strengthening of U.S. dollar by X Percent |
|
|||||||||||||||||||
|
|
|
15% |
|
|
10% |
|
|
5% |
|
|
|
|
|
|
5% |
|
|
10% |
|
|
15% |
|
||||||
|
Forward contracts at |
|
$ |
(38,164 |
) |
|
$ |
(25,748 |
) |
|
$ |
(14,639 |
) |
|
$ |
(4,641 |
) |
|
$ |
4,406 |
|
|
$ |
12,629 |
|
|
$ |
20,138 |
|
|
Forward contracts at |
|
|
(48,022 |
) |
|
|
(31,306 |
) |
|
|
(16,349 |
) |
|
|
(2,888 |
) |
|
|
9,291 |
|
|
|
20,363 |
|
|
|
32,037 |
|
Our foreign exchange contracts have typical maturities of twelve months or less and are executed to protect us against foreign currency exposure pertaining to receivables, payables and intercompany transactions that are denominated in currencies different from the functional currencies of the respective entities. These contracts are marked-to-market and any material gains and losses on our hedge contracts resulting from a hypothetical, instantaneous change in the strength of the U.S. dollar would be significantly offset by mark-to-market gains and losses on the corresponding assets and liabilities being hedged.
Interest Rate and Equity Price Risk
There have been no material changes in interest rate risk and equity price risk related to our continuing operations during the six months ended May 31, 2021 from our Annual Report on Form 10-K for the fiscal year ended November 30, 2020. For a discussion of the Company's exposure to interest rate and equity risk, reference is made to disclosures set forth in Part II, Item 7A of our above-mentioned Annual Report on Form 10-K.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also 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.
41
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, 2020. Except as set forth below, there have been no material changes from the risk factors disclosed in our 2020 Annual Report on Form 10-K.
Risks Related to the Proposed Acquisition of Tech Data
After completion of the Merger, we may fail to realize the anticipated benefits of the Merger, which could adversely affect the value of our common stock.
The success of the proposed acquisition of Tech Data (the “Merger”) will depend, in part, on our ability to realize the anticipated benefits from combining the businesses of SYNNEX and Tech Data. Our ability to realize these anticipated benefits and cost savings is subject to certain risks including:
|
|
• |
Our ability to successfully combine the businesses of SYNNEX and Tech Data; |
|
|
• |
whether the combined businesses will perform as expected; |
|
|
• |
the reduction of our cash available for operations and other uses and the incurrence of indebtedness to finance the Merger; and |
|
|
• |
the assumption of known and unknown liabilities of Tech Data. |
If we are not able to successfully combine the businesses of SYNNEX and Tech Data within the anticipated time frame, or at all, the anticipated cost savings and other benefits of the Merger may not be realized fully or at all or may take longer to realize than expected, the combined businesses may not perform as expected, and the value of our common shares may be adversely affected.
SYNNEX and Tech Data have operated and, until completion of the Merger, will continue to operate, independently, and there can be no assurances that our businesses can be integrated successfully. It is possible that the integration process could result in the loss of key SYNNEX or Tech Data employees, the disruption of either or both company’s ongoing businesses, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed to realize the anticipated benefits of the Merger so the combined business performs as expected include, among other things:
|
|
• |
integrating the companies’ technologies, products and services; |
|
|
• |
identifying and eliminating redundant and underperforming operations and assets; |
|
|
• |
harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; |
|
|
• |
attracting, motivating and retaining executives and other key personnel until the Merger is completed; |
|
|
• |
addressing possible differences in business backgrounds, corporate cultures and management philosophies; |
|
|
• |
consolidating the companies’ corporate, administrative and information technology infrastructure; |
|
|
• |
managing the movement of certain businesses and positions to different locations; |
|
|
• |
maintaining existing agreements with customers and vendors and avoiding delays in entering into new agreements with prospective customers and vendors; and |
|
|
• |
consolidating offices of SYNNEX and Tech Data that are currently in or near the same location. |
In addition, at times, the attention of certain members of either or both company’s management and resources may be focused on completion of the Merger and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and the business of the combined company.
In order to complete the Merger, SYNNEX and Tech Data must obtain certain governmental authorizations, and if such authorizations are not granted, the Merger cannot be completed.
Completion of the Merger is conditioned upon the expiration or early termination of the waiting period relating to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other similar antitrust laws in certain other countries as well as certain other applicable laws or regulations and the governmental authorizations required to complete the Merger having been obtained and being in full force and effect. Although SYNNEX and Tech Data have agreed in the Merger Agreement to use their reasonable best efforts, subject to certain limitations, to make certain governmental filings or obtain the required governmental authorizations, as the case may be, there can be no assurance that the relevant waiting periods will expire or authorizations will be obtained, and if such authorizations aren’t obtained, the Merger will not be completed.
42
SYNNEX may waive one or more of the closing conditions without re-soliciting stockholder approval.
SYNNEX may determine to waive, in whole or part, one or more of the conditions of its obligations to consummate the Merger. SYNNEX currently expects to evaluate the materiality of any waiver and its effect on SYNNEX’ stockholders in light of the facts and circumstances at the time to determine whether any amendment of the proxy statement filed on June 9, 2021 (“proxy statement”) or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the Merger or as to re-soliciting stockholder approval or amending the proxy statement as a result of a waiver will be made by SYNNEX at the time of such waiver based on the facts and circumstances as they exist at that time.
SYNNEX and Tech Data’s business relationships may be subject to disruption due to uncertainty associated with the Merger.
Parties with which SYNNEX or Tech Data do business may experience uncertainty associated with the Merger, including with respect to current or future business relationships with us, Tech Data or the combined business. SYNNEX and Tech Data’s business relationships may be subject to disruption as customers, vendors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than SYNNEX, Tech Data or the combined business. These disruptions could have a material and adverse effect on the businesses, financial condition, results of operations or prospects of the combined business, including a material and adverse effect on our ability to realize the anticipated benefits of the Merger. The risk and adverse effect of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.
Failure to complete the Merger could negatively impact the stock price and the future business and financial results of SYNNEX.
If the Merger is not completed for any reason, the ongoing business of SYNNEX may be adversely affected and, without realizing any of the benefits of having completed the Merger, SYNNEX would be subject to a number of risks, including the following:
|
|
• |
We may experience negative reactions from the financial markets, including negative impacts on our stock price, and from our customers, vendors and associates; |
|
|
• |
We may be required to pay Tech Data a fee of up to $131.7 million if the Merger is not consummated; |
|
|
• |
We will be required to pay certain transaction expenses and other costs relating to the Merger, whether or not the Merger is completed; |
|
|
• |
the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Merger; and |
|
|
• |
matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company. |
There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect SYNNEX’ businesses, financial condition, financial results and stock price.
We may be targets of securities class action and derivative lawsuits relating to the Merger, which could result in substantial costs and may delay or prevent the Merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger, then that injunction may delay or prevent the Merger from being completed. Currently, we are not aware of any securities class action lawsuits or derivative lawsuits being filed in connection with the Merger.
Stockholder lawsuits relating to the Merger have been filed against us, which could result in substantial costs and may delay or prevent the Merger from being completed.
Stockholder lawsuits are often brought against companies that have entered into merger agreements. Between May 26, 2021 and June 22, 2021, four such suits have been brought against SYNNEX and the Board. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger, then that injunction may delay or prevent the Merger from being completed.
The proposed acquisition of Tech Data and the incurrence of debt to fund the proposed acquisition of Tech Data may impact our financial position and subject us to additional financial and operating restrictions.
As of May 31, 2021, we had $1.6 billion of total debt. We expect to incur a substantial amount of additional debt in connection with the proposed acquisition of Tech Data. We expect that upon completion of the proposed acquisition of Tech Data and the related financing transactions, our total debt will increase to approximately $4 billion. In addition, we expect to have capacity to incur significant additional debt
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in excess of $4 billion to fund our working capital needs and for other corporate purposes. If we are unable to raise financing on acceptable terms, we may need to rely on the Bridge Facility, which would result in higher borrowing costs and will have a shorter maturity than those from anticipated, long-term debt financing alternatives. In addition, if we are unable to obtain long-term debt financing on the terms we anticipate, then such alternative long-term debt financing may subject us to higher costs of borrowing, and additional financial and operating covenants, which may limit our flexibility in responding to our business needs. We expect to obtain long-term unsecured debt financing in lieu of the commitments provided under Tranche C of the Bridge Facility. However, there can be no assurance we will be able to obtain such permanent debt financing or that it will be on acceptable terms. In addition, we anticipate that as a result of the debt we expect to incur to finance the proposed acquisition of Tech Data, our credit and the long-term debt financing will be rated by credit rating agencies. Any potential future negative change in our credit ratings may make it more expensive for us to raise long-term permanent financing on terms that are acceptable to us or to raise additional capital on terms that are acceptable to us, if at all; negatively impact the price of our common stock; increase our overall cost of capital; and have other negative implications on our business, many of which are beyond our control.
We will incur significant transaction and integration-related costs in connection with the Merger.
We expect to incur a number of non-recurring costs associated with the Merger and combining the operations of Tech Data with our operations. We will incur significant transaction costs related to the Merger. We also will incur significant integration-related fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Merger and the integration of Tech Data into our business. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
Risks Related to the Discontinuance of LIBOR
We may face risk associated with the discontinuation of and transition from the London Interbank Offered Rate (LIBOR) as a benchmark interest rate.
It is anticipated that LIBOR will be discontinued by the end of 2021. At this time, however, it is not possible to predict the effect of any changes to LIBOR, the discontinuation of LIBOR or any establishment of alternative benchmark interest rates in the future. If LIBOR is no longer available or if there are any future changes to benchmark interest rates, this may have an uncertain impact on our variable-rate debt, which could adversely impact our interest expense, results of operations and cash flows.
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ITEM 6. Exhibits
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Exhibit Number |
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Description of Document |
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2.1+ |
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3(i).1 |
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3(ii).1 |
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3(ii).2 |
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10.1 |
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10.2# |
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10.3 |
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31.1 |
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31.2 |
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32.1* |
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99.1 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
# Indicates management contract or compensatory plan or arrangement.
+Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. SYNNEX hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request; provided, however, that SYNNEX may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.
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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: July 7, 2021
SYNNEX CORPORATION
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By: |
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/s/ Dennis Polk |
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President and Chief Executive Officer |
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(Duly authorized officer and principal executive officer) |
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By: |
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/s/ Marshall W. Witt |
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Chief Financial Officer |
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(Duly authorized officer and principal financial officer) |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| 11/30/21 | 10-K | |||
| 7/30/21 | 8-K | |||
| 7/16/21 | 4 | |||
| Filed on: | 7/7/21 | |||
| 6/30/21 | 4, 8-K | |||
| 6/24/21 | 8-K | |||
| 6/22/21 | 8-K | |||
| 6/9/21 | 4, DEFM14A | |||
| 6/4/21 | ||||
| For Period end: | 5/31/21 | |||
| 5/26/21 | ||||
| 4/16/21 | 8-K | |||
| 3/22/21 | 8-K, DEFA14A | |||
| 1/31/21 | ||||
| 12/15/20 | ||||
| 12/1/20 | 4 | |||
| 11/30/20 | 10-K, 4, 8-K | |||
| 11/17/20 | ||||
| 7/1/20 | 4 | |||
| 5/31/20 | 10-Q | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 1/27/23 TD SYNNEX Corp. 424B7 1:356K Donnelley … Solutions/FA 1/25/23 TD SYNNEX Corp. 424B7 1:354K Donnelley … Solutions/FA 9/02/21 TD SYNNEX Corp. S-3ASR 9/02/21 4:183K Donnelley … Solutions/FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 4/20/21 TD SYNNEX Corp. 8-K:1,2,8,9 4/16/21 11:1.8M ActiveDisclosure/FA 4/08/21 TD SYNNEX Corp. 10-Q 2/28/21 105:11M ActiveDisclosure/FA 3/22/21 TD SYNNEX Corp. 8-K:1,3,5,8 3/22/21 20:8.6M Donnelley … Solutions/FA 4/02/08 TD Synnex Corp. 8-K:1,5,9 3/27/08 4:196K Donnelley … Solutions/FA 10/14/03 TD Synnex Corp. S-1/A 10:3.3M Donnelley … Solutions/FA |