XNYS:SNX Synnex Corp Quarterly Report 10-Q Filing - 8/31/2012

Effective Date 8/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________
FORM 10-Q
 __________________________________________________________
(Mark One)
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2012
OR
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission File Number: 001-31892
 _______________________________________________________
SYNNEX CORPORATION
(Exact name of registrant as specified in its charter)
 _______________________________________________________
Delaware
 
94-2703333
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
 
44201 Nobel Drive
Fremont, California
 
94538
(Address of principal executive offices)
 
(Zip Code)
(510) 656-3333
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  S    No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  S    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £
Smaller reporting company £
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  S

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding as of September 28, 2012
Common Stock, $0.001 par value
 
37,340,906


 




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

2


PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SYNNEX CORPORATION 
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)
(unaudited)
 
August 31,
2012
 
November 30,
2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
172,992

 
$
67,571

Short-term investments
15,353

 
16,017

Accounts receivable, net
1,172,890

 
1,293,027

Receivable from affiliates
474

 
1,344

Inventories
900,954

 
975,047

Current deferred tax assets
28,390

 
28,241

Other current assets
58,087

 
57,168

Total current assets
2,349,140

 
2,438,415

Property and equipment, net
124,375

 
125,157

Goodwill
184,015

 
185,312

Intangible assets, net
31,458

 
37,539

Deferred tax assets
603

 
590

Other assets
42,230

 
46,282

Total assets
$
2,731,821

 
$
2,833,295

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under securitization, term loans and lines of credit
$
75,154

 
$
159,200

Convertible debt
140,083

 

Accounts payable
908,750

 
1,035,691

Accrued liabilities
157,221

 
172,226

Income taxes payable
3,059

 
5,136

Total current liabilities
1,284,267

 
1,372,253

Long-term borrowings
85,346

 
87,659

Convertible debt

 
136,163

Long-term liabilities
60,344

 
60,676

Deferred tax liabilities
7,486

 
8,086

Total liabilities
1,437,443

 
1,664,837

Commitments and contingencies (Note 17)

 

SYNNEX Corporation stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or outstanding

 

Common stock, $0.001 par value, 100,000 shares authorized, 37,133 and 36,571 shares issued as of August 31, 2012 and November 30, 2011, respectively
37

 
37

Additional paid-in capital
325,785

 
310,316

Treasury stock, 415 and 407 shares as of August 31, 2012 and November 30, 2011, respectively
(11,819
)
 
(11,524
)
Accumulated other comprehensive income
36,313

 
30,026

Retained earnings
937,260

 
829,524

Total SYNNEX Corporation stockholders’ equity
1,287,576

 
1,158,379

Noncontrolling interest
6,802

 
10,079

Total equity
1,294,378

 
1,168,458

Total liabilities and equity
$
2,731,821

 
$
2,833,295


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 for per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Revenue
$
2,576,948

 
$
2,572,133

 
$
7,520,441

 
$
7,568,869

Cost of revenue
(2,425,019
)
 
(2,418,380
)
 
(7,042,804
)
 
(7,126,212
)
Gross profit
151,929

 
153,753

 
477,637

 
442,657

Selling, general and administrative expenses
(94,878
)
 
(87,235
)
 
(297,277
)
 
(271,126
)
Income before nonoperating items, income taxes and noncontrolling interest
57,051

 
66,518

 
180,360

 
171,531

Interest expense and finance charges, net
(5,809
)
 
(6,472
)
 
(17,363
)
 
(18,910
)
Other income (expense), net
890

 
(1,214
)
 
2,607

 
(69
)
Income before income taxes and noncontrolling interest
52,132

 
58,832

 
165,604

 
152,552

Provision for income taxes
(17,306
)
 
(19,662
)
 
(56,794
)
 
(52,200
)
Net income
34,826

 
39,170

 
108,810

 
100,352

Net (income) loss attributable to noncontrolling interest
313

 
(134
)
 
(1,074
)
 
(194
)
Net income attributable to SYNNEX Corporation
$
35,139

 
$
39,036

 
$
107,736

 
$
100,158

Net income per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
0.96

 
$
1.09

 
$
2.95

 
$
2.80

Diluted
$
0.93

 
$
1.07

 
$
2.84

 
$
2.72

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
36,700

 
35,882

 
36,537

 
35,726

Diluted
37,917

 
36,594

 
37,966

 
36,886

 

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

4


SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Net income
$
34,826

 
$
39,170

 
$
108,810

 
$
100,352

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of tax
(377
)
 
98

 
(356
)
 
195

Change in unrecognized pension and post-retirement benefit costs, net of tax
62

 

 
62

 

Foreign currency translation adjustments, net of tax
11,229

 
(1,175
)
 
6,275

 
12,277

Total other comprehensive income (loss)
10,914

 
(1,077
)
 
5,981

 
12,472

Comprehensive income:
45,740

 
38,093

 
114,791

 
112,824

Comprehensive (income) loss attributable to noncontrolling interest
316

 
(727
)
 
(768
)
 
(992
)
Comprehensive income attributable to SYNNEX Corporation
$
46,056

 
$
37,366

 
$
114,023

 
$
111,832

 

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

5


SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
Cash flows from operating activities:
 
 
 
Net income
$
108,810

 
$
100,352

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation expense
12,445

 
12,011

Amortization of intangible assets
6,209

 
5,586

Accretion of convertible notes discount
3,920

 
3,623

Share-based compensation
6,256

 
5,869

(Benefit from) provision for doubtful accounts
(912
)
 
4,968

Tax benefits from employee stock plans
2,768

 
4,134

Excess tax benefit from share-based compensation
(2,764
)
 
(4,172
)
Realized/Unrealized (gains) losses on investments
(2,398
)
 
831

Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable
124,693

 
190,165

Receivables from affiliates, net
869

 
1,825

Inventories
78,197

 
55,666

Other assets
(4,934
)
 
(3,575
)
Accounts payable
(102,770
)
 
(250,355
)
Accrued liabilities
(18,416
)
 
(14,286
)
Deferred liabilities
6,666

 
3,386

Net cash provided by operating activities
218,639

 
116,028

Cash flows from investing activities:
 
 
 
Purchase of trading investments
(3,875
)
 
(1,107
)
Proceeds from sale of trading investments
5,525

 
2,399

Proceeds from redemption of held-to-maturity term deposits

 
916

Acquisition of businesses, net of cash acquired
1,870

 
(41,435
)
Purchase of property and equipment
(11,540
)
 
(21,335
)
Proceeds from sale of business

 
1,033

Loans and deposits to third parties, net of payments received
1,056

 
(1,624
)
Decrease (increase) in investment in equity-method investee
3,480

 
(4,782
)
Changes in restricted cash
4

 
(8,338
)
Net cash used in investing activities
(3,480
)
 
(74,273
)
Cash flows from financing activities:
 
 
 
Proceeds from securitization and revolving line of credit
1,307,301

 
3,311,478

Payment of securitization and revolving line of credit
(1,390,897
)
 
(3,350,484
)
Proceeds from long-term credit facility and term loans

 
86,173

Payment of long-term bank loans, capital leases and other borrowings
(2,208
)
 
(119,077
)
Excess tax benefit from share-based compensation
2,764

 
4,172

Increase (decrease) in book overdraft
(26,506
)
 
14,594

Payment of acquisition related contingent consideration
(1,052
)
 

Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
8,520

 
3,686

Capital contribution by noncontrolling interest

 
6,411

Purchase of additional investment in subsidiary
(6,050
)
 

Net cash used in financing activities
(108,128
)
 
(43,047
)
Effect of exchange rate changes on cash and cash equivalents
(1,610
)
 
(470
)
Net increase (decrease) in cash and cash equivalents
105,421

 
(1,762
)
Cash and cash equivalents at beginning of period
67,571

 
88,038

Cash and cash equivalents at end of period
$
172,992

 
$
86,276

 

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

6


SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)
 
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION: 
SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX” or the “Company”) is a business process services company offering a comprehensive range of services to resellers, retailers, and original equipment manufacturers (“OEMs”) worldwide. SYNNEX’s business process services include distribution and business process outsourcing (“BPO”) services. SYNNEX is headquartered in Fremont, California and has operations in North America, Central America, Asia and Europe.
The accompanying interim unaudited Consolidated Financial Statements as of August 31, 2012 and for the three and nine month periods ended August 31, 2012 and 2011 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2011 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 as of and for the fiscal year ended November 30, 2011, included in the Company’s Annual Report on Form 10-K for the fiscal year then ended.
The results of operations for the three and nine months ended August 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2012, or any future period and the Company makes no representations related thereto.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2011. There have been no material changes to these accounting policies, except as described below. For a discussion of the significant accounting policies, please see the discussion in the Annual Report on Form 10-K for the fiscal year ended November 30, 2011.
Restricted cash 
Restricted cash balances relate to temporary restrictions caused by the timing of lockbox collections under the Company’s borrowing arrangements, amounts held for outstanding letters of credit and future payments to contractors for the long-term projects at the Company’s Mexico operation.  
The following table summarizes the restricted cash balances as of August 31, 2012 and November 30, 2011 and the location where these amounts are recorded on the Consolidated Balance Sheets:
 
As of 
 
August 31, 2012
 
November 30, 2011
Related to borrowing arrangements and others:
 
 
 
        Other current assets
$
26,375

 
$
28,279

Related to long-term projects:
 
 
 
        Other assets
4,985

 
2,938

Total restricted cash
$
31,360

 
$
31,217

 

7

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Concentration of credit risk 
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of accounts receivable, and cash and cash equivalents. The Company’s cash and cash equivalents are maintained with high quality institutions, the compositions and maturities of which are regularly monitored by management. Through August 31, 2012, the Company had not experienced any losses on such deposits. 
Accounts receivable include amounts due from customers and vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for potential credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of the receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through August 31, 2012, such losses have been within management’s expectations. 
In the three and nine months ended August 31, 2012 and 2011, no customer accounted for 10% or more of the Company's total revenue. Products purchased from the Company’s largest OEM supplier, Hewlett-Packard Company (“HP”), accounted for approximately 38% and 36% of the total revenue for the three and nine months ended August 31, 2012, respectively, and approximately 37% and 35% of the total revenue for the three and nine months ended August 31, 2011, respectively.
As of August 31, 2012 and November 30, 2011, no customer exceeded 10% of the total consolidated accounts receivable balance.
Revenue recognition
The Company generally recognizes revenue on the sale of hardware and software products when they are shipped and on services when they are performed, if a purchase order exists, the sales price is fixed or determinable, collection of resulting accounts receivable is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. The Company recognizes revenue on certain service contracts, post-contract software support services, and extended warranty contracts, where it is not the primary obligor, on a net basis.
The Company provides services such as call center, renewals, maintenance and contract management services to its customers under contracts that typically consist of a master services agreement or statement of work, which contains the terms and conditions of each program and service offerings. Typically the contracts are time-based or transactions or volume based. Revenue is generally recognized over the term of the contract or when service has been rendered, the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured.
The Company's operation in Mexico primarily focuses on projects with the Mexican government and other local agencies that are long-term in nature. Under the agreements, the Company sells computers and equipment to contractors that provide services to the Mexican government. The Company also sells computer equipment and services directly to the Mexican government. The payments are due on a monthly basis and contingent upon the satisfactory performance of certain services, fulfillment of certain obligations and meeting certain conditions. The Company recognizes revenue and cost of revenue on a straight-line basis over the term of the contract, which coincides with payments no longer being contingent.
Net income per common share 
Net income per common share-basic is computed by dividing the net income attributable to SYNNEX Corporation for the period by the basic weighted-average number of outstanding common shares. 
Net income per common share-diluted is computed by adding the dilutive effect of in-the-money employee stock options, restricted stock awards, restricted stock units and similar equity instruments granted by the Company to the basic weighted-average number of outstanding common shares. The Company uses the treasury stock method, under which, the amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded in “Additional paid-in capital” when the award becomes deductible are assumed to be used to repurchase shares. 
With respect to the Company’s convertible debt, the Company intends to settle its conversion spread (i.e., the intrinsic

8

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

value of convertible debt based on the conversion price and current market price) in shares. The Company accounts for its conversion spread using the treasury stock method. It is the Company’s intent to cash-settle the principal amount of the convertible debt; accordingly, the principal amount has been excluded from the determination of diluted earnings per share. 
The calculation of net income per common share attributable to SYNNEX Corporation is presented in Note 12. 
Reclassifications 
Certain reclassifications have been made to prior period amounts to conform to current period presentation. On the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows, the Company combined the balances of "Receivable from vendors, net" with "Accounts receivable, net." This reclassification had no effect on "Total current assets" and "Net cash provided by operating activities."
Recent accounting pronouncements 
In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting update that amends the presentation of “Comprehensive income” in the financial statements. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The accounting update will be applicable to the Company beginning in the first quarter of fiscal year 2013 and the Company will update its presentation of “Comprehensive income” to comply with the updated disclosure requirements in fiscal year 2013.
During fiscal year 2012, the following accounting standards are applicable:
In May 2011, the FASB issued an accounting update that amends existing guidance regarding fair value measurements and disclosure requirements. The amendments are effective during interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. The accounting update was applicable to the Company beginning in the second quarter of fiscal year 2012. The application of this accounting update did not have any material impact on the Company's Consolidated Financial Statement.
In September 2011, the FASB issued an accounting update that gives companies the option to make a qualitative evaluation about the likelihood of goodwill impairment. Companies will be required to perform the two-step impairment test only if they conclude that the fair value of a reporting unit is more likely than not, less than its carrying value. The accounting update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company will adopt the accounting update for its goodwill impairment test to be performed for the fiscal year ending November 30, 2012.
In September 2011, the FASB issued an accounting update that requires additional qualitative and quantitative disclosures by employers that participate in multi-employer pension plans. The amendments are effective for annual periods for the fiscal years ending after December 15, 2011, with early adoption permitted. The Company will adopt the new disclosure requirements in the fiscal year ending November 30, 2012. The application of this accounting update will not have a material impact on the Company's financial statements.

NOTE 3—ACQUISITIONS AND DIVESTITURES:
Fiscal year 2011 acquisitions
On December 1, 2010, the Company acquired 70.0% of the capital stock of Marubeni Infotec Corporation, a subsidiary of Marubeni Corporation. SB Pacific Corporation Limited ("SB Pacific"), the Company's equity-method investee at that time, acquired the remaining 30.0% noncontrolling interest. At the time of the acquisition, the Company's total direct and indirect ownership of Marubeni Infotec Corporation was 80.0%. Marubeni Infotec Corporation, now known as SYNNEX Infotec Corporation (“Infotec Japan”) is a distributor of IT equipment, electronic components and software in Japan. This acquisition was in the distribution segment and enabled the Company's expansion into Japan. The aggregate consideration for the transaction initially was JPY700,000, or approximately $8,392, of which the Company's direct share was $5,888. In the first quarter of fiscal year 2012, the Company reached an agreement with the sellers to reduce the purchase price by JPY125,233. The purchase price as adjusted was JPY574,767 or approximately $6,891.

9

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The purchase price allocation based on the fair value of the assets acquired and liabilities assumed is as follows:
 
Fair Value         
Final purchase consideration:
 
Cash payment
$
4,824

Contribution from noncontrolling interest
2,067

 
$
6,891

Allocation:

Cash
$
1,371

Accounts receivable
186,909

Inventories
84,553

Other current assets
2,119

Property, plant and equipment
5,521

Goodwill
16,952

Intangible assets(1)
9,103

Other long-term assets
4,398

Short-term borrowings
(103,646
)
Accounts payable
(161,228
)
Accrued liabilities
(15,151
)
Long-term borrowings
(2,088
)
Other long-term liabilities
(21,922
)
 
$
6,891

(1) Intangibles will be amortized over a period of 3-10 years. 
On April 1, 2012, the Company purchased additional shares of Infotec Japan from SB Pacific for $6,050 resulting in an increase in its direct ownership interest in Infotec Japan from 70.0% to 81.0%. In April 2012, the Company reduced its ownership interest in SB Pacific from 33.3% to 19.7%, as a result, its total direct and indirect ownership interest increased from 80.0% to 84.7%.
During fiscal year 2011, the Company acquired certain businesses of e4e, Inc. ("e4e"), 100% of the stock of the global email company limited ("gem") and certain assets of VisionMAX Solutions Inc. ("VisionMAX") for an aggregate purchase price of $43,349. The acquisitions were integrated into the Company's Global Business Services ("GBS") segment and brought additional BPO scale, complemented the Company’s service offerings in social media and cloud computing and expanded its customer base and geographic presence. The net tangible assets acquired were $10,155 and the Company recorded $33,194 in goodwill and intangibles on finalization of purchase price allocation.
With the exception of Infotec Japan, the above acquisitions in fiscal year 2011, individually and in the aggregate, did not meet the conditions of a material business combination and were not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting.

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 and employee stock purchases, based on estimated fair values.
The Company uses the Black-Scholes valuation model to estimate fair value of stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock.

10

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the number of share-based awards granted under the Company’s Amended and Restated 2003 Stock Incentive Plan, as amended, during the three and nine months ended August 31, 2012 and 2011 and the grant-date fair value of the awards:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
 
Number of grants
 
Fair value of grants
 
Number of grants
 
Fair value of grants
 
Number of grants
 
Fair value of grants
 
Number of grants
 
Fair value of grants
Stock options

 
$

 

 
$

 
20

 
$
301

 

 
$

Restricted stock awards
7
 
228

 
16
 
520

 
42


1,578


44
 
1,406

Restricted stock units

 

 

 

 
23

 
971

 
10
 
324

 
7

 
$
228

 
16
 
$
520

 
85

 
$
2,850

 
54
 
$
1,730

The Company recorded share-based compensation expense of $2,031 and $6,256 in "Selling, general and administrative expenses" for the three and nine months ended August 31, 2012, respectively, and $1,953 and $5,869 for the three and nine months ended August 31, 2011, respectively.

NOTE 5—BALANCE SHEET COMPONENTS:
 
As of
 
August 31, 2012
 
November 30, 2011
Short-term investments:
 
 
 
Trading securities
$
5,279

 
$
5,808

Available-for-sale securities
46

 
37

Held-to-maturity securities
8,006

 
7,843

Cost method investments
2,022

 
2,329

 
$
15,353

 
$
16,017

 
 
 
 
 
As of
 
August 31, 2012
 
November 30, 2011
Accounts receivable, net:
 
 
 
Accounts receivable
$
1,224,390

 
$
1,351,305

Less: Allowance for doubtful accounts
(19,427
)
 
(22,803
)
Less: Allowance for sales returns
(32,073
)
 
(35,475
)
 
$
1,172,890

 
$
1,293,027

The Company combined "Receivable from vendors, net" of $150,085 with "Accounts Receivable, net" as of November 30, 2011 to conform to the current year presentation as described in Note 2Summary of Significant Accounting Policies.

11

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

 
As of
 
August 31, 2012
 
November 30, 2011
Property and equipment, net:
 
 
 
Land
$
18,757

 
$
18,566

Equipment and computers
101,835

 
95,149

Furniture and fixtures
21,355

 
19,566

Buildings and leasehold improvements
100,455

 
97,261

Construction in progress
1,944

 
1,762

Total property and equipment, gross
244,346

 
232,304

Less: Accumulated depreciation
(119,971
)
 
(107,147
)

$
124,375

 
$
125,157

Goodwill:
 
Distribution
 
GBS
 
Total
Balance as of November 30, 2011
$
107,498

 
$
77,814

 
$
185,312

Goodwill adjustments during the period
(1,543
)
 
(991
)
 
(2,534
)
Translation
1,171

 
66

 
1,237

Balance as of August 31, 2012
$
107,126

 
$
76,889

 
$
184,015

 
The adjustments recorded to "Goodwill" primarily pertain to the reduction of the purchase price of Infotec Japan in the distribution segment, and the finalization of holdback payments in the GBS segment.
Intangible assets, net:
 
As of August 31, 2012
 
As of November 30, 2011
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Vendor lists
$
36,946

 
$
(28,291
)
 
$
8,655

 
$
36,815

 
$
(27,104
)
 
$
9,711

Customer lists
50,881

 
(28,900
)
 
21,981

 
51,088

 
(23,879
)
 
27,209

Other intangible assets
4,957

 
(4,135
)
 
822

 
4,446

 
(3,827
)
 
619

 
$
92,784

 
$
(61,326
)
 
$
31,458

 
$
92,349

 
$
(54,810
)
 
$
37,539

 
Amortization expense for the three and nine months ended August 31, 2012 was $2,063 and $6,209, respectively, and for the three and nine months ended August 31, 2011 was $1,776 and $5,586, respectively.


12

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 6—INVESTMENTS: 
The carrying amount of the Company’s investments is shown in the table below: 
 
As of
 
August 31, 2012
 
November 30, 2011
 
Cost Basis
 
Unrealized
(Losses)/
Gains
 
Carrying
Value
 
Cost Basis
 
Unrealized
(Losses)/
Gains
 
Carrying
Value
Short-term:
 
 
 
 
 
 
 
 
 
 
 
Trading securities
$
5,458

 
$
(179
)
 
$
5,279

 
$
11,503

 
$
(5,695
)
 
$
5,808

Available-for-sale securities

 
46

 
46

 

 
37

 
37

Held-to-maturity investments
8,006

 

 
8,006

 
7,843

 

 
7,843

Cost method securities
2,022

 

 
2,022

 
2,329

 

 
2,329

 
$
15,486

 
$
(133
)
 
$
15,353

 
$
21,675

 
$
(5,658
)
 
$
16,017

Long-term investments in other assets:
 
 
 
 
 
 
 
 
 
 
 
       Available-for-sale securities
$
1,104

 
$
55

 
$
1,159

 
$
939

 
$
168

 
$
1,107

 
Short-term trading securities generally consist of equity securities relating to the Company’s deferred compensation plan. Short-term and long-term available-for-sale securities primarily consist of investments in other companies’ equity securities. Held-to-maturity investments primarily consist of term deposits with maturities from the date of purchase greater than three months and less than one year. These term deposits are held until the maturity date and are not traded. Cost-method securities primarily consist of investments in a hedge fund and a private equity fund under the Company’s deferred compensation plan.
Trading securities and available-for-sale securities are recorded at fair value in each reporting period and therefore the carrying value of these securities equals their fair value. For cost-method securities, the Company records an impairment charge when the decline in fair value is determined to be other-than-temporary.
The following table summarizes the total realized and unrealized gains and losses recorded on the Company’s trading investments:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Realized and unrealized gains (losses) on trading investments
$
695

 
$
(1,288
)
 
$
1,809

 
$
(816
)

NOTE 7—DERIVATIVE INSTRUMENTS: 
In the ordinary course of business, the Company is exposed to foreign currency risk, interest risk, equity risk and credit risk. The Company’s transactions in some of its foreign operations are denominated in local currency. The Company’s foreign locations enter into transactions, and own monetary assets and liabilities, that are denominated in currencies other than their functional currency. As part of its risk management strategy, the Company uses short-term forward contracts in most of the above mentioned currencies to minimize its balance sheet exposure to foreign currency risk. These derivatives are not designated as hedging instruments. The forward exchange contracts are recorded at fair value in each reporting period and any gains or losses, resulting from the changes in fair value, are recorded in earnings in the period of change. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s policy is not to allow the use of derivatives for trading or speculative purposes. The fair value of the Company’s forward exchange contracts are also disclosed in Note 8.

13

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the fair value of the Company’s foreign exchange forward contracts as of August 31, 2012 and November 30, 2011:
  
 
Fair Value as of
Location                 
 
August 31, 2012
 
November 30, 2011
Other current assets
 
$
1

 
$
1

Accrued liabilities
 
1,562

 
324

The notional amounts of the foreign exchange forward contracts that were outstanding as of August 31, 2012 and November 30, 2011 were $120,775 and $79,468, respectively. The notional amounts represent the gross amounts of foreign currency that will be bought or sold at maturity. During the three and nine months ended August 31, 2012, in relation to its forward contracts, the Company recorded in “Other income, net” total realized and unrealized gains of $2,270 and $3,637, respectively. During the three and nine months ended August 31, 2011, in relation to its forward contracts, the Company recorded in "Other income (expense), net" total realized and unrealized gains of $437 and losses of $3,442, respectively.

NOTE 8—FAIR VALUE MEASUREMENTS: 
The Company’s fair value measurements are classified and disclosed in one of the following three categories:  
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

14

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(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 August 31, 2012
 
As of November 30, 2011
 
Total
 
Fair value measurement category
 
Total
 
Fair value measurement category
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
$
26,441

 
$
26,441

 
$

 
$

 
$
25,638

 
$
25,638

 
$

 
$

Trading securities
5,279

 
5,279

 

 

 
5,808

 
5,808

 

 

Available-for-sale securities in short-term investments
46

 
46

 

 

 
37

 
37

 

 

Available-for-sale securities in other assets
1,159

 
1,159

 

 

 
1,107

 
1,107

 

 

Forward foreign currency exchange contracts
1

 

 
1

 

 
1

 

 
1

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
1,562

 
$

 
$
1,562

 
$

 
$
324

 
$

 
$
324

 
$

Acquisition-related contingent consideration
1,311

 

 

 
1,311

 
3,065

 

 

 
3,065

 
The Company’s investments in trading and available-for-sale securities consist of equity securities and are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying value of the cash equivalents approximates the fair value since they are near their maturity.
The acquisition-related contingent consideration represents the future potential earn-out payments relating to the acquisitions in the GBS segment. The fair values of the contingent consideration are based on the Company’s probability assessment of the established profitability measures during the periods ranging from one year to three years from the date of the acquisitions. During the three and nine months ended August 31, 2012, the fair value of the contingent consideration was remeasured and the resulting decrease of $702 was recorded as a benefit to “Selling, general and administrative expenses” in the Consolidated Statements of Operations. The changes over time in the fair value were due to updated estimates of the expected revenue and gross profit related to the achievement of established earn-out targets. In addition, during the nine months ended August 31, 2012, $1,052 was paid to the sellers for the achievement of prior earn-out targets.
During the three and nine months ended August 31, 2012, there were no transfers between the fair value measurement category levels.
The following table summarizes the realized and unrealized gains and losses recorded in “Other income, net” in the Consolidated Statements of Operations for the changes in the fair value of its financial instruments for trading securities and forward foreign currency contracts:  
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Realized gains (losses)
$
(320
)
 
$
130

 
$
(1,536
)
 
$
(3,399
)
Unrealized gains (losses)
3,285

 
(982
)
 
5,573

 
(861
)
Total realized and unrealized gains (losses)
$
2,965

 
$
(852
)
 
$
4,037

 
$
(4,260
)
 

15

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table presents the assets and liabilities that are not carried at fair value as of August 31, 2012 and November 30, 2011:
 
As of August 31, 2012
 
As of November 30, 2011
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Cost method investments in short-term investments
$
2,022

 
$
3,472

 
$
2,329

 
$
3,898

Long-term accounts receivable
6,323

 
6,323

 
5,853

 
5,853

SYNNEX Canada term loan
8,895

 
8,895

 
9,118

 
9,118

Long-term Infotec Japan credit facility
76,550

 
76,550

 
77,290

 
77,290

Infotec Japan term loans
13,651

 
13,651

 
15,136

 
15,136

Convertible debt
140,083

 
177,971

 
136,163

 
165,386

 
The Company’s cost-method securities in short-term investments consist of investments in a hedge fund and a private equity fund. The fair value of the cost-method investments is based on either (i) the published fund values or (ii) a valuation model developed internally based on the published value of the securities held by the fund. The Company records an impairment charge when the decline in fair value is determined to be other-than-temporary.
The fair value of long-term accounts receivable is based on customer rating and creditworthiness. The carrying values of the SYNNEX Canada Limited ("SYNNEX Canada") term loan, the long-term Infotec Japan credit facility and the Infotec Japan term loans approximate their fair value since interest rates offered to the Company for debt of similar terms and maturities are approximately the same. The fair value of convertible debt is based on the closing price of the convertible debt traded in a limited trading market.
Other investment
The cost method investments in “Other assets” consist of investments in equity securities of private entities. The carrying value of the investments was $6,405 and $3,575 as of August 31, 2012 and November 30, 2011, respectively. The carrying value of the investments as of August 31, 2012 includes a $3,082 investment in SB Pacific, as described below. As of November 30, 2011, the fair value of these cost method investments was greater than the carrying value. There have been no significant changes to the fair value of the investments as of August 31, 2012.  
In fiscal year 2010, the Company acquired a 33.3% noncontrolling interest in SB Pacific, which was recorded under the equity method of accounting. On April 1, 2012, the Company reduced its noncontrolling interest to 19.7% and as a result began accounting for the investment under the cost method of accounting. As of August 31, 2012 and November 30, 2011, the carrying value of the investment was $3,082 and $5,950, respectively. As of August 31, 2012 and November 30, 2011, the fair value of this investment exceeded its carrying value. 
The carrying value of other financial instruments, such as held-to-maturity securities, accounts receivable, accounts payable and short-term debt, approximate fair value due to their short maturities or variable-rate nature of the respective borrowings.
The Company monitors its investments for impairment by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, and records reductions in carrying values when necessary. Any impairment loss is reported under “Other income, net” in the Consolidated Statements of Operations.
 
NOTE 9—ACCOUNTS RECEIVABLE ARRANGEMENTS: 
The Company primarily finances its United States operations with an accounts receivable securitization program (the “U.S. Arrangement”). In November 2010, the Company amended and restated the U.S. Arrangement (“Amended and Restated U.S. Arrangement”) replacing the lenders and the lead agent. The Company can now pledge up to a maximum of $400,000 in U.S. trade accounts receivable (“U.S. Receivables”) as compared to a maximum of $350,000 under the previous U.S. Arrangement. The maturity date of the Amended and Restated U.S. Arrangement is November 12, 2013. The effective

16

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

borrowing cost under the Amended and Restated U.S. Arrangement is a blend of the prevailing dealer commercial paper rates plus a program fee of 0.60% per annum based on the used portion of the commitment, and a facility fee of 0.60% per annum payable on the aggregate commitment of the lenders. Prior to the amendment, the effective borrowing cost was a blend of the prevailing dealer commercial paper rates, plus a program fee of 0.65% per annum based on the used portion of the commitment and a facility fee of 0.65% per annum payable on the aggregate commitment. As of August 31, 2012, there was no balance outstanding under the U.S. Arrangement; the balance outstanding as of November 30, 2011 was $64,500.
Under the terms of the Amended and Restated U.S. Arrangement, the Company sells, on a revolving basis, its U.S. Receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in and to the U.S. Receivables as security. Any borrowings under the Amended and Restated U.S. Arrangement are recorded as debt on the Company’s Consolidated Balance Sheets. As is customary in trade accounts receivable securitization arrangements, a credit rating agency’s downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an increase in the Company’s cost of borrowing or loss of the Company’s financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on the Company’s financial condition and results of operations.  
The Company also has other financing agreements in North America with various financial institutions (“Flooring Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay to the Company the selling price of products sold to various customers, less a discount, within approximately 15 to 30 days from the date of sale. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. Please see Note 17Commitments and Contingencies for further information. The following table summarizes the net sales financed through the flooring agreements and the flooring fees incurred: 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Net sales financed
$
229,370

 
$
201,700

 
$
603,195

 
$
532,515

Flooring fees(1)
1,358

 
1,034

 
3,553

 
2,068

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of August 31, 2012 and November 30, 2011, accounts receivable subject to flooring agreements were $54,109 and $63,031, respectively.
Infotec Japan has arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amount outstanding under these arrangements that was sold, but not collected as of August 31, 2012 and November 30, 2011 was $12,592 and $10,980, respectively.



17

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 10—BORROWINGS: 
Borrowings consist of the following: 
 
As of
 
August 31, 2012
 
November 30, 2011
Convertible debt
$
140,083

 
$
136,163

SYNNEX U.S. securitization

 
64,500

SYNNEX Canada revolving line of credit
12,856

 
27,285

SYNNEX Canada term loan
8,895

 
9,118

Infotec Japan credit facility
123,756

 
128,816

Other borrowings and capital leases
14,993

 
17,140

Total borrowings
300,583

 
383,022

Less: Current portion
(215,237
)
 
(159,200
)
Non-current portion
$
85,346

 
$
223,822

Convertible debt 
In May 2008, the Company issued $143,750 of aggregate principal amount of its 4.0% Convertible Senior Notes due 2018 (the “Convertible Senior Notes”) in a private placement. The carrying amount of the Convertible Senior Notes, net of the unamortized debt discount, was $140,083 and $136,163 as of August 31, 2012 and November 30, 2011, respectively. The Convertible Senior Notes are senior unsecured obligations of the Company and have a cash coupon interest rate of 4.0% per annum. The Company may redeem the Convertible Senior Notes, in whole or in part, for cash on or after May 20, 2013, at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the redemption date. See Note 11Convertible Debt. Also, the Convertible Senior Notes contain various features which under certain circumstances could allow the holders to convert the Convertible Senior Notes into shares before their ten-year maturity. Further, the date of settlement of the Convertible Senior Notes is uncertain due to various features including put and call elements which occur in May, 2013. Because of the May 2013 put and call features, the Company has classified the Convertible Senior Notes as short term debt starting May 31, 2012 in the Consolidated Balance Sheets.
SYNNEX U.S. securitization 
The Company can pledge up to a maximum of $400,000 in U.S. Receivables under its Amended and Restated U.S. Arrangement. See Note 9Accounts Receivable Arrangements. The effective borrowing cost under the Amended and Restated U.S. Arrangement is a blend of the prevailing dealer commercial paper rates, plus a program fee on the used portion of the commitment and a facility fee payable on the aggregate commitment.  
SYNNEX U.S. senior secured revolving line of credit 
The Company has a senior secured revolving line of credit arrangement (the “Revolver”) with a financial institution. In November 2010, the Company amended and restated the Revolver (the “Amended and Restated Revolver”) to remove one of the lenders and increase the maximum commitment of the remaining lender from $80,000 to $100,000. The Amended and Restated Revolver retains an accordion feature to increase the maximum commitment by an additional $50,000 to $150,000 at the Company’s request, in the event the current lender consents to such increase or another lender participates in the Amended and Restated Revolver. Interest on borrowings under the Amended and Restated Revolver is based on a base rate or London Interbank Offered Rate (“LIBOR”), at the Company’s option. The margin on the LIBOR is determined in accordance with its fixed charge coverage ratio under the Amended and Restated Revolver and is currently 2.25%. The Company’s base rate is determined based on the higher of (i) the financial institution’s prime rate, (ii) the overnight federal funds rate plus 0.50% or (iii) one month LIBOR plus 1.00%. An unused line fee of 0.50% per annum is payable if the outstanding principal amount of the Amended and Restated Revolver is less than half of the lenders’ commitments; however, that fee is reduced to 0.35% if the outstanding principal amount of the Amended and Restated Revolver is greater than half of the lenders’ commitments. The Amended and Restated Revolver is secured by the Company’s inventory and other assets and expires in November 2013. It

18

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

would be an event of default under the Amended and Restated Revolver if (1) a lender under the Amended and Restated U.S. Arrangement declines to extend the maturity date at any point within sixty days prior to the maturity date of the Amended and Restated U.S. Arrangement, unless availability under the Amended and Restated Revolver exceeds $60,000 or the Company has a binding commitment in place to renew or replace the Amended and Restated U.S. Arrangement or (2) at least twenty days prior to the maturity date of the Amended and Restated U.S. Arrangement, the Company does not have in place a binding commitment to renew or replace the Amended and Restated U.S. Arrangement on substantially similar terms and conditions, unless the Company has no amounts outstanding under the Amended and Restated Revolver at such time. There was no borrowing outstanding as of both August 31, 2012 and November 30, 2011.
SYNNEX U.S. unsecured revolving line of credit
In February 2011, the Company entered into an arrangement with a financial institution to provide an unsecured revolving line of credit for general corporate purposes. The maximum commitment under the arrangement was $25,000. The arrangement included an unused line fee of 0.50% per annum. Interest on borrowings under the line of credit was determined by either a base rate or the LIBOR, at the Company’s option. The arrangement was terminated in August 2012. There was no borrowing outstanding under this arrangement as of November 30, 2011.  
SYNNEX Canada revolving line of credit 
SYNNEX Canada has a revolving line of credit arrangement with a financial institution for a maximum commitment of C$125,000. In May 2012, SYNNEX Canada completed the renewal of this arrangement (the “Renewed Canadian Revolving Arrangement”). The Renewed Canadian Revolving Arrangement maximum commitment is C$100,000 and includes an accordion feature to increase the maximum commitment by an additional C$25,000 to C$125,000, at SYNNEX Canada's request. The Renewed Canadian Revolving Arrangement also provides a sublimit of $5,000 for the issuance of standby letters of credit. As of August 31, 2012 and November 30, 2011, outstanding standby letters of credit totaled $3,475 and $3,368, respectively. SYNNEX Canada has granted a security interest in substantially all of its assets in favor of the lender under the Renewed Canadian Revolving Arrangement. In addition, the Company pledged its stock in SYNNEX Canada as collateral for the Renewed Canadian Revolving Arrangement. The Renewed Canadian Revolving Arrangement expires in May 2017. The interest rate applicable under the Renewed Canadian Revolving Arrangement is equal to (i) the Canadian base rate plus a margin of 0.75% for a Base Rate Loan in Canadian Dollars; whereas before the renewal, it was a minimum rate of 2.50% plus a margin of 1.25% for a Base Rate Loan in Canadian Dollars, (ii) the US base rate plus a margin of 0.75% for a Base Rate Loan in U.S. Dollars; whereas before the renewal, it was a minimum rate of 3.25% plus a margin of 2.50% for a Base Rate Loan in U.S. Dollars, and (iii) the Bankers' Acceptance rate ("BA") plus a margin of 2.00% for a BA Rate Loan; whereas before the renewal, it was a minimum rate of 1.00% plus a margin of 2.75% for a BA Rate Loan. The Canadian base rate means the greater of a) the prime rate determined by a major Canadian financial institution and b) the one month Canadian Dealer Offered Rate ("CDOR") rate (the average rate applicable to Canadian dollar bankers' acceptances for the applicable period) plus 1.50%. The US base rate means the greater of a) a reference rate determined by a major Canadian financial institution for US dollar loans made to Canadian borrowers and b) the US federal funds rate plus 0.50%. After the renewal, a fee of 0.25% per annum is payable with respect to the unused portion of the commitment; whereas before the renewal, this fee was 0.375% per annum.
SYNNEX Canada term loan
SYNNEX Canada has a term loan associated with the purchase of its logistics facility in Guelph, Canada. The interest rate for the unpaid principal amount is a fixed rate of 5.374% per annum. The final maturity date for repayment of the unpaid principal is April 1, 2017.
Infotec Japan credit facility
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY10,000,000. The credit agreement is comprised of a JPY6,000,000 long-term loan and a JPY4,000,000 short-term revolving credit facility. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate ("TIBOR") plus a margin of 2.25% per annum. The credit facility expires in November 2013. The long-term loan can be repaid at any time prior to maturity without penalty. The Company has issued a guarantee of JPY7,000,000 under this credit facility.

19

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Other borrowings and capital leases
Infotec Japan has two term loans with financial institutions that consist of a short-term revolving credit facility of JPY1,000,000 and a term loan of JPY70,000. As of November 30, 2011, Infotec Japan had a short-term loan of JPY1,000,000, which was refinanced upon maturity for the same amount during the nine months ended August 31, 2012, with a new lender. The new loan is a one-year revolving credit facility of JPY1,000,000, which expires in February 2013 and bears an interest rate that is based on TIBOR plus a margin of 1.75%. The term loan of JPY70,000, expires in December 2012 and bears a fixed interest rate of 1.50%. As of August 31, 2012 and November 30, 2011, the balances outstanding under these lines were $13,652 and $15,137, respectively.
In addition, as of August 31, 2012 and November 30, 2011, Infotec Japan had $204 and $536, respectively, outstanding under arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable with recourse provisions to Infotec Japan.
As of August 31, 2012 and November 30, 2011, the Company had capital lease obligations of $1,137 and $1,467, respectively, primarily pertaining to Infotec Japan.
Interest expense and finance charges 
For the three and nine months ended August 31, 2012, the total interest expense and finance charges for the Company's borrowings were $6,989 and $20,986, respectively, including non-cash interest expenses of $1,335 and $3,920, respectively, for the Convertible Senior Notes. For the three and nine months ended August 31, 2011, the total interest expense and finance charges for the Company's borrowings were $7,348 and $21,295, respectively, including non-cash interest expenses of $1,234 and $3,623, respectively, for the Convertible Senior Notes. The variable interest rates ranged between 0.87% and 4.06% during the three months ended August 31, 2012 and between 0.87% and 4.24% during the nine months ended August 31, 2012. The variable interest rates ranged between 0.82% and 4.90% during both the three and nine months ended August 31, 2011.
Covenants compliance 
In relation to the Amended and Restated U.S. Arrangement, the Amended and Restated Revolver, the Infotec Japan credit facility, and the Renewed Canadian Revolving Arrangement, the Company has a number of covenants and restrictions that, among other things, require the Company to comply with certain financial and other covenants. These covenants require the Company to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratios. They also limit the Company’s ability to incur additional debt, make or forgive intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase the Company’s stock, create liens, cancel debt owed to the Company, enter into agreements with affiliates, modify the nature of the Company’s business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. The covenants also limit the Company’s ability to pay cash upon conversion, redemption or repurchase of the Convertible Senior Notes subject to certain liquidity tests. As of August 31, 2012, the Company was in compliance with all material covenants for the above arrangements. 
Guarantees 
The Company has issued guarantees to certain vendors and lenders of its subsidiaries for trade credit lines and loans, to a certain customer's lenders and to certain acquirers of the Company's divestitures to ensure compliance with subsidiary sales agreements, totaling $269,654 and $238,723 as of August 31, 2012 and November 30, 2011, respectively. The Company is obligated under these guarantees to pay amounts due should its subsidiaries or customer not pay valid amounts owed to their vendors or lenders or not comply with subsidiary sales agreements.
 

20

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 11—CONVERTIBLE DEBT: 
 
As of
  
August 31, 2012
 
November 30, 2011
Principal amount
$
143,750

 
$
143,750

Less: Unamortized debt discount
(3,667
)
 
(7,587
)
Net carrying amount
$
140,083

 
$
136,163

 
In May 2008, the Company issued $143,750 of aggregate principal amount of the Convertible Senior Notes in a private placement. The Convertible Senior Notes have a cash coupon interest rate of 4.0% per annum. Interest on the Convertible Senior Notes is payable in cash semi-annually in arrears on May 15 and November 15 of each year, and commenced on November 15, 2008. In addition, the Company will pay contingent interest in respect of any six-month period from May 15 to November 14 or from November 15 to May 14, with the initial six-month period commencing May 15, 2013, if the trading price of the Convertible Senior Notes for each of the ten trading days immediately preceding the first day of the applicable six-month period equals 120% or more of the principal amount of the Convertible Senior Notes. During any interest period when contingent interest is payable, the contingent interest payable per Convertible Senior Note is equal to 0.55% of the average trading price of the Convertible Senior Notes during the ten trading days immediately preceding the first day of the applicable six-month interest period. The Convertible Senior Notes mature on May 15, 2018, subject to earlier redemption, repurchase or conversion.  
Holders may convert their Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date for such Convertible Senior Notes under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ended August 31, 2008 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least twenty trading days in the period of thirty consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is equal to or more than 130% of the conversion price of the Convertible Senior Notes on the last day of such preceding fiscal quarter; (2) during the five business-day period after any five consecutive trading-day period (the “Measurement Period”) in which the trading price per $1 principal amount of the Convertible Senior Notes for each day of that Measurement Period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate of the Convertible Senior Notes on each such day; (3) if the Company has called the particular Convertible Senior Notes for redemption, until the close of business on the business day prior to the redemption date; or (4) upon the occurrence of certain corporate transactions. These contingencies were not triggered as of August 31, 2012. In addition, holders may also convert their Convertible Senior Notes at their option at any time beginning on November 15, 2017, and ending at the close of business on the business day immediately preceding the maturity date for the Convertible Senior Notes, without regard to the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the common stock or a combination thereof at the Company’s election. The initial conversion rate for the Convertible Senior Notes is 33.9945 shares of common stock per $1 principal amount of Convertible Senior Notes, equivalent to an initial conversion price of $29.42 per share of common stock. Such conversion rate will be subject to adjustment in certain events but will not be adjusted for accrued interest, including any additional interest and any contingent interest. The Company may enter into convertible hedge arrangements to hedge the in-the-money feature of the Convertible Senior Notes to counter the potential share dilution.
The Company may not redeem the Convertible Senior Notes prior to May 20, 2013. The Company may redeem the Convertible Senior Notes, in whole or in part, for cash on or after May 20, 2013, at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the redemption date. As of August 31, 2012, the Convertible Senior Notes were classified as current debt on the Consolidated Balance Sheets. Also, the Convertible Senior Notes contain various features which under certain circumstances could allow the holders to convert the Convertible Senior Notes into shares before their ten-year maturity.
Holders may require the Company to repurchase all or a portion of their Convertible Senior Notes for cash on May 15, 2013 at a purchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest (including any additional interest and any contingent interest) up to, but excluding, the repurchase date. Accordingly, the Convertible Senior Notes have been classified as a current obligation as of August 31, 2012 on the

21

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Consolidated Balance Sheets. If the Company undergoes a fundamental change, holders may require it to purchase all or a portion of their Convertible Senior Notes for cash at a price equal to 100% of the principal amount of the Convertible Senior Notes to be purchased, plus any accrued and unpaid interest (including any additional interest and any contingent interest,) up to, but excluding, the fundamental change repurchase date.  
The Convertible Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with other senior unsecured debt and rank senior to subordinated debt, if any. The Convertible Senior Notes effectively rank junior to any of the Company’s secured indebtedness to the extent of the assets securing such indebtedness. The Convertible Senior Notes are also structurally subordinated in right of payment to all indebtedness and other liabilities and commitments (including trade payables) of the Company’s subsidiaries. The net proceeds from the Convertible Senior Notes were used for general corporate purposes and to reduce outstanding balances under the U.S. Arrangement and the Revolver.  
The Convertible Senior Notes are governed by an indenture, dated as of May 12, 2008, between U.S. Bank National Association, as trustee, and the Company, which contains customary events of default. 
The Convertible Senior Notes as hybrid instruments are accounted for as convertible debt and are recorded at carrying value. The right of the holders of the Convertible Senior Notes to require the Company to repurchase the Convertible Senior Notes in the event of a fundamental change and the contingent interest feature would require separate measurement from the Convertible Senior Notes; however, the amount is insignificant. The additional shares issuable following certain corporate transactions do not require bifurcation and separate measurement from the Convertible Senior Notes. 
In accordance with the provisions of the standards for accounting for convertible debt, the Company recognized both a liability and an equity component of the Convertible Senior Notes in a manner that reflects its non-convertible debt borrowing rate at the date of issuance of 8.0%. The value assigned to the debt component, which is the estimated fair value, as of the issuance date, of a similar note without the conversion feature, was determined to be $120,332. The difference between the Convertible Senior Note cash proceeds and this estimated fair value was estimated to be $23,418 and was retroactively recorded as a debt discount and will be amortized to “Interest expense and finance charges, net” over the five-year period to the first put date, utilizing the effective interest method.  
As of August 31, 2012, the remaining amortization period is approximately eight months assuming the redemption of the Convertible Senior Notes at the first purchase date of May 20, 2013. Based on a cash coupon interest rate of 4.0%, the Company recorded contractual interest expense of $1,624 and $4,872, respectively, during the three and nine months ended August 31, 2012, and $1,624 and $4,871, respectively, during the three and nine months ended August 31, 2011. Based on an effective rate of 8.0%, the Company recorded non-cash interest expense of $1,335 and $3,920, respectively, during the three and nine months ended August 31, 2012, and non-cash interest expense of $1,234 and $3,623, respectively, during the three and nine months ended August 31, 2011. As of both August 31, 2012 and November 30, 2011, the carrying value of the equity component of the Convertible Senior Notes, net of allocated issuance costs, was $22,836.
The date of settlement of the Convertible Senior Notes is uncertain due to the various features of the Convertible Senior Notes including put and call elements. Because of the May 2013 put and call features, the Company has classified the Convertible Senior Notes as short term debt starting May 31, 2012 in the Consolidated Balance Sheets.
The Company currently intends to settle the Convertible Senior Notes using cash at some future date, the Company maintains within its Amended and Restated U.S. Arrangement and Amended and Restated Revolver ongoing features that allow the Company to utilize cash from these facilities to cash settle the Convertible Senior Notes.


22

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 12—NET INCOME PER COMMON SHARE: 
The following table sets forth the computation of basic and diluted net income per common share for the periods indicated: 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Net income attributable to SYNNEX Corporation
$
35,139

 
$
39,036

 
$
107,736

 
$
100,158

Weighted-average common shares - basic
36,700

 
35,882

 
36,537

 
35,726

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock awards and restricted stock units
574

 
712

 
617

 
803

Conversion spread of convertible debt
643

 

 
812

 
357

Weighted-average common shares - diluted
37,917

 
36,594

 
37,966

 
36,886

Net income per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
0.96

 
$
1.09

 
$
2.95

 
$
2.80

Diluted
$
0.93

 
$
1.07

 
$
2.84

 
$
2.72

Options to purchase 13 and 7 shares of common stock during the three and nine months ended August 31, 2012, respectively, and 62 and 35 shares during the three and nine months ended August 31, 2011, respectively, have not been included in the computation of diluted net income per share as their effect would have been anti-dilutive.

NOTE 13—SEGMENT INFORMATION: 
Operating segments
Operating segments are based on components of the Company that engage in business activity that earn revenue and incur expenses and (a) whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resource allocation and performance and (b) for which discrete financial information is available.
The distribution services segment provides value-added services and distributes IT systems, peripherals, system components, software, networking equipment, consumer electronics ("CE") and complementary products and offers data center server and storage solutions. The distribution segment also provides contract assembly services.
The GBS services segment offers a range of BPO services to customers that include technical support, renewals management, lead management, direct sales, customer service, back office processing and information technology outsourcing ("ITO"). Many of these services are delivered and supported on the proprietary software platforms that the Company has developed to provide additional value to its customers.

23

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Summarized financial information related to the Company’s reportable business segments for the three and nine months ended August 31, 2012 and 2011 is shown below:
 
Distribution
 
GBS
 
Inter-Segment
Elimination
 
Consolidated
Three months ended August 31, 2012
 
 
 
 
 
 
 
Revenue
$
2,535,991

 
$
49,729

 
$
(8,772
)
 
$
2,576,948

Income from operations before non-operating items, income taxes and noncontrolling interest
52,627

 
4,581

 
(157
)
 
57,051

Three months ended August 31, 2011
 
 
 
 
 
 
 
Revenue
2,538,792

 
40,480

 
(7,139
)
 
2,572,133

Income from operations before non-operating items, income taxes and noncontrolling interest
58,592

 
7,926

 

 
66,518

 
 
 
 
 
 
 
 
Nine months ended August 31, 2012
 
 
 
 
 
 
 
Revenue
$
7,402,218

 
$
142,505

 
$
(24,282
)
 
$
7,520,441

Income from operations before non-operating items, income taxes and noncontrolling interest
171,379

 
9,151

 
(170
)
 
180,360

Nine months ended August 31, 2011
 
 
 
 
 
 
 
Revenue
7,471,196

 
118,470

 
(20,797
)
 
7,568,869

Income from operations before non-operating items, income taxes and noncontrolling interest
156,266

 
15,265

 

 
171,531

 
 
 
 
 
 
 
 
Total assets as of August 31, 2012
$
2,627,355

 
$
306,703

 
$
(202,237
)
 
$
2,731,821

Total assets as of November 30, 2011
2,737,600

 
295,600

 
(199,905
)
 
2,833,295

The inter-segment elimination relates to the inter-segment, back office support services provided by the GBS segment to the distribution segment, elimination of inter-segment profit, inter-segment investments and inter-segment receivables.
Segment by geography
The Company primarily operates in North America. The United States and Canada are included in the “North America” operations. China, India, Japan and the Philippines are included in “Asia-Pacific” operations and Costa Rica, Hungary, Mexico, Nicaragua and the UK are included in “Other” operations. The revenues attributable to countries are based on geography of entities from where the products are distributed or services are provided. Long-lived assets include "Property and equipment, net" and certain "Other assets." Shown below is summarized financial information related to the geographic areas in which the Company operated during the three and nine months ended August 31, 2012 and 2011:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Revenue:
 
 
 
 
 
 
 
North America
$
2,287,397

 
$
2,248,957

 
$
6,523,462

 
$
6,526,172

Asia-Pacific
272,933

 
312,759

 
944,010

 
962,477

Other
16,618

 
10,417

 
52,969

 
80,220

 
$
2,576,948

 
$
2,572,133

 
$
7,520,441

 
$
7,568,869


24

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

 
As of
 
August 31, 2012
 
November 30, 2011
Long-lived assets:
 
 
 
North America
$
106,246

 
$
105,318

Asia-Pacific
29,964

 
34,974

Other
20,901

 
22,313

 
$
157,111

 
$
162,605

Revenue in the United States was approximately 76% and 73% of the total revenue for the three and nine months ended August 31, 2012, respectively, and 74% and 72% of the total revenue for the three and nine months ended August 31, 2011, respectively. Revenue in Canada was approximately 13% and 14% of total revenue for the three and nine months ended August 31, 2012, respectively, and 14% of total revenue for both the three and nine months ended August 31, 2011. Revenue in Japan was approximately 10% and 12% of the total revenue for the three and nine months ended August 31, 2012, respectively, and 12% the total revenue for both the three and nine months ended August 31, 2011.
Long-lived assets in the United States were approximately 55% and 52% of total long-lived assets as of August 31, 2012 and November 30, 2011, respectively. Long-lived assets in Canada were 12% of total long-lived assets as of both August 31, 2012 and November 30, 2011. Long-lived assets in Japan were approximately 8% and 12% of total long-lived assets as of August 31, 2012 and November 30, 2011, respectively.
 
NOTE 14—RELATED PARTY TRANSACTIONS: 
The Company has a business relationship with MiTAC International Corporation (“MiTAC International”), a publicly-traded company in Taiwan that began in 1992 when it became its primary investor through its affiliates. As of August 31, 2012 and November 30, 2011, MiTAC International and its affiliates beneficially owned approximately 27% and 29%, respectively, of the Company’s common stock. In addition, Matthew Miau, the Company’s Chairman Emeritus of the Board of Directors, is the Chairman of MiTAC International and a director or officer of MiTAC International’s affiliates. As a result, MiTAC International generally has significant influence over the Company and over the outcome of all 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.  
Until July 31, 2010, the Company worked with MiTAC International on OEM outsourcing and jointly marketed MiTAC International’s design and electronic manufacturing services and its contract assembly capabilities. This relationship enabled the Company to build relationships with MiTAC International’s customers. On July 31, 2010, MiTAC International purchased certain assets related to the Company’s contract assembly business, including inventory and customer contracts, primarily related to customers then being jointly serviced by MiTAC International and the Company. As part of this transaction, the Company provided MiTAC International certain transition services for the business for a monthly fee over a period of twelve months. The sales agreement also included earn-out and profit sharing provisions, which were based on operating performance metrics achieved over twelve to eighteen months from the closing date for the defined customers included in this transaction. During the three and nine months ended August 31, 2012, the Company recorded $870 and $2,742, respectively, for service fees earned and reimbursements for facilities and overhead costs. During the three and nine months ended August 31, 2011, the Company recorded $1,266 and $5,362, respectively, for service fees earned and reimbursements for facilities and overhead costs and the achieved earn-out condition.
The Company purchased inventories from MiTAC International and its affiliates totaling $1,840 and $2,819 during the three and nine months ended August 31, 2012, respectively, and $540 and $2,868 during the three and nine months ended August 31, 2011, respectively. The Company’s sales to MiTAC International and its affiliates during the three and nine months ended August 31, 2012, totaled $362 and $2,585, respectively. The Company's sales to MiTAC International and its affiliates during the three and nine months ended August 31, 2011, totaled $1,645 and $2,726, respectively.
The Company’s business relationship with MiTAC International has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. 

25

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

During the period of time that the Company worked with MiTAC International, the Company negotiated manufacturing, pricing and other material terms on a case-by-case basis with MiTAC International and its contract assembly customers for a given project. While MiTAC International is a related party and a controlling stockholder, the Company believes that the significant terms under its arrangements with MiTAC International, including pricing, will not materially differ from the terms it could have negotiated with unaffiliated third parties, and it has adopted a policy requiring that material transactions with MiTAC International or its related parties be approved by its Audit Committee, which is composed solely of independent directors. In addition, Matthew Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors.  
Beneficial ownership of the Company’s common stock by MiTAC International 
As noted above, MiTAC International and its affiliates in the aggregate beneficially owned approximately 27% of the Company’s common stock as of August 31, 2012. These shares are owned by the following entities:  
 
As of August 31, 2012
MiTAC International(1)
5,908

Synnex Technology International Corp.(2)
4,283

Total
10,191

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC International. Excludes 591 shares (of which 381 shares are directly held and 210 shares are subject to exercisable options) held by Matthew Miau.
(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 International owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.7% in Synnex Technology International. Neither MiTAC International nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
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 International, nor Synnex Technology International is restricted from competing with the Company.  
Others 
On August 31, 2010, the Company acquired a 33.3% noncontrolling interest in SB Pacific, which was recorded as an equity-method investment. The Company is not the primary beneficiary in SB Pacific. The controlling shareholder of SB Pacific is Robert Huang, who is the Company’s founder and former Chairman. On April 1, 2012, the Company sold a portion of its ownership interest in SB Pacific back to SB Pacific and thus reduced its ownership interest from 33.3% to 19.7%. A gain of $271 was recognized on the transaction representing the difference between the proceeds received and the carrying value of the investment. From April 1, 2012, the Company’s investment in SB Pacific is accounted for as a cost-method investment and is included in “Other assets.” The balances of the investment as of August 31, 2012 and November 30, 2011 were $3,082 and $5,950, respectively. The Company regards SB Pacific to be a variable interest entity and as of August 31, 2012, its maximum exposure to loss was limited to its investment of $3,082. As of August 31, 2012, SB Pacific owned a 19.2% noncontrolling interest in Infotec Japan.  

NOTE 15—PENSION AND EMPLOYEE BENEFITS PLANS: 
The employees of SYNNEX Infotec Corporation ("Infotec Japan") are covered by certain defined benefit pension plans, including a multi-employer pension plan. Full-time employees are eligible to participate in the plans on the first day of February following their date of hire and are not required to contribute to the plans.

26

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The components of net periodic pension costs pertaining to the Company's single employer benefit plan during the three and nine months ended August 31, 2012 and 2011 were as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Service cost
$
216

 
$
180

 
$
585

 
$
524

Interest cost
56

 
47

 
152

 
136

Expected return on plan assets
(34
)
 
(29
)
 
(92
)
 
(82
)
Net periodic pension costs
$
238

 
$
198

 
$
645

 
$
578

During the three and nine months ended August 31, 2012, the Company contributed $204 and $638 to the plan, respectively. During the three and nine months ended August 31, 2011, the Company contributed $188 and $544 to the plan, respectively.
NOTE 16—EQUITY:
Share repurchase program 
In June 2011, the Board of Directors authorized a three-year $65,000 share repurchase program. No purchases were made during the nine months ended August 31, 2012. As of November 30, 2011, the Company had purchased 62 shares for an aggregate cost of $1,676, under the program. The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes.

27

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Changes in equity
A reconciliation of the changes in equity for the nine months ended August 31, 2012 and 2011 is presented below:
 
 
 
Nine Months Ended August 31, 2012
 
Nine Months Ended August 31, 2011
 
 
  Attributable to  
SYNNEX
Corporation
 
  Attributable to  
Noncontrolling
interest
 
Total Equity    
 
Attributable
  to SYNNEX  
    Corporation     
 
  Attributable to  
Noncontrolling
interest
 
Total Equity    
Beginning balance of equity:
 
$
1,158,379

 
$
10,079

 
$
1,168,458

 
$
992,670

 
$
157

 
$
992,827

Issuance of common stock on exercise of options
 
7,789

 
96

 
7,885

 
6,039

 

 
6,039

Issuance of common stock for employee stock purchase plan
 
1,026

 

 
1,026

 
802

 

 
802

Tax benefit from exercise of non-qualified stock options
 
2,768

 

 
2,768

 
4,134

 

 
4,134

Taxes paid for the settlement of equity awards
 
(295
)
 

 
(295
)
 
(3,155
)
 

 
(3,155
)
Share-based compensation
 
6,250

 
6

 
6,256

 
5,869

 

 
5,869

Capital contribution by noncontrolling interest
 

 

 

 

 
9,027

 
9,027

Changes in ownership of noncontrolling interest
 
(2,364
)
 
(4,147
)
 
(6,511
)
 

 

 

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
107,736

 
1,074

 
108,810

 
100,158

 
194

 
100,352

Other comprehensive income (loss):
 

 

 

 

 

 

Changes in unrealized gain on available-for-sale securities
 
(420
)
 
64

 
(356
)
 
195

 

 
195

Net unrealized components of defined benefit pension plans
 
126

 
(64
)
 
62

 

 

 

Foreign currency translation adjustments
 
6,581

 
(306
)
 
6,275

 
11,479

 
798

 
12,277

Total other comprehensive income (loss)
 
6,287

 
(306
)
 
5,981

 
11,674

 
798

 
12,472

Total comprehensive income
 
114,023

 
768

 
114,791

 
111,832

 
992

 
112,824

Ending balance of equity:
 
$
1,287,576

 
$
6,802

 
$
1,294,378

 
$
1,118,191

 
$
10,176

 
$
1,128,367

 



28

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2012 and 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of August 31, 2012 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 9Accounts Receivable Arrangements. Losses, if any, would be the difference between the repossession cost and the resale value of the inventory. There have been no repurchases through August 31, 2012 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations. 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, the Company is involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company is not currently involved in any material proceedings.
In December 2009, the Company sold China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. In conjunction with this sale, the Company has recorded a contingent indemnification liability of $4,122.
The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. 
When used in this Quarterly Report on Form 10-Q or the Report, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “may,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our business model and our services, our market strategy, including expansion of our product lines, our infrastructure, anticipated benefits of our acquisitions, impact of MiTAC International Corporation, or MiTAC International, ownership interest in us, our revenue and operating results, our gross margins, competition with Synnex Technology International Corp., our future needs for additional financing, concentration of customers, our international operations, including our operations in Japan, expansion of our operations, our strategic acquisitions of businesses and assets, effects of future expansion of our operations, adequacy of our cash resources to meet our capital needs, cash held by our foreign subsidiaries, our convertible notes, including the settlement of our convertible notes, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of our accounting policies, our anti-dilution share repurchase program, and statements regarding our securitization programs and revolving credit lines. 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, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT and consumer electronics, or CE, industries, fluctuations in general economic conditions and risks set forth under Part II, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 
Overview
We are a Fortune 500 corporation and a leading business process services company, servicing resellers, retailers and original equipment manufacturers, or OEMs, in multiple regions around the world. Our primary business process services are wholesale distribution and business process outsourcing, or BPO. We operate in two segments: distribution services and global business services, or GBS. Our distribution services segment provides value-added services and distributes information technology, or IT, systems, peripherals, system components, software, networking equipment, CE, and complementary products and also offers data center server and storage solutions. We also provide contract assembly services within our distribution segment. Our GBS segment offers a range of BPO services to customers that include technical support, renewals management, lead management, direct sales, customer service, back office processing and information technology outsourcing, or ITO. Many of these services are delivered and supported on the proprietary software platforms we have developed to provide additional value to our customers.
We combine our core strengths in distribution with our BPO services to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and after-market product support. We distribute more than 25,000 technology products (as measured by active SKUs) from more than 200 IT, CE and OEM suppliers to more than 20,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Mexico. As of August 31, 2012, we had over 10,000 full-time and temporary employees worldwide. From a geographic perspective, approximately 89% and 87% of our total revenue was from North America for the three and nine months ended August 31, 2012, respectively, and 87% and 86% for the three and nine months ended August 31, 2011, respectively.
In our distribution segment, we purchase IT systems, peripherals, system components, software, networking equipment, CE and complementary products from our primary suppliers such as Hewlett-Packard Company, or HP, Lenovo, Acer,

30


Panasonic and Microsoft and sell them to our reseller and retail customers. We perform a similar function for our distribution of licensed software products. Our reseller customers include value-added resellers, or VARs, corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. In our broadline distribution business, we add value-added service offerings in key vertical markets such as government and healthcare and we have specialized service offerings increasing efficiencies in areas like print management, renewals, networking and other services. In our GBS segment, our customers are primarily manufacturers of IT hardware and CE devices, developers of software, cloud service providers, and broadcast and social media.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates for the three and nine months ended August 31, 2012 from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2011. For more information on our critical accounting policies, please see the discussion in our Annual Report on Form 10-K for the fiscal year ended November 30, 2011.
Recent Acquisitions and Divestitures 
We seek to augment our services offering expansion with strategic acquisitions of businesses and assets that complement and expand our global BPO capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. Our historical acquisitions have brought us new reseller and retail customers, OEM suppliers, and product lines, have extended the geographic reach of our operations, particularly in targeted markets, and have diversified and expanded the services we provide to our OEM suppliers and customers. We account for acquisitions using the purchase method of accounting and include acquired entities within our Consolidated Financial Statements from the closing date of the acquisition. 
Acquisitions during fiscal year 2011
On December 1, 2010, we acquired 70.0% of the capital stock of Marubeni Infotec Corporation, a subsidiary of Marubeni Corporation. SB Pacific Corporation Limited, or SB Pacific, our equity method investee at that time, acquired the remaining 30.0% noncontrolling interest. At the time of the acquisition, our total direct and indirect ownership of Marubeni Infotec Corporation was 80.0%. Marubeni Infotec Corporation, now known as SYNNEX Infotec Corporation, or Infotec Japan, is a distributor of IT equipment, electronic components and software in Japan. This acquisition was in the distribution segment and enabled our expansion into Japan. The aggregate consideration for the transaction initially was JPY700.0 million, or approximately $8.4 million, of which our direct share was $5.9 million. In the first quarter of fiscal year 2012, the purchase price was reduced by JPY125.2 million. The purchase price as adjusted was JPY574.8 million or approximately $6.9 million. On April 1, 2012, we purchased additional shares of Infotec Japan from SB Pacific resulting in an increase in our direct ownership interest in Infotec Japan from 70.0% to 81.0%. In April 2012, we reduced our ownership interest in SB Pacific from 33.3% to 19.7%; as a result, our total direct and indirect ownership interest in Infotec Japan increased from 80.0% to 84.7%.
The total net tangible liabilities in excess of net tangible assets acquired were $19.2 million. We recorded $26.1 million in goodwill and intangibles.
Infotec Japan has arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amounts outstanding under these arrangements that were sold, but not yet collected as of August 31, 2012 and November 30, 2011 were $12.6 million and $11.0 million, respectively.
During fiscal year 2011, we acquired certain businesses of e4e, Inc., or e4e, 100% of the stock of the global email company limited, or gem, and certain assets of VisionMAX Solutions Inc., or VisionMAX, for an aggregate purchase price of $43.3 million. The acquisitions were integrated into our GBS segment and brought additional BPO scale, complemented our service offerings in social media and cloud computing and expanded our customer base and geographic presence. The net tangible assets acquired were $10.2 million and we recorded $33.2 million in goodwill and intangibles on finalization of purchase price allocation.
With the exception of Infotec Japan, the above acquisitions in fiscal year 2011, individually and in the aggregate, did not meet the conditions of a material business combination and were not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting.



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Results of Operations 
The following table sets forth, for the indicated periods, data as percentages of revenue: 
Statements of Operations Data:
Three Months Ended
 
Nine Months Ended
 
August 31, 2012
 
August 31, 2011
 
August 31, 2012
 
August 31, 2011
Revenue
100.00
 %
 
100.00
 %
 
100.00
 %
 
100.00
 %
Cost of revenue
(94.10
)
 
(94.02
)
 
(93.65
)
 
(94.15
)
Gross profit
5.90

 
5.98

 
6.35


5.85

Selling, general and administrative expenses
(3.69
)
 
(3.39
)
 
(3.95
)
 
(3.58
)
Income from operations before non-operating items, income taxes and noncontrolling interest
2.21

 
2.59

 
2.40

 
2.27

Interest expense and finance charges, net
(0.23
)
 
(0.25
)
 
(0.23
)
 
(0.26
)
Other income (expense), net
0.04

 
(0.05
)
 
0.03

 
0.00

Income from operations before income taxes and noncontrolling interest
2.02

 
2.29

 
2.20

 
2.01

Provision for income taxes
(0.67
)
 
(0.76
)
 
(0.75
)
 
(0.69
)
Net income
1.35

 
1.53

 
1.45

 
1.32

Net (income) loss attributable to noncontrolling interest
0.01

 
(0.01
)
 
(0.02
)
 
0.00

Net income attributable to SYNNEX Corporation
1.36
 %
 
1.52
 %
 
1.43
 %
 
1.32
 %
Three and Nine Months Ended August 31, 2012 and 2011
Revenue 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2012
 
August 31, 2011
 
Percent  Change
 
August 31, 2012