SYNNEX Corporation
SYNNEX CORP (Form: 10-Q, Received: 10/07/2011 17:20:10)
Table Of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
________________________________________________________
FORM 10-Q  
________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2011
OR
o
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)
 
(I.R.S. 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   x     No   o
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   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
o
 
  
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
 (Do not check if a smaller reporting company)
  
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   o     No   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
 
Class
 
Outstanding at October 1, 2011
Common Stock, $0.001 par value
 
36,738,835

Table Of Contents

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

2

Table Of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SYNNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for par values)
(unaudited)
 
 
August 31, 2011
 
November 30, 2010
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
86,276

 
$
88,038

Short-term investments
 
8,782

 
11,419

Accounts receivable, net
 
1,017,590

 
986,917

Receivable from vendors, net
 
126,720

 
132,409

Receivable from affiliates
 
855

 
5,080

Inventories
 
955,722

 
912,237

Current deferred tax assets
 
31,328

 
33,063

Other current assets
 
51,050

 
40,030

Total current assets
 
2,278,323

 
2,209,193

Property and equipment, net
 
116,245

 
91,995

Goodwill
 
176,467

 
139,580

Intangible assets, net
 
33,960

 
28,271

Deferred tax assets
 
2,199

 
605

Other assets
 
48,745

 
30,217

Total assets
 
$
2,655,939

 
$
2,499,861

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Borrowings under securitization, term loans and lines of credit
 
$
228,626

 
$
245,973

Accounts payable
 
843,063

 
896,401

Payable to affiliates
 

 
3,195

Accrued liabilities
 
166,505

 
166,861

Income taxes payable
 
3,897

 
1,578

Total current liabilities
 
1,242,091

 
1,314,008

Long-term borrowings
 
88,142

 
9,044

Long-term liabilities
 
59,112

 
49,431

Convertible debt
 
134,912

 
131,289

Deferred tax liabilities
 
3,315

 
3,262

Total liabilities
 
1,527,572

 
1,507,034

Commitments and contingencies (Note 15)
 

 

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, 36,078 and 35,570 shares issued and outstanding
 
36

 
36

Additional paid-in capital
 
299,096

 
285,406

Accumulated other comprehensive income
 
39,708

 
28,035

Retained earnings
 
779,351

 
679,193

Total SYNNEX Corporation stockholders’ equity
 
1,118,191

 
992,670

Noncontrolling interest
 
10,176

 
157

Total equity
 
1,128,367

 
992,827

Total liabilities and equity
 
$
2,655,939

 
$
2,499,861

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

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Table Of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Revenue
 
$
2,572,133

 
$
2,177,066

 
$
7,568,869

 
$
6,145,916

Cost of revenue
 
(2,418,380
)
 
(2,052,197
)
 
(7,126,212
)
 
(5,795,219
)
Gross profit
 
153,753

 
124,869

 
442,657

 
350,697

Selling, general and administrative expenses
 
(87,235
)
 
(72,715
)
 
(271,126
)
 
(216,156
)
Income from continuing operations before non-operating items, income taxes and noncontrolling interest
 
66,518

 
52,154

 
171,531

 
134,541

Interest expense and finance charges, net
 
(6,472
)
 
(4,585
)
 
(18,910
)
 
(12,130
)
Other income (expense), net
 
(1,214
)
 
(300
)
 
(69
)
 
770

Income from continuing operations before income taxes and noncontrolling interest
 
58,832

 
47,269

 
152,552

 
123,181

Provision for income taxes
 
(19,662
)
 
(16,319
)
 
(52,200
)
 
(44,037
)
Income from continuing operations before noncontrolling interest, net of tax
 
39,170

 
30,950

 
100,352

 
79,144

Income from discontinued operations, net of tax
 

 

 

 
75

Gain on sale of discontinued operations, net of tax
 

 

 

 
11,351

Net income
 
39,170

 
30,950

 
100,352

 
90,570

Net income attributable to noncontrolling interest
 
(134
)
 
(36
)
 
(194
)
 
(153
)
Net income attributable to SYNNEX Corporation
 
$
39,036

 
$
30,914

 
$
100,158

 
$
90,417

Amounts attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
 
$
39,036

 
$
30,914

 
$
100,158

 
$
79,007

Discontinued operations:
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax
 

 

 

 
59

Gain on sale of discontinued operations, net of tax
 

 

 

 
11,351

Net income attributable to SYNNEX Corporation
 
$
39,036

 
$
30,914

 
$
100,158

 
$
90,417

Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.09

 
$
0.88

 
$
2.80

 
$
2.29

Discontinued operations
 

 

 

 
0.33

Net income per common share - basic
 
$
1.09

 
$
0.88

 
$
2.80

 
$
2.62

Diluted:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.07

 
$
0.86

 
$
2.72

 
$
2.22

Discontinued operations
 

 

 

 
0.32

Net income per common share - diluted
 
$
1.07

 
$
0.86

 
$
2.72

 
$
2.54

Weighted-average common shares outstanding - basic
 
35,882

 
35,083

 
35,726

 
34,534

Weighted-average common shares outstanding - diluted
 
36,594

 
35,910

 
36,886

 
35,628

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

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Table Of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
Cash flows from operating activities:
 
 
 
 
Net income
 
$
100,352

 
$
90,570

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation expense
 
12,011

 
8,365

Amortization of intangible assets
 
5,586

 
3,858

Accretion of convertible notes discount
 
3,623

 
3,349

Share-based compensation
 
5,869

 
6,372

Provision for doubtful accounts
 
4,504

 
6,063

Tax benefits from employee stock plans
 
4,134

 
10,539

Excess tax benefit from share-based compensation
 
(4,172
)
 
(8,819
)
Realized and unrealized loss on investments
 
831

 
939

Gain on disposal of assets and businesses
 

 
(12,900
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
 
Accounts receivable
 
175,266

 
6,308

Receivable from vendors
 
15,363

 
(12,658
)
Receivable from affiliates
 
3,193

 
4,655

Inventories
 
55,666

 
(120,090
)
Other assets
 
(3,575
)
 
(9,594
)
Payable to affiliates
 
(1,368
)
 
(18,351
)
Accounts payable
 
(250,355
)
 
20,024

Accrued liabilities
 
(14,286
)
 
(3,226
)
Deferred liabilities
 
3,386

 
(8,407
)
Net cash provided by (used in) operating activities
 
116,028

 
(33,003
)
Cash flows from investing activities:
 
 
 
 
Purchase of trading investments
 
(1,107
)
 
(4,733
)
Proceeds from sale of trading investments
 
2,399

 
7,746

Investment in held-to-maturity term deposits
 

 
(11,373
)
Proceeds from redemption of held-to-maturity term deposits
 
916

 
12,964

Acquisition of businesses, net of cash acquired
 
(41,435
)
 
(37,248
)
Purchase of property and equipment
 
(21,335
)
 
(7,146
)
Proceeds from sale of businesses
 
1,033

 
34,730

Loans and deposits to third parties, net
 
(1,624
)
 
(5,724
)
Increase in restricted cash
 
(8,338
)
 
(4,345
)
Investment in equity-method investee
 
(4,782
)
 

Net cash used in investing activities
 
(74,273
)
 
(15,129
)
Cash flows from financing activities:
 
 
 
 
Proceeds from revolving lines of credit and securitization
 
3,311,478

 
2,756,474

Payment of revolving lines of credit and securitization
 
(3,350,484
)
 
(2,718,995
)
Proceeds from long-term credit facility and term loans
 
86,173

 

Payment of long-term bank loans and other borrowings
 
(119,077
)
 
(443
)
Excess tax benefit from share-based compensation
 
4,172

 
8,819

Book overdraft
 
14,594

 
(2,643
)
Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
 
3,686

 
12,750

Capital contribution by noncontrolling interests
 
6,411

 

Net cash provided by (used in) financing activities
 
(43,047
)
 
55,962

Effect of exchange rate changes on cash and cash equivalents
 
(470
)
 
827

Net increase (decrease) in cash and cash equivalents
 
(1,762
)
 
8,657

Cash and cash equivalents at beginning of period
 
88,038

 
59,406

Cash and cash equivalents at end of period
 
$
86,276

 
$
68,063

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

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Table Of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Net income
 
$
39,170

 
$
30,950

 
$
100,352

 
$
90,570

Other comprehensive income:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
 
98

 
(18
)
 
195

 
(10
)
Foreign currency translation adjustment
 
(1,175
)
 
(2,963
)
 
12,277

 
(1,876
)
Total other comprehensive income:
 
(1,077
)
 
(2,981
)
 
12,472

 
(1,886
)
Comprehensive income:
 
38,093

 
27,969

 
112,824

 
88,684

Comprehensive income attributable to noncontrolling interest
 
(727
)
 
(190
)
 
(992
)
 
(153
)
Comprehensive income attributable to SYNNEX Corporation
 
$
37,366

 
$
27,779

 
$
111,832

 
$
88,531

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

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Table Of Contents

SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(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 the United States, Canada, China, Costa Rica, India, Japan, Mexico, the Philippines and the United Kingdom (“UK”).
The accompanying interim unaudited Consolidated Financial Statements as of August 31, 2011 and for the three and nine month periods ended August 31, 2011 and 2010 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, 2010 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 year ended November 30, 2010 , 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, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2011, 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, 2010 . 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, 2010 .
Restricted cash
As of August 31, 2011 and November 30, 2010 , the Company had restricted cash in the amounts of $26,032 and $17,472, respectively. The primary portion of the restricted cash balance relates to temporary restrictions caused by the timing of lockbox collections under the Company’s borrowing arrangements, amounts held to cover outstanding letters of credit and miscellaneous deposits. The remaining amount of the restricted cash relates to 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, 2011 and November 30, 2010 and the location where these amounts are recorded on the Consolidated Balance Sheets.
 
 
 
As of
 
 
August 31, 2011
 
November 30, 2010
Related to borrowing arrangements and others:
 
 
 
 
Other current assets
 
$
23,637

 
$
11,865

Related to long-term projects:
 
 
 
 
Other current assets
 

 
3,153

Other assets
 
2,395

 
2,454

Total restricted cash
 
$
26,032

 
$
17,472



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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(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, 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, 2011 , the Company had not experienced any losses on such deposits.  
Accounts receivable include amounts due from customers 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 risks. Through August 31, 2011 , such losses have been within management’s expectations.
In both the three and nine months ended August 31, 2011 , no customer accounted for more than 10% of the Company’s total revenue. In the three and nine months ended August 31, 2010 , one customer accounted for approximately 12% and 11% , respectively, of the Company’s total revenue.
As of August 31, 2011 , no customer accounted for more than 10% of the Company’s total accounts receivable balance. As of November 30, 2010 , one customer accounted for approximately 16% of the total consolidated accounts receivable balance.
Products purchased from the Company’s largest OEM supplier, Hewlett-Packard Company (“HP”), accounted for approximately 37% and 35% of the total revenue for the three and nine months ended August 31, 2011 , respectively, and approximately 37% of the total revenue for both the three and nine months ended August 31, 2010 .
Revenue recognition
The Company generally recognizes revenue on hardware and software products when they are shipped and on services when they are performed, if a purchase order exists, the sale 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’s Mexico operation 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 payments are due on a monthly basis and contingent upon the contractors performing certain services, fulfillment of certain obligations and meeting certain conditions. The Company recognizes product revenue and cost of revenue on a straight-line basis over the term of the contract, which coincides with payments no longer being contingent.
The Company provides 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 it offers. These agreements are usually short-term in nature and subject to early termination by the customers or the Company for any reason, typically with 30 to 90 days notice. Typically the contracts are time-based or transactions based. Revenue is generally recognized over the term of the contract if the service has already been rendered, the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured.
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-

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


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 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 10.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported.
Recent accounting pronouncements
In May 2011, the Financial Accounting Standards Board (“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 will be applicable to the Company beginning in the second quarter of fiscal year 2012. The Company will update its fair value disclosures to comply with the updated disclosure requirements.
In June 2011, the 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. The Company will update its presentation of “Comprehensive income” to comply with the updated disclosure requirements.
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 it concludes 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 Company is currently assessing the impact of this accounting update on its Consolidated Financial Statements.
During the fiscal year 2011, the Company adopted the following accounting standards:
In October 2009, the FASB issued an update to the existing multiple-element revenue arrangements guidance. This revised guidance primarily provides two significant changes: (1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and (2) eliminates the residual method to allocate the arrangement consideration. This accounting update was effective for the first annual reporting period beginning on or after June 15, 2010 with early adoption permitted, provided that the revised guidance is retroactively applied to the beginning of the year of adoption. This standard was adopted by the Company beginning December 1, 2010 and did not have a material impact to its Consolidated Financial Statements.
In October 2009, the FASB issued an accounting standard addressing how entities account for revenue arrangements that contain both hardware and software elements. Due to the significant difference in the level of evidence required for separation of multiple deliverables within different accounting standards, this particular accounting standard modified the scope of

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


accounting guidance for software revenue recognition. Many tangible products containing software and non-software components that function together to deliver the tangible products’ essential functionality will be accounted for under the revised multiple-element arrangement revenue recognition guidance disclosed above. This accounting standard was effective for the first annual reporting period beginning on or after June 15, 2010 with early adoption permitted, provided that the revised guidance is retroactively applied to the beginning of the year of adoption. This standard was applicable to the Company beginning December 1, 2010 and did not have a material impact on its Consolidated Financial Statements.

NOTE 3—SHARE-BASED COMPENSATION:
The Company recognizes share-based compensation expenses 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 share-based awards. 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.
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, 2011 and 2010 and the grant-date fair value of the awards:
 
 
 
Three Months Ended
 
Three Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
 
      Number of      
grants
 
  Fair value      
of grants
 
      Number of      
grants
 
  Fair value      
of grants
Stock options
 

 
$

 

 
$

Restricted stock awards
 
16

 
520

 
4

 
98

Restricted stock units
 

 

 

 

 
 
16

 
$
520

 
4

 
$
98

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
 
      Number of      
grants
 
  Fair value      
of grants
 
      Number of      
grants
 
  Fair value      
of grants
Stock options
 

 
$

 
60

 
$
769

Restricted stock awards
 
44

 
1,406

 
53

 
1,514

Restricted stock units
 
10

 
324

 
100

 
2,306

 
 
54

 
$
1,730

 
213

 
$
4,589

 
The Company recorded share-based compensation expenses of $1,953 and $ 5,869 for the three and nine months ended August 31, 2011 , respectively, and $2,706 and $6,372 for the three and nine months ended August 31, 2010 , respectively.

NOTE 4—BALANCE SHEET COMPONENTS:
Inventories
The Company’s inventories substantially consist of finished goods.

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


 
 
As of
 
 
August 31, 2011
 
November 30, 2010
Short-term investments
 

 
 
Trading securities
 
$
6,330

 
$
7,909

Available-for-sale securities
 
40

 
102

Held-to-maturity securities
 

 
910

Cost-method securities
 
2,412

 
2,498

 
 
$
8,782

 
$
11,419

Accounts receivable, net
 

 
 
Trade accounts receivable
 
$
1,065,057

 
$
1,039,850

Less: Allowance for doubtful accounts
 
(18,043
)
 
(20,408
)
Less: Allowance for sales returns
 
(29,424
)
 
(32,525
)
 
 
$
1,017,590

 
$
986,917

Receivable from vendors, net
 

 
 
Receivable from vendors
 
$
131,335

 
$
137,887

Less: Allowance for doubtful accounts
 
(4,615
)
 
(5,478
)
 
 
$
126,720

 
$
132,409

Property and equipment, net
 

 
 
Land
 
$
17,246

 
$
14,246

Equipment and computers
 
86,261

 
61,842

Furniture and fixtures
 
16,961

 
9,746

Buildings and leasehold improvements
 
92,296

 
81,119

Construction in progress
 
1,533

 
151

Total property and equipment, gross
 
214,297

 
167,104

Less: Accumulated depreciation
 
(98,052
)
 
(75,109
)
 
 
$
116,245

 
$
91,995

During the first quarter of fiscal year 2011, the Company entered into a capital lease with the option to purchase at the end of the two-year lease period, a distribution and warehouse facility in the United States. The capital lease asset recorded was $8,342 and the long-term capital lease obligation as of August 31, 2011 was $7,476. As of August 31, 2011 , the Company had long-term capital lease obligations of $987 pertaining to its acquisition of SYNNEX Infotec Corporation (“Infotec Japan”).
 
Goodwill
 
 
Distribution    
 
GBS    
 
Total    
Balance as of November 30, 2010
 
$
89,031

 
$
50,549

 
$
139,580

Changes during the period
 
16,290

 
16,183

 
32,473

Foreign currency translation
 
3,843

 
571

 
4,414

Balance as of August 31, 2011
 
$
109,164

 
$
67,303

 
$
176,467

Goodwill recorded in the distribution segment during the nine months ended August 31, 2011, primarily relates to the acquisition of Infotec Japan. The increase in goodwill in the global business services (“GBS”) segment is due to the acquisition of certain businesses of e4e, Inc.





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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


Intangible assets, net  
 
 
As of August 31, 2011
 
As of November 30, 2010
 
 
Gross
    Amount    
 
Accumulated
 Amortization  
 
Net
    Amount    
 
Gross
    Amount    
 
Accumulated
  Amortization  
 
Net
    Amount    
Vendor lists
 
$
36,815

 
$
(26,719
)
 
$
10,096

 
$
36,815

 
$
(25,564
)
 
$
11,251

Customer lists
 
45,854

 
(22,676
)
 
23,178

 
32,196

 
(18,005
)
 
14,191

Other intangible assets
 
4,482

 
(3,796
)
 
686

 
6,453

 
(3,624
)
 
2,829

 
 
$
87,151

 
$
(53,191
)
 
$
33,960

 
$
75,464

 
$
(47,193
)
 
$
28,271

Amortization expenses for the three and nine months ended August 31, 2011 were $1,776 and $ 5,586 , respectively, and for the three and nine months ended August 31, 2010 were $1,278 and $3,858, respectively. The increase in intangible assets as of August 31, 2011 compared to November 30, 2010 is due to the acquisition of Infotec Japan within the distribution segment and the acquisition of certain businesses of e4e, Inc. in the GBS segment.

NOTE 5—INVESTMENTS:
The carrying amount of the Company’s investments is shown in the table below:
 
 
 
As of August 31, 2011
 
As of November 30, 2010
 
 
Cost Basis
 
Unrealized
  (Losses)/Gains  
 
    Carrying    
Value
 
Cost Basis
 
Unrealized
  (Losses)/Gains  
 
    Carrying    
Value
Short-term investments
 
 
 
 
 
 
 
 
 
 
 
 
Trading securities
 
$
9,384

 
$
(3,054
)
 
$
6,330

 
$
9,324

 
$
(1,415
)
 
$
7,909

Available-for-sale securities
 
1

 
39

 
40

 
55

 
47

 
102

Held-to-maturity securities
 

 

 

 
910

 

 
910

Cost-method securities
 
2,412

 

 
2,412

 
2,498

 

 
2,498

 
 
$
11,797

 
$
(3,015
)
 
$
8,782

 
$
12,787

 
$
(1,368
)
 
$
11,419

Long-term investments in other assets
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
$
944

 
$
190

 
$
1,134

 
$

 
$

 
$

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 and the other-than-temporary losses recorded on cost-method securities during the three and nine months ended August 31, 2011 and 2010:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Realized and unrealized gain (loss) on trading investments
 
$
(1,288
)
 
$
(548
)
 
$
(816
)
 
$
(369
)
Other-than-temporary loss on cost-method securities
 

 
(363
)
 

 
(363
)



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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


NOTE 6—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 its foreign operations are denominated in the British Pound, Canadian Dollar, Chinese Renminbi, Costa Rican Colon, Indian Rupee, Japanese Yen, Mexican Peso, and Philippine Peso. 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 as the Company uses forward contracts to hedge foreign currency balance sheet exposures. 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 14. The following table summarizes the fair value of the Company’s foreign exchange forward contracts as of August 31, 2011 and November 30, 2010:
 
 
 
Fair Value as of
 Location                        
 
August 31, 2011
 
November 30, 2010    
Accrued liabilities
 
$
(85
)
 
$
(170
)
Other current assets
 
370

 
537

 
 
$
285

 
$
367

The notional amounts of the foreign exchange forward contracts that were outstanding as of August 31, 2011 and November 30, 2010 were $ 92,902 and $ 118,596 , 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, 2011 , in relation to its forward contracts, the Company recorded in “Other income, net” total realized and unrealized gains of $ 437 and losses of $ 3,442 , respectively. During the three and nine months ended August 31, 2010 , the Company recorded in “Other income, net” total realized and unrealized gains related to its forward contracts of $ 1,737 and $ 790 , respectively.
 
NOTE 7—ACCOUNTS RECEIVABLE ARRANGEMENTS:
The Company primarily finances its U.S. 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 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. The balances outstanding on the Amended and Restated U.S. Arrangement as of August 31, 2011 and November 30, 2010 were $ 147,000 and $ 209,100 , respectively.
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

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


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 15 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, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Net sales financed
 
$
201,700

 
$
172,273

 
$
532,515

 
$
472,275

Flooring fees (1)
 
1,034

 
917

 
2,068

 
2,394

(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of August 31, 2011 and November 30, 2010, accounts receivable subject to flooring agreements were $ 51,896 and $ 53,985 , 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, 2011 was $ 45,300 .

NOTE 8—BORROWINGS:
Borrowings consist of the following:
 
 
 
As of
 
 
 August 31, 2011    
 
November 30, 2010    
Convertible debt
 
$
134,912

 
$
131,289

SYNNEX U.S. securitization
 
147,000

 
209,100

SYNNEX Canada revolving line of credit
 
13,431

 
36,240

SYNNEX Canada term loan
 
9,662

 
9,677

Infotec Japan credit facility
 
130,446

 

Infotec Japan term loans & other borrowings
 
16,229

 

Total borrowings
 
451,680

 
386,306

Less: Current portion
 
(228,626
)
 
(245,973
)
Non-current portion
 
$
223,054

 
$
140,333

Convertible debt
In May 2008, the Company issued $143,750 of aggregate principal amount of its 4.0% Convertible Senior Notes due 2018 (the “Notes”) in a private placement. The carrying amount of the convertible debt, net of the unamortized debt discount, was $134,912 and $ 131,289 as of August 31, 2011 and November 30, 2010, respectively. The 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 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 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 9. Also, the Notes contain various features which under certain circumstances could allow the holders to convert the Notes into shares before their ten-year maturity.
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 7 Accounts Receivable Arrangements. The effective borrowing costs 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.

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)



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 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 August 31, 2011 and November 30, 2010.  
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 is $25,000. The arrangement includes an unused line fee of 0.50% per annum. Interest on borrowings under the line of credit is determined by either a base rate or LIBOR, at the Company’s option. The margin on the LIBOR is 2.00%. The Company’s base rate is the financial institution’s prime rate minus 0.25%. The agreement expires in February 2014. As of August 31, 2011 , there were no borrowings outstanding under this arrangement.
SYNNEX Canada revolving line of credit
SYNNEX Canada Limited (“SYNNEX Canada”) has a revolving line of credit arrangement with a financial institution for a maximum commitment of C$125,000 (“Canadian Revolving Arrangement”). The Canadian Revolving Arrangement also provides a sublimit of $5,000 for the issuance of standby letters of credit. As of August 31, 2011 , outstanding standby letters of credit totaled $3,354. SYNNEX Canada has granted a security interest on substantially all of its assets in favor of the lender under this revolving credit facility. In addition, the Company pledged its stock in SYNNEX Canada as collateral for the Canadian Revolving Arrangement. The Canadian Revolving Arrangement expires in May 2012. The interest rate applicable is equal to (i) a minimum rate of 2.50% plus a margin of 1.25% for a Base Rate Loan in Canadian Dollars, (ii) a minimum rate of 3.25% plus a margin of 2.50% for a Base Rate Loan in U.S. Dollars, and (iii) a minimum rate of 1.00% plus a margin of 2.75% for a BA (Bankers Acceptance) Rate Loan. A fee of 0.375% per annum is payable with respect to the unused portion of the commitment.
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 JP¥

15

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


10,000,000. The credit agreement is comprised of a JP¥ 6,000,000 long-term loan and a JP¥ 4,000,000 short-term revolving credit facility. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate 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 JP¥ 7,000,000 under this credit facility.
Infotec Japan term loans and other borrowings
Infotec Japan has two term loans from financial institutions which include a short-term loan of JP¥ 1,000,000, which expires in January 2012 and bears a fixed interest rate of 2.00%, and a term loan of JP¥ 210,000, which expires in December 2012 and bears a fixed interest rate of 1.50%. In addition, as of August 31, 2011, there was $445 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.
Others
The Company had outstanding letters of credit amounting to $750 under a letter of credit facility as of November 30, 2010. This letter of credit facility was terminated in March 2011.
Future principal payments
Future principal payments as of August 31, 2011 under the above loans are as follows:  
 
 
Fiscal Years Ending November 30,
As of August 31, 2011    
2011
$
213,680

2012
15,572

2013
79,463

2014
779

2015
822

Thereafter
6,452

 
$
316,768

Due to the uncertainty of the timing and amount that may be settled in cash, the principal amount of $143,750 of the Notes described in Note 9 is not included in the table above.
Interest expense and finance charges
For the three and nine months ended August 31, 2011 , the total interest expense and finance charges for accounts receivable securitization, the revolving lines of credit, the Notes and all other debt were $7,348 and $21,295, respectively, including non-cash debt accretion expenses of $ 1,234 and $3,623, respectively, for the Notes. For the three and nine months ended August 31, 2010 , the total interest expense and finance charges for accounts receivable securitization, the revolving lines of credit, the Notes and all other debt were $5,722 and $16,858, respectively, including non-cash debt accretion expenses of $ 1,141 and $ 3,349 , respectively, for the Notes. The variable interest rates ranged between 0.82% and 4.90% in both the three and nine months ended August 31, 2011 . The variable interest rates ranged between 0.98% and 3.75% and between 0.90% and 3.75% in the three and nine months ended August 31, 2010 .
Covenants compliance
In relation to the Notes, Amended and Restated U.S. Arrangement, the Amended and Restated Revolver, the Infotec Japan credit facility, the Canadian Revolving Arrangement and the U.S. unsecured revolving line of credit, 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

16

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


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 Notes subject to certain liquidity tests.
As of August 31, 2011 , 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, totaling $240,452 and $108,497 as of August 31, 2011 and November 30, 2010, respectively. The Company is obligated under these guarantees to pay amounts due should its subsidiaries not pay valid amounts owed to their vendors or lenders.

NOTE 9—CONVERTIBLE DEBT:
 
 
 
As of
Convertible debt
 
August 31, 2011    
 
November 30, 2010    
Principal amount
 
$
143,750

 
$
143,750

Less: Unamortized debt discount
 
(8,838
)
 
(12,461
)
Net carrying amount
 
$
134,912

 
$
131,289

In May 2008, the Company issued $143,750 of aggregate principal amount of the Notes in a private placement. The Notes have a cash coupon interest rate of 4.0% per annum. Interest on the 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 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 Notes. During any interest period when contingent interest is payable, the contingent interest payable per Note is equal to 0.55% of the average trading price of the Notes during the ten trading days immediately preceding the first day of the applicable six-month interest period. The Notes mature on May 15, 2018, subject to earlier redemption, repurchase or conversion.
Holders may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding the maturity date for such 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 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 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 Notes on each such day; (3) if the Company has called the particular 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. In addition, holders may also convert their 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 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 Notes will be 33.9945 shares of common stock per $1 principal amount of 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 above mentioned contingencies were not triggered as of August 31, 2011 .  
The Company may not redeem the Notes prior to May 20, 2013. The Company may redeem the 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 Notes to be redeemed, plus any accrued and unpaid interest to (including any additional interest and any contingent interest), but excluding, the redemption date.
Holders may require the Company to repurchase all or a portion of their Notes for cash on May 15, 2013 at a purchase

17

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


price equal to 100% of the principal amount of the 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. If the Company undergoes a fundamental change, holders may require it to purchase all or a portion of their Notes for cash at a price equal to 100% of the principal amount of the 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 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 notes, if any. The Notes effectively rank junior to any of the Company’s secured indebtedness to the extent of the assets securing such indebtedness. The 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 Notes were used for general corporate purposes and to reduce outstanding balances under the U.S. Arrangement and the Revolver.
The Notes are governed by an indenture, dated as of May 12, 2008, between the Company and U.S. Bank National Association, as trustee, which contains customary events of default.
The Notes as hybrid instruments are accounted as convertible debt and are recorded at carrying value. The right of the holders of the Notes to require the Company to repurchase the Notes in the event of a fundamental change and the contingent interest feature would require separate measurement from the Notes; however, the amount is insignificant. The additional shares issuable following certain corporate transactions do not require bifurcation and separate measurement from the 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 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 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, 2011 , the remaining amortization period is approximately twenty months assuming the redemption of the 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 expenses of $1,624 and $4,871 , during the three and nine months ended August 31, 2011 , respectively, and $1,625 and $4,872 during the three and nine months ended August 31, 2010 , respectively. Based on an effective rate of 8.0%, the Company recorded non-cash interest expenses of $1,234 and $3,623 during the three and nine months ended August 31, 2011 , respectively, and $1,141 and $3,349 during the three and nine months ended August 31, 2010 , respectively. As of both August 31, 2011 and November 30, 2010 , the carrying value of the equity component of the Notes, net of allocated issuance costs, was $22,836. As of August 31, 2011 , the if-converted value of the Notes did not exceed the principal balance.
The Notes contain various features that under certain circumstances could allow the holders to convert the Notes into shares before their ten-year maturity. Further, the date of settlement of the Notes is uncertain due to the various features of the Notes including put and call features. Because the Company currently intends to settle the Notes using cash at some future date, the Company maintains within its Amended and Restated U.S. Arrangement, the Amended and Restated Revolver and the U.S. unsecured revolving line of credit ongoing features that allow the Company to utilize cash from these facilities to cash settle the Notes, if desired.

NOTE 10—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:
 

18

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Amounts attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
 
$
39,036

 
$
30,914

 
$
100,158

 
$
79,007

Discontinued operations:
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax
 

 

 

 
59

Gain on sale of discontinued operations, net of tax
 

 

 

 
11,351

Net income attributable to SYNNEX Corporation
 
$
39,036

 
$
30,914

 
$
100,158

 
$
90,417

Weighted-average common shares - basic
 
35,882

 
35,083

 
35,726

 
34,534

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options, restricted stock awards and restricted stock units
 
712

 
827

 
803

 
1,094

Conversion spread of convertible debt
 

 

 
357

 

Weighted-average common shares - diluted
 
36,594

 
35,910

 
36,886

 
35,628

Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.09

 
$
0.88

 
$
2.80

 
$
2.29

Discontinued operations
 

 

 

 
0.33

Net income per common share - basic
 
$
1.09

 
$
0.88

 
$
2.80

 
$
2.62

Diluted:
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.07

 
$
0.86

 
$
2.72

 
$
2.22

Discontinued operations
 

 

 

 
0.32

Net income per common share - diluted
 
$
1.07

 
$
0.86

 
$
2.72

 
$
2.54

Options to purchase 62 and 35 shares of common stock for the three and nine months ended August 31, 2011 , respectively, and 67 and 50 shares of common stock for the three and nine months ended August 31, 2010 , respectively, have not been included in the computation of diluted net income per share as their effect would have been anti-dilutive.

NOTE 11—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 both August 31, 2011 and November 30, 2010, MiTAC International and its affiliates beneficially owned approximately 29% 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 sale 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, 2011 , the Company recorded $ 1,266 and $ 5,362 , respectively, for service fees earned, reimbursements for facilities and overhead costs and the fully achieved earn-out condition.

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


The Company purchased inventories, including notebook computers, motherboards and other peripherals, from MiTAC International and its affiliates totaling $ 540 and $ 2,868 during the three and nine months ended August 31, 2011 , respectively, and $ 39,622 and $ 154,545 for the three and nine months ended August 31, 2010 , 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, and during the three and nine months ended August 31, 2010 , totaled $ 391 and $ 1,626 , respectively. Most of the purchases and sales in the three and nine months ended August 31, 2010 were pursuant to the Master Supply Agreement with MiTAC International and the Company’s former contract assembly customer Sun Microsystems, which was acquired by Oracle Corporation in 2010.
The Company’s business relationship with MiTAC International had been informal and was not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments.
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 29% of the Company’s common stock as of August 31, 2011 . These shares are owned by the following entities:
 
 
As of August 31, 2011
 
(shares in thousands)    
MiTAC International (1)
6,158

Synnex Technology International Corp. (2)
4,427

Total
10,585

(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC International. Excludes 589 thousand shares (of which 379 thousand shares are directly held and 210 thousand 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 14.0% 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.
 
While the ownership structure of MiTAC International and its affiliates is complex, it has not had a material adverse effect on the Company’s business in the past, and it does not expect it to do so in the future.
The Company owns shares of MiTAC International and one of its affiliates related to the deferred compensation plan of Robert Huang, the Company’s founder and former Chairman. As of August 31, 2011 , the value of the investment was $ 783 . Except as described herein, none of the Company’s officers or directors has an interest in MiTAC International or its affiliates.
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 Corporation Limited (“SB Pacific”). 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. The Company’s 33.3% investment in SB Pacific is

20

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


accounted for as an equity-method investment and is included in “Other assets.” The balances of the investment as of August 31, 2011 and November 30, 2010 were $ 6,043 and $ 1,095 , respectively. The Company regards SB Pacific to be a variable interest entity and as of August 31, 2011 , its maximum exposure to loss was limited to $ 6,043 . During the nine months ended August 31, 2011 , the Company paid $ 150 in management fees to SB Pacific. SB Pacific owns a 30.0% noncontrolling interest in Infotec Japan.

NOTE 12—SEGMENT INFORMATION:
Description of segments
Operating segments are based on products and services provided by each segment, internal organization structure, the manner in which operations are managed, the criteria used by the Chief Operating Decision Maker (“CODM”) to assess the segment performance as well as resources allocation and the availability of discrete financial information.
The distribution services segment distributes IT systems, peripherals, system components, software, networking equipment, consumer electronics, and complementary products and video games to a variety of customers, including value-added resellers, system integrators, and retailers, as well as provides assembly services to OEMs, including integrated supply chain management, build-to-order and configure-to-order system configurations, materials management, refurbishment and logistics.
The GBS services segment offers a range of services to the Company’s customers that include customer management, renewals management, back office processing and information technology outsourcing on a global platform. The Company delivers these services through various methods including voice, chat, web, email, and digital print. The Company also sells products complementary to these service offerings.  
Summarized financial information related to the Company’s reportable business segments for the three and nine months ended August 31, 2011 and 2010, and as of August 31, 2011 and November 30, 2010 is shown below:
 
 
 
Distribution    
 
GBS      
 
    Inter-Segment    
Elimination
 
Consolidated    
Three months ended August 31, 2011
 

 

 

 

Revenue
 
$
2,538,792

 
$
40,480

 
$
(7,139
)
 
$
2,572,133

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

 
7,926

 

 
66,518

Three months ended August 31, 2010
 

 

 

 

Revenue
 
$
2,152,537

 
$
30,968

 
$
(6,439
)
 
$
2,177,066

Income from continuing operations before non-operating items, income taxes and noncontrolling interest
 
47,928

 
4,226

 

 
52,154

Nine months ended August 31, 2011
 

 

 

 

Revenue
 
$
7,471,196

 
$
118,470

 
$
(20,797
)
 
$
7,568,869

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

 
15,265

 

 
171,531

Nine months ended August 31, 2010
 

 

 

 

Revenue
 
$
6,079,088

 
$
84,685

 
$
(17,857
)
 
$
6,145,916

Income from continuing operations before non-operating items, income taxes and noncontrolling interest
 
124,374

 
10,167

 

 
134,541

Total assets as of August 31, 2011
 
$
2,582,344

 
$
270,100

 
$
(196,505
)
 
$
2,655,939

Total assets as of November 30, 2010
 
$
2,409,998

 
$
224,677

 
$
(134,814
)
 
$
2,499,861

The inter-segment eliminations relate to the inter-segment back-office support services provided by the GBS segment to

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


the distribution segment, inter-segment investments and inter-segment accounts receivable.
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, Mexico 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. Shown below is summarized financial information related to the geographic areas in which the Company operated in the three and nine months ended August 31, 2011 and 2010:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Revenue
 
 
 
 
 
 
 
 
North America
 
$
2,248,957

 
$
2,140,886

 
$
6,526,172

 
$
6,027,570

Asia-Pacific
 
312,759

 
19,380

 
962,477

 
52,083

Other
 
10,417

 
16,800

 
80,220

 
66,263

 
 
$
2,572,133

 
$
2,177,066

 
$
7,568,869

 
$
6,145,916

 
 
 
As of
 
 
August 31, 2011
 
November 30, 2010    
Long-lived assets
 
 
 
 
North America
 
$
98,100

 
$
84,666

Asia-Pacific
 
35,477

 
15,602

Other
 
19,419

 
11,885

 
 
$
152,996

 
$
112,153

 
Revenue in the United States was approximately 74% and 72% of the total revenue for the three and nine months ended August 31, 2011 , respectively, and 83% of the total revenue for both the three and nine months ended August 31, 2010 . Revenue in Canada was approximately 14% for both the three and nine months ended August 31, 2011 and 15% and 16% of total revenue for the three and nine months ended August 31, 2010 , respectively. Revenue in Japan was approximately 12% of the total revenue for both the three and nine months ended August 31, 2011 .
Long-lived assets in the United States were approximately 52% and 58% of total long-lived assets as of August 31, 2011 and November, 30 2010, respectively. Long-lived assets in Canada were approximately 12% and 17% of total long-lived assets as of August 31, 2011 and November 30, 2010, respectively. Long-lived assets in Japan were approximately 12% of total long-lived assets as of August 31, 2011 .

NOTE 13—ACQUISITIONS AND DIVESTITURES:
Fiscal year 2011 acquisitions
On December 1, 2010, the Company acquired 70% of the capital stock of Marubeni Infotec Corporation, a subsidiary of Marubeni Corporation. SB Pacific, the Company’s equity-method investee, acquired the remaining 30% noncontrolling interest. The Company’s total direct and indirect ownership of Marubeni Infotec Corporation is 80%. Marubeni Infotec Corporation, now known as SYNNEX Infotec Corporation (“Infotec Japan”) is a distributor of IT equipment, electronic components and software in Japan. The aggregate consideration for the transaction was JP¥ 700,000, or approximately $8,392, of which the Company’s direct share was $5,888. This acquisition is in the distribution segment and enabled the Company’s expansion into Japan.
The preliminary purchase price allocation based on the estimated fair value of the assets acquired and liabilities assumed is as follows:
 

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


 
Fair Value         
Purchase consideration:
 
Cash payment
$
5,888

Contribution from noncontrolling interest
2,504

 
$
8,392

Allocation:
 
Cash
$
1,371

Accounts receivable
178,384

Receivable from vendors
8,525

Inventories
84,553

Other current assets
2,119

Property, plant and equipment
5,521

Goodwill
18,100

Intangible assets (1)
9,103

Other long-term assets
4,751

Short-term borrowings
(103,646
)
Accounts payable
(161,228
)
Accrued liabilities
(15,151
)
Long-term borrowings
(2,088
)
Other long-term liabilities
(21,922
)
 
$
8,392

(1)
Intangibles will be amortized over a period of 3-10 years.
 
The Company expects to finalize the purchase price allocation upon the completion of further detailed analysis.
In addition, the Company has acquired $24,037 of net operating losses of Infotec Japan and the Company has recorded a valuation allowance of $13,155 and a reserve of $10,882 for uncertain tax positions.
Subsequent to the acquisition, the Company and SB Pacific invested $14,980 and $6,420, respectively, in additional capitalization of Infotec Japan.
The following unaudited pro forma financial information combines the Consolidated Results of Operations as if the acquisition of Infotec Japan had occurred on December 1, 2009. Pro forma adjustments include only the effects of events directly attributable to transactions that are factually supportable and expected to have a continuing impact. The pro forma results contained in the table below include pro forma adjustments for amortization of acquired intangibles and depreciation expenses.
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
August 31, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Revenue
 
$
2,572,133

 
$
2,428,579

 
$
7,568,869

 
$
7,036,428

Income from continuing operations, attributable to SYNNEX Corporation
 
39,036

 
30,154

 
100,158

 
79,637

Net income from continuing operations per share - basic
 
$
1.09

 
$
0.86

 
$
2.80

 
$
2.31

Net income from continuing operations per share - diluted
 
$
1.07

 
$
0.84

 
$
2.72

 
$
2.24

The employees of Infotec Japan are covered by certain defined benefit pension plans, including a multi-employer pension plan. Pension costs related to such plans recorded during the three and nine months ended August 31, 2011 were $160 and $466, respectively. The estimated pension benefit obligation and pension assets as of August 31, 2011 were $8,220 and $3,869, respectively.

23

Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


During the first quarter of fiscal year 2011, the Company acquired certain businesses of e4e, Inc. for $23,000 in cash, with $1,000 payable upon the completion of certain post-closing conditions. e4e, Inc. was a privately-held BPO services company that had operations in the United States, the UK and India. The acquisition is in the GBS segment and brought additional BPO scale, complemented the Company’s service offerings and expanded its customer base and geographic presence. The net tangible assets acquired were $5,858 and the Company recorded $17,142 in goodwill and intangibles. The determination of the fair value of the net assets acquired is preliminary subject to the finalization of more detailed analysis, which may change the allocation of the purchase price.
Fiscal year 2010 acquisitions
On February 26, 2010, the Company purchased substantially all of the North American assets of Jack of All Games, Inc., a distributor of video game hardware and software. The acquisition is fully integrated into the Company’s distribution segment and expanded the Company's consumer electronics product offerings. Since the close of the acquisition, the Company made certain adjustments to the fair value of inventories and other assets acquired and liabilities assumed related to this transaction. These adjustments had the impact of lowering the purchase price by $6,880. The total consideration, as adjusted, was $35,773. The net tangible assets acquired were $27,434 and the Company recognized $4,500 of intangible assets and $3,839 in goodwill.
In November 2010, the Company acquired 100% of the stock of Aspire Technology Limited (“Aspire”) and Encover, Inc. (“Encover”) for $40,047, including $8,709 in earn-out payments payable upon the achievement of certain milestones up to three years following the dates of the acquisitions. The fair value of the contingent consideration recorded on the date of the acquisitions was $8,450. During the three and nine months ended August 31, 2011 , the Company recognized a benefit of $4,052 and $5,385, respectively, for changes in the fair value of the contingent consideration. 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. These acquisitions brought the Company additional capabilities related to warranty and license renewals management through proprietary software and services. The Company recognized $22,001 in goodwill and $11,726 in intangible assets. The purchase price is subject to a holdback of $1,850 for a period of twenty-four months from the purchase date. These acquisitions are fully integrated into the GBS segment.
The determination of the fair value of the purchase price and the net assets acquired for the acquisition of Aspire and Encover is preliminary, subject to the completion of further detailed analysis, which may change the allocation of the purchase price.
With the exception of Infotec Japan, the above acquisitions in the fiscal years 2011 and 2010, 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 for business combinations utilizing the purchase method of accounting.
Fiscal year 2010 divestitures
On December 28, 2009, the Company sold its controlling interest in China Civilink (Cayman), the results of which are presented in “Discontinued operations.” Please see Note 17 Discontinued Operations for a detailed discussion on this transaction.
On July 31, 2010, the Company sold to MiTAC International, inventory and certain customer contracts, primarily related to contract assembly customers jointly serviced by the Company and MiTAC International. The sale agreement included earn-out and profit-sharing provisions, which were based on near-term operating performance metrics for the defined customers included in the transaction. The Company provided MiTAC International certain transition services on a fee basis. Please see Note 11 Related Party Transactions for more information on this transaction.
On August 31, 2010, the Company sold its controlling interest in Nihon Daikou Shouji Co., Ltd. for $3,072 to SB Pacific.

NOTE 14—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

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes the valuation of the Company’s short-term investments and financial instruments that are measured at fair value on a recurring basis:
 
 
As of August 31, 2011
 
As of November 30, 2010
 
 
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
 
$
28,610

 
$
28,610

 
$

 
$

 
$
11,848

 
$
11,848

 
$

 
$

Trading securities
 
6,330

 
6,330

 

 

 
7,909

 
7,909

 

 

Available-for-sale securities in short-term investments
 
40

 
40

 

 

 
102

 
102

 

 

Available-for-sale securities in other assets
 
1,134

 
1,134

 

 

 

 

 

 

Forward foreign currency exchange contracts
 
370

 

 
370

 

 
537

 

 
537

 

Liabilities:
 
 
 

 

 

 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
 
85

 

 
85

 

 
170

 

 
170

 

Acquisition-related contingent consideration
 
3,065

 

 

 
3,065

 
8,450

 

 

 
8,450

 
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 earn-out payments relating to the acquisitions of Aspire and Encover, as described in Note 13– Acquisitions and Divestitures. 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. The maximum payout for the earn-out for Aspire and Encover is approximately $8,710 in the aggregate. During the three and nine months ended August 31, 2011 , the fair value of the contingent consideration was remeasured and the resulting decreases of $4,052 and $5,385, respectively, were 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.
The following table summarizes the reconciliation of the beginning and ending balances of the fair value of the contingent consideration measured using significant unobservable inputs (Level 3):
 

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Table of contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2011 and 2010
(amounts in thousands, except per share amounts)
(unaudited)


 
Estimated Fair Value of
Contingent Consideration
Balance as of November 30, 2010
$
8,450

Changes in fair value
(1,333
)
Balance as of May 31, 2011
7,117

Changes in fair value
(4,052
)
Balance as of August 31, 2011
$
3,065

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, 2011
 
August 31, 2010
 
August 31, 2011
 
August 31, 2010
Realized gain (loss)
 
$
130

 
$
(254
)
 
$
(3,399
)
 
$
(1,449
)
Unrealized gain (loss)
 
(982
)
 
1,444

 
(861
)
 
1,871

Total realized and unrealized gain/(loss)
 
$
(852
)
 
$
1,190

 
$
(4,260
)
 
$
422

The following table presents the assets and liabilities that are not carried at fair value as of August 31, 2011 and November 30, 2010:
 
 
 
As of August 31, 2011
 
As of November 30, 2010
 
 
  Carrying
Value  
 
Fair Value  
 
  Carrying
Value  
 
Fair Value  
Cost-method investments in short-term investments
 
$
2,413

 
$
3,945

 
$
2,498

 
$
3,878

Long-term accounts receivable
 
7,520