SYNNEX Corporation
SYNNEX CORP (Form: 10-Q, Received: 04/06/2012 16:59:14)
Table of Contents

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 February 29, 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 March 30, 2012
Common Stock, $0.001 par value
 
37,186,183


 



Table of Contents

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

2

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SYNNEX CORPORATION  
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)  
(unaudited)
 
February 29,
2012
 
November 30,
2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
68,756

 
$
67,571

Short-term investments
16,419

 
16,017

Accounts receivable, net
1,173,150

 
1,293,027

Receivable from affiliates
1,570

 
1,344

Inventories
952,993

 
975,047

Current deferred tax assets
28,579

 
28,241

Other current assets
56,512

 
57,168

Total current assets
2,297,979

 
2,438,415

Property and equipment, net
125,815

 
125,157

Goodwill
184,543

 
185,312

Intangible assets, net
35,368

 
37,539

Deferred tax assets
625

 
590

Other assets
54,834

 
46,282

Total assets
$
2,699,164

 
$
2,833,295

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under securitization, term loans and lines of credit
$
80,068

 
$
159,200

Accounts payable
928,267

 
1,035,691

Accrued liabilities
163,206

 
172,226

Income taxes payable
11,021

 
5,136

Total current liabilities
1,182,562

 
1,372,253

Long-term borrowings
83,343

 
87,659

Convertible debt
137,447

 
136,163

Long-term liabilities
63,581

 
60,676

Deferred tax liabilities
8,568

 
8,086

Total liabilities
1,475,501

 
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, 36,948 and 36,571 shares issued as of February 29, 2012 and November 30, 2011, respectively
37

 
37

Additional paid-in capital
320,573

 
310,316

Treasury stock, 409 and 407 shares as of February 29, 2012 and November 30, 2011, respectively
(11,621
)
 
(11,524
)
Accumulated other comprehensive income
36,374

 
30,026

Retained earnings
867,747

 
829,524

Total SYNNEX Corporation stockholders’ equity
1,213,110

 
1,158,379

Noncontrolling interest
10,553

 
10,079

Total equity
1,223,663

 
1,168,458

Total liabilities and equity
$
2,699,164

 
$
2,833,295


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

3

Table of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Revenue
$
2,460,694

 
$
2,500,934

Cost of revenue
(2,291,422
)
 
(2,357,138
)
Gross profit
169,272

 
143,796

Selling, general and administrative expenses
(105,284
)
 
(92,943
)
Income before non-operating items, income taxes and noncontrolling interest
63,988

 
50,853

Interest expense and finance charges, net
(6,035
)
 
(6,169
)
Other income, net
2,099

 
965

Income before income taxes and noncontrolling interest
60,052

 
45,649

Provision for income taxes
(20,898
)
 
(15,978
)
Net income
39,154

 
29,671

Net (income) loss attributable to noncontrolling interest
(931
)
 
50

Net income attributable to SYNNEX Corporation
$
38,223

 
$
29,721

Net income per share attributable to SYNNEX Corporation:

 

Basic
$
1.05

 
$
0.83

Diluted
$
1.02

 
$
0.80

Weighted-average common shares outstanding:
 
 
 
Basic
36,303

 
35,600

Diluted
37,632

 
36,963

 

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
(currency in thousands)
(unaudited)
 
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Net income
$
39,154

 
$
29,671

Other comprehensive income (loss):
 
 
 
Unrealized gain on available-for-sale securities
87

 
72

Foreign currency translation adjustment
5,801

 
10,872

Total other comprehensive income
5,888

 
10,944

Comprehensive income:
45,042

 
40,615

Comprehensive (income) loss attributable to noncontrolling interest
(474
)
 
50

Comprehensive income attributable to SYNNEX Corporation
$
44,568

 
$
40,665

 

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
(currency in thousands)
(unaudited)
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Cash flows from operating activities:
 
 
 
Net income
$
39,154

 
$
29,671

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation expense
4,041

 
3,979

Amortization of intangible assets
2,075

 
2,049

Accretion of convertible notes discount
1,284

 
1,187

Share-based compensation
2,009

 
1,941

Provision for doubtful accounts
2,052

 
2,382

Tax benefits from employee stock plans
2,043

 
1,737

Excess tax benefit from share-based compensation
(2,056
)
 
(943
)
Realized/Unrealized gain on investments
(1,332
)
 
(641
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable
113,939

 
157,844

Receivables from affiliates, net
(227
)
 
3,940

Inventories
22,157

 
43,792

Other assets
(15,371
)
 
(13,062
)
Accounts payable
(95,294
)
 
(161,189
)
Accrued liabilities
(9,654
)
 
(5,751
)
Deferred liabilities
9,358

 
(7,513
)
Net cash provided by operating activities
74,178

 
59,423

Cash flows from investing activities:
 
 
 
Purchase of trading investments
(3,085
)
 
(643
)
Proceeds from sale of trading investments
3,876

 
496

Acquisition of businesses, net of cash acquired
(8
)
 
(42,834
)
Purchase of property and equipment
(4,605
)
 
(8,629
)
Loans and deposits to third parties, net of payments received
217

 
(2,430
)
Investment in equity-method investee

 
(3,682
)
Changes in restricted cash
10,657

 
(14,759
)
Net cash provided by (used in) investing activities
7,052

 
(72,481
)
Cash flows from financing activities:
 
 
 
Proceeds from securitization and revolving line of credit
740,830

 
1,162,839

Payment of securitization and revolving line of credit
(818,035
)
 
(1,123,823
)
Proceeds from long-term credit facility and term loans

 
85,023

Payment of long-term bank loans, capital leases and other borrowings
(749
)
 
(116,143
)
Excess tax benefit from share-based compensation
2,056

 
943

Book overdraft
(9,465
)
 
12,837

Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
5,731

 
(742
)
Capital contribution by noncontrolling interest

 
6,484

Net cash provided by (used in) financing activities
(79,632
)
 
27,418

Effect of exchange rate changes on cash and cash equivalents
(413
)
 
(1,227
)
Net increase in cash and cash equivalents
1,185

 
13,133

Cash and cash equivalents at beginning of year
67,571

 
88,038

Cash and cash equivalents at end of year
$
68,756

 
$
101,171

 

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 months ended February 29, 2012 and February 28, 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’ 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, Hungary, India, Japan, Mexico, Nicaragua, the Philippines and the United Kingdom (“UK”).
The accompanying interim unaudited Consolidated Financial Statements as of February 29, 2012 and for the three month periods ended February 29, 2012 and February 28, 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 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 months ended February 29, 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 February 29, 2012 and November 30, 2011 and the location where these amounts are recorded on the Consolidated Balance Sheets:
 
As of 
 
February 29, 2012
 
November 30, 2011
Related to borrowing arrangements and others:
 
 
 
Other current assets
$
17,290

 
$
28,279

Related to long-term projects:
 
 
 
Other assets
3,611

 
2,938

Total restricted cash
$
20,901

 
$
31,217

 

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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 February 29, 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 February 29, 2012 , such losses have been within management’s expectations.  
In the three months ended February 29, 2012 and February 28, 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 35% and 33% of the total revenue for three months ended February 29, 2012 and February 28, 2011 , respectively.
As of February 29, 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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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 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 is evaluating the impact of this new accounting update on its Consolidated Financial Statements.
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.
During fiscal year 2012, the following accounting standards are applicable:
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 adopted the new disclosure requirements in the fiscal year ending November 30, 2012. The accounting update did 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, acquired the remaining 30.0% noncontrolling interest. The Company's total direct and indirect ownership of Marubeni Infotec Corporation is 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 is in the distribution segment and enabled the Company's expansion into Japan. The aggregate consideration for the transaction initially was JPY 700,000 , or approximately $8,392 , of which the Company's direct share was $5,888 . During the three months ended February 29, 2012, the Company reached an agreement with the sellers to reduce the purchase price by JPY 125,233 , which was recorded as a reduction of goodwill. The purchase price as adjusted is JPY 574,767 or approximately $6,891 . On April 1, 2012, the Company purchased additional shares of Infotec Japan from SB Pacific. As a result, its direct ownership interest in Infotec Japan increased from 70.0% to 81.0% and its total direct and indirect ownership interest increased from 80.0% to 84.7% .

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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         
Purchase consideration:
 
Cash payment
$
5,888

Contribution from noncontrolling interest
2,504

Receivable from seller
(1,501
)
 
$
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. 
During the fiscal year 2011, the Company acquired certain businesses of e4e, Inc. ("e4e"), 100.0% of the stock of the global email company limited ("gem") and certain assets of VisionMAX Solutions Inc. ("VisionMAX") for an aggregate purchase price of $44,156 , including $1,000 payable upon the completion of certain post-closing conditions. 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 $34,001 in goodwill and intangibles. The Company expects to finalize the purchase price allocation on the recent acquisitions upon completion of valuation procedures.
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 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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

2003 Stock Incentive Plan, as amended, during the three months ended February 29, 2012 and February 28, 2011 and the grant-date fair value of the awards:
 
Three months ended
 
Three months ended
 
February 29, 2012
 
February 28, 2011
 
Number of grants
 
Fair value of grants
 
Number of grants
 
Fair value of grants
Restricted stock awards
4
 
$
154

 
5
 
$
167

The Company recorded share-based compensation expense of $2,009 and $1,941 in "Selling, general and administrative expenses" for the three months ended February 29, 2012 and February 28, 2011 , respectively.

NOTE 5—BALANCE SHEET COMPONENTS:
The Company's inventories substantially consist of finished goods.
 
As of
 
February 29, 2012
 
November 30, 2011
Short-term investments
 
 
 
Trading securities
$
6,194

 
$
5,808

Available-for-sale securities
53

 
37

Held-to-maturity securities
7,942

 
7,843

Cost method investments
2,230

 
2,329

 
$
16,419

 
$
16,017

 
 
 
 
 
As of
 
February 29, 2012
 
November 30, 2011
Accounts receivable, net
 
 
 
Accounts receivable
$
1,239,508

 
$
1,351,305

Less: Allowance for doubtful accounts
(24,788
)
 
(22,803
)
Less: Allowance for sales returns
(41,570
)
 
(35,475
)
 
$
1,173,150

 
$
1,293,027

The Company combined "Receivable from vendors, net" with "Accounts Receivable, net" as of November 30, 2011 to conform to the current year presentation as described in Note 2- Summary of Significant Accounting Policies.
 
As of
 
February 29, 2012
 
November 30, 2011
Property and equipment, net
 
 
 
Land
$
18,730

 
$
18,566

Equipment and computers
98,702

 
95,149

Furniture and fixtures
20,314

 
19,566

Buildings and leasehold improvements
99,246

 
97,261

Construction in progress
560

 
1,762

Total property and equipment, gross
237,552

 
232,304

Less: Accumulated depreciation
(111,737
)
 
(107,147
)

$
125,815

 
$
125,157


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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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

 
$
77,814

 
$
185,312

Goodwill adjustments during the period
(1,543
)
 
(191
)
 
(1,734
)
Translation
392

 
573

 
965

Balance as of February 29, 2012
$
106,347

 
$
78,196

 
$
184,543

 
The adjustments recorded to "Goodwill" during the three months ended February 29, 2012, primarily pertain to the reduction of the purchase price of Infotec Japan.
Intangible assets, net
 
As of February 29, 2012
 
As of November 30, 2011
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Vendor lists
$
36,946

 
$
(27,499
)
 
$
9,447

 
$
36,815

 
$
(27,104
)
 
$
9,711

Customer lists
50,579

 
(25,664
)
 
24,915

 
51,088

 
(23,879
)
 
27,209

Other intangible assets
4,952

 
(3,946
)
 
1,006

 
4,446

 
(3,827
)
 
619

 
$
92,477

 
$
(57,109
)
 
$
35,368

 
$
92,349

 
$
(54,810
)
 
$
37,539

 
Amortization expense for the three months ended February 29, 2012 and February 28, 2011 was $2,075 and $2,049 , respectively.

NOTE 6—INVESTMENTS:  
The carrying amount of the Company’s investments is shown in the table below:  
 
As of
 
February 29, 2012
 
November 30, 2011
 
Cost Basis
 
Unrealized
(Losses)/
Gains
 
Carrying
Value
 
Cost Basis
 
Unrealized
(Losses)/
Gains
 
Carrying
Value
Short-Term:

 

 

 

 

 

Trading Securities
$
6,519

 
$
(325
)
 
$
6,194

 
$
11,503

 
$
(5,695
)
 
$
5,808

Available-for-sale securities

 
53

 
53

 

 
37

 
37

Held-to-maturity investments
7,942

 

 
7,942

 
7,843

 

 
7,843

Cost method securities
2,230

 

 
2,230

 
2,329

 

 
2,329

 
$
16,691

 
$
(272
)
 
$
16,419

 
$
21,675

 
$
(5,658
)
 
$
16,017

Long-term investments in other assets
 
 
 
 
 
 
 
 
 
 
 
       Available-for-sale securities
$
1,048

 
$
96

 
$
1,144

 
$
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.

12

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the total realized and unrealized gains and losses recorded on the Company’s trading investments:
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Realized and unrealized gain on trading investments
$
1,089

 
$
722



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 its foreign operations are denominated in the British Pound, Canadian Dollar, Chinese Renminbi, Costa Rican Colon, Hungarian Forint, Indian Rupee, Japanese Yen, Mexican Peso, Nicaraguan Cordoba, 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 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 8. The following table summarizes the fair value of the Company’s foreign exchange forward contracts as of February 29, 2012 and November 30, 2011 :
   
Fair Value as of
Location                 
February 29, 2012
 
November 30, 2011
Other current assets
$
178

 
$
1

Accrued liabilities
1,506

 
324

The notional amounts of the foreign exchange forward contracts that were outstanding as of February 29, 2012 and November 30, 2011 were $104,049 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 months ended February 29, 2012 and February 28, 2011 in relation to its forward contracts, the Company recorded in “Other income, net” total realized and unrealized losses of $956 and $3,545 , 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).

13

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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 February 29, 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
$
18,014

 
$
18,014

 
$

 
$

 
$
25,638

 
$
25,638

 
$

 
$

Trading securities
6,194

 
6,194

 

 

 
5,808

 
5,808

 

 

Available-for-sale securities in short-term investments
53

 
53

 

 

 
37

 
37

 

 

Available-for-sale securities in other assets
1,144

 
1,144

 

 

 
1,107

 
1,107

 

 

Forward foreign currency exchange contracts
178

 

 
178

 

 
1

 

 
1

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
1,506

 
$

 
$
1,506

 
$

 
$
324

 
$

 
$
324

 
$

Acquisition-related contingent consideration
3,065

 

 

 
3,065

 
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 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 months ended February 29, 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
 
February 29, 2012
 
February 28, 2011
Realized losses
$
(1,218
)
 
$
(1,774
)
Unrealized gain (loss)
1,351

 
(1,049
)
Total realized and unrealized gain (losses)
$
133

 
$
(2,823
)
 

14

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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 February 29, 2012 and November 30, 2011 :
 
As of February 29, 2012
 
As of November 30, 2011
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Cost method investments in short-term investments
$
2,230

 
$
3,892

 
$
2,329

 
$
3,898

Long-term accounts receivable
10,862

 
10,862

 
5,853

 
5,853

SYNNEX Canada term loan
9,209

 
9,209

 
9,118

 
9,118

Long-term Infotec Japan credit facility
73,937

 
73,937

 
77,290

 
77,290

Infotec Japan term loans
14,048

 
14,048

 
15,136

 
15,136

Convertible debt
137,447

 
210,651

 
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.
The cost method investments in “Other assets” consist of investments in equity securities of private entities. The carrying value of the investments was $ 3,559 as of February 29, 2012 and $ 3,575 as of November 30, 2011 . As of November 30, 2011, the fair value of these cost method investments is greater than the carrying value. There have been no significant changes to the fair value of the investments as of February 29, 2012.  
The Company’s 33.3% noncontrolling investment in SB Pacific is recorded under the equity method of accounting and is included in “Other assets.” The investment was made in fiscal year 2010 and the carrying value of the investment as of February 29, 2012 and November 30, 2011 was $ 6,189 and $ 5,950 , respectively. As of February 29, 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 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

15

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

and a facility fee of 0.65% per annum payable on the aggregate commitment. The balances outstanding under the U.S. Arrangement as of February 29, 2012 and November 30, 2011 were $5,400 and $ 64,500 , 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 Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay to the Company the selling price of products sold to various customers, less a discount, within approximately 15 to 30 days from the date of sale. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. Please see Note 17 Commitments and Contingencies for further information. The following table summarizes the net sales financed through the flooring agreements and the flooring fees incurred:  
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Net sales financed
$
170,892

 
$
159,059

Flooring fees (1)
1,022

 
434

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of February 29, 2012 and November 30, 2011 , accounts receivable subject to flooring agreements were $ 49,117 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 February 29, 2012 and November 30, 2011 was $11,465 and $ 10,980 , respectively.



16

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 10—BORROWINGS:  
Borrowings consist of the following:  
 
As of
 
February 29, 2012
 
November 30, 2011
Convertible debt
$
137,447

 
$
136,163

SYNNEX U.S. securitization
5,400

 
64,500

SYNNEX Canada revolving line of credit
9,861

 
27,285

SYNNEX Canada term loan
9,209

 
9,118

Infotec Japan credit facility
123,228

 
128,816

Term loans, capital leases and other borrowings
15,713

 
17,140

Total borrowings
300,858

 
383,022

Less: Current portion
(80,068
)
 
(159,200
)
Non-current portion
$
220,790

 
$
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 $ 137,447 and $136,163 as of February 29, 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 11 - Convertible 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.
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 9 — 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.  
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

17

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 February 29, 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 is $25,000 . The arrangement includes an unused line fee of 0.50% per annum. Interest on borrowings under the line of credit is determined by either a base rate or LIBOR, at the Company’s option. The margin on the LIBOR is 2.00% . The Company’s base rate is the financial institution’s prime rate minus 0.25% . The agreement expires in February 2014. There were no borrowings outstanding under this arrangement, as of both February 29, 2012 and November 30, 2011.  
SYNNEX Canada revolving line of credit  
SYNNEX Canada has a revolving line of credit arrangement with a financial institution for a maximum commitment of C$ 125,000 (“Canadian Revolving Arrangement”). The Canadian Revolving Arrangement also provides a sublimit of $ 5,000 for the issuance of standby letters of credit. As of February 29, 2012 and November 30, 2011, outstanding standby letters of credit totaled $ 3,461 and $3,368 , respectively. SYNNEX Canada has granted a security interest in substantially all of its assets in favor of the lender under the Canadian Revolving Arrangement. 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 JPY 10,000,000 . The credit agreement is comprised of a JPY 6,000,000 long-term loan and a JPY 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 ("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 JPY 7,000,000 under this credit facility.
Term loans, capital leases and other borrowings
Infotec Japan has two term loans with financial institutions that consists of a short-term revolving credit facility of JPY 1,000,000 and a term loan of JPY 140,000 . As of November 30, 2011, Infotec Japan had a short-term loan of JPY 1,000,000 , which was refinanced upon maturity for the same amount during the three months ended February 29, 2012, with a new lender. The new loan is a one-year revolving credit facility that expires in February 2013 and bears an interest rate that is based on TIBOR plus a margin of 1.75% . The term loan of JPY 140,000 , expires in December 2012 and bears a fixed interest rate of 1.50% .
In addition, as of February 29, 2012 and November 30, 2011 , Infotec Japan had $240 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 February 29, 2012 and November 30, 2011 , the Company had capital lease obligations of $1,424 and $1,467 ,

18

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

respectively, primarily pertaining to Infotec Japan.
Interest expense and finance charges  
For the three months ended February 29, 2012 and February 28, 2011 , the total interest expense and finance charges for the Company's borrowings were $ 6,954 and $ 6,933 , respectively, including non-cash debt accretion expenses of $ 1,284 and $ 1,187 , respectively, for the Convertible Senior Notes. The variable interest rates ranged between 0.87% and 3.92% and between 0.91% and 4.25% during the three months ended February 29, 2012 and February 28, 2011 , respectively.  
Covenants compliance  
In relation to the Amended and Restated U.S. Arrangement, Amended and Restated Revolver, Infotec Japan credit facility, 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 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 February 29, 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 and to certain acquirers of the Company's divestitures to ensure compliance with subsidiary sales agreements, totaling $233,793 and $ 238,723 as of February 29, 2012 and November 30, 2011 , 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 or not comply with subsidiary sales agreements.
 
NOTE 11—CONVERTIBLE DEBT:  
 
As of
  
February 29, 2012
 
November 30, 2011
Principal amount
$
143,750

 
$
143,750

Less: Unamortized debt discount
(6,303
)
 
(7,587
)
Net carrying amount
$
137,447

 
$
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 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

19

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 February 29, 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 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.
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. 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 February 29, 2012 , the remaining amortization period is approximately fourteen 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

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Company recorded contractual interest expense of $ 1,624 during both the three months ended February 29, 2012 and February 28, 2011 . Based on an effective rate of 8.0% , the Company recorded non-cash interest expense of $ 1,284 and $ 1,187 during the three months ended February 29, 2012 and February 28, 2011 , respectively. As of both February 29, 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 Convertible Senior Notes contain various features that 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 the various features of the Convertible Senior Notes including put and call elements. Because 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, Amended and Restated Revolver and U.S. unsecured revolving line of credit ongoing features that allow the Company to utilize cash from these facilities to cash settle the Convertible Senior Notes, if desired.

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
 
February 29, 2012
 
February 28, 2011
Net income attributable to SYNNEX Corporation
$
38,223

 
$
29,721

Weighted-average common shares - basic
36,303

 
35,600

Effect of dilutive securities:
 
 
 
Stock options, restricted stock awards and restricted stock units
635

 
848

Conversion spread of convertible debt
694

 
515

Weighted-average common shares - diluted
37,632

 
36,963

Net income per share attributable to SYNNEX Corporation:
 
 
 
Basic
$
1.05

 
$
0.83

Diluted
$
1.02

 
$
0.80

Options to purchase 7 and 24 shares of common stock during the three months ended February 29, 2012 and February 28, 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:  
Description of segments
Operating segments are based on components of the Company that engage in business activity that earns revenue and incurs 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. 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.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 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 months ended February 29, 2012 and February 28, 2011 is shown below:
 
Distribution
 
GBS
 
Inter-Segment
Elimination
 
Consolidated
Three months ended February 29, 2012
 
 
 
 
 
 
 
Revenue
$
2,423,264

 
$
45,062

 
$
(7,632
)
 
$
2,460,694

Income from operations before non-operating items, income taxes and noncontrolling interest
62,365

 
1,992

 
(369
)
 
63,988

Three months ended February 28, 2011
 
 
 
 
 
 
 
Revenue
2,468,614

 
39,238

 
(6,918
)
 
2,500,934

Income from operations before non-operating items, income taxes and noncontrolling interest
47,219

 
3,634

 

 
50,853

 
 
 
 
 
 
 
 
Total assets as of February 29, 2012
$
2,600,281

 
$
301,970

 
$
(203,087
)
 
$
2,699,164

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 months ended February 29, 2012 and February 28, 2011 :
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Revenue
 
 
 
North America
$
2,109,839

 
$
2,122,603

Asia-Pacific
337,133

 
317,476

Other
13,722

 
60,855

 
$
2,460,694

 
$
2,500,934

 
As of
 
February 29, 2012
 
November 30, 2011
Long-lived assets
 
 
 
North America
$
107,378

 
$
105,318

Asia-Pacific
33,696

 
34,974

Other
22,852

 
22,313

 
$
163,926

 
$
162,605

Revenue in the United States was approximately 71% and 70% of the total revenue for the three months ended February 29, 2012 and February 28, 2011 , respectively. Revenue in Canada was approximately 15% of total revenue for both the three months ended February 29, 2012 and February 28, 2011. Revenue in Japan was approximately 13% and 12% of the total revenue for the three months ended February 29, 2012 and February 28, 2011 .
Long-lived assets in the United States were approximately 54% and 52% of total long-lived assets as of February 29,

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

2012 and November 30, 2011 , respectively. Long-lived assets in Canada were approximately 12% of total long-lived assets as of both February 29, 2012 and November 30, 2011 . Long-lived assets in Japan were approximately 10% and 12% of total long-lived assets as of February 29, 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 February 29, 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 months ended February 29, 2012 and February 28, 2011 , the Company recorded $ 945 and $1,510 , respectively, for service fees earned and reimbursements for facilities and overhead costs.
The Company purchased inventories from MiTAC International and its affiliates totaling $ 241 and $ 1,387 during the three months ended February 29, 2012 and February 28, 2011, respectively. The Company’s sales to MiTAC International and its affiliates during the three months ended February 29, 2012 and February 28, 2011, totaled $ 1,134 and $ 286 , 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.  
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 February 29, 2012 . These shares are owned by the following entities:  
 
As of February 29, 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 589 shares (of which 379 shares are directly held and 210  shares are subject to exercisable options) held by Matthew Miau.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

(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 13.9% 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.
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 February 29, 2012 , the value of the investment was $ 920 . 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. 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 accounted for as an equity-method investment and is included in “Other assets.” The balances of the investment as of February 29, 2012 and November 30, 2011 were $ 6,189 and $ 5,950 , respectively. The Company regards SB Pacific to be a variable interest entity and as of February 29, 2012 , its maximum exposure to loss was limited to its investment of $ 6,189 . As of February 29, 2012, SB Pacific owned a 30.0% noncontrolling interest in Infotec Japan.  
On April 1, 2012, the Company reduced its ownership in SB Pacific from 33.3% to 19.7% .

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.
The components of net periodic pension costs during the three months ended February 29, 2012 and February 28, 2011 were as follows:
 
Three Months Ended
 
February 29, 2012
 
February 28, 2011
Service cost
$
177

 
$
171

Interest cost
46

 
44

Expected return on plan assets
(28
)
 
(26
)
Net periodic pension costs
$
195

 
$
189

During the three months ended February 29, 2012, the Company contributed $198 to the plan.

NOTE 16—EQUITY:
Share Repurchase Program  
In June 2011, the Board of Directors authorized a three -year $65,000 share repurchase program. As of November 30, 2011, the Company has 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. No additional purchases were made during the three months ended February 29, 2012.


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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Changes in Equity
A reconciliation of the changes in equity for the three months ended February 29, 2012 and February 28, 2011 is presented below:
 
 
 
Three Months Ended February 29, 2012
 
Three Months Ended February 28, 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

Proceeds from the issuance of common stock on exercise of options
 
5,873

 

 
5,873

 
1,939

 

 
1,939

Proceeds from the issuance of common stock for employee stock purchase plan
 
333

 

 
333

 
262

 

 
262

Tax benefit from exercise of non-qualified stock options
 
2,043

 

 
2,043

 
1,737

 

 
1,737

Taxes paid for the settlement of equity awards
 
(95
)
 

 
(95
)
 
(2,946
)
 

 
(2,946
)
Share-based compensation
 
2,009

 

 
2,009

 
1,941

 

 
1,941

Capital contribution by noncontrolling interest
 

 

 

 

 
8,988

 
8,988

Comprehensive income:
 

 

 

 


 


 


Net income
 
38,223

 
931

 
39,154

 
29,721

 
(50
)
 
29,671

Other comprehensive income (loss):
 

 

 

 

 

 

Changes in unrealized gain (loss) on available-for-sale securities
 
15

 
72

 
87

 
72

 

 
72

Net unrealized components of defined benefit pension plans

 
64

 
(64
)
 

 

 

 

Foreign currency translation adjustment
 
6,266

 
(465
)
 
5,801

 
10,872

 

 
10,872

Total other comprehensive income (loss)
 
6,345

 
(457
)
 
5,888

 
10,944

 

 
10,944

Total comprehensive income
 
44,568

 
474

 
45,042

 
40,665

 
(50
)
 
40,615

Ending balance of equity:
 
$
1,213,110

 
$
10,553

 
$
1,223,663

 
$
1,036,268

 
$
9,095

 
$
1,045,363

 


NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of February 29, 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

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 29, 2012 and February 28, 2011
(currency and share amounts in thousands, except per share amounts)
(unaudited)

arrangements are described in Note 9—Accounts 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 February 29, 2012 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations.
The Company is from time to time involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. These preference actions are filed by the bankruptcy trustee on behalf of the bankrupt estate and generally seek to have payments made by the debtor within 90 days prior to the bankruptcy returned to the bankruptcy estate for allocation among all of the bankrupt estate's creditors. The Company is not currently involved in any material preference proceedings.
On December 28, 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.


NOTE 18—SUBSEQUENT EVENTS:
On April 1, 2012, the Company purchased additional shares of Infotec Japan from SB Pacific. As a result, the Company's direct ownership in Infotec Japan increased from 70.0% to 81.0% and its total direct and indirect ownership interest increased from 80.0% to 84.7% .




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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. 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 SKUs) from more than 200 IT and CE OEM suppliers to more than 20,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Mexico. As of February 29, 2012 , we had over 10,000 full-time and temporary employees worldwide. From a geographic perspective, approximately 86% and 85% of our total revenue was from North America for the three months ended February 29, 2012 and February 28, 2011 , respectively.
In our distribution segment, we purchase IT systems, peripherals, system components, software, networking equipment,

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CE and complementary products from our primary suppliers such as Hewlett-Packard Company, or HP, Microsoft, Panasonic, Lenovo and Seagate 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 month period ended February 29, 2012 from our disclosure in our Annual Report on Form 10-K for the 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 the fiscal year 2011
During the first quarter of fiscal year 2011, 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, acquired the remaining 30.0% noncontrolling interest. Our total direct and indirect ownership of Marubeni Infotec Corporation is 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. On April 1, 2012, we purchased additional shares of Infotec Japan from SB Pacific. As a result, our direct ownership interest in Infotec Japan increased from 70.0% to 81.0% and our total direct and indirect ownership interest increased from 80.0% to 84.7%.
The aggregate consideration for the transaction was JPY 700.0 million or approximately $8.4 million, of which our direct share was $5.9 million . During the three months ended February 29, 2012, we reached an agreement with the sellers to reduce the purchase price by JPY125.2 million. The purchase price as adjusted is JPY574.8 million or approximately $6.9 million. 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. This acquisition is in the distribution segment and enabled our expansion into Japan.
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 February 29, 2012 and November 30, 2011 were $11.5 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 $44.2 million , with $1.0 million payable upon the completion of certain post-closing conditions. 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 $34.0 million in goodwill and intangibles. We expect to finalize the purchase price allocation on our recent acquisitions upon completion of valuation procedures.
With the exception of Infotec Japan, the above acquisitions, 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
 
February 29, 2012
 
February 28, 2011
Revenue
100.00
 %
 
100.00
 %
Cost of revenue
(93.12
)
 
(94.25
)
Gross profit
6.88

 
5.75

Selling, general and administrative expenses
(4.28
)
 
(3.72
)
Income from operations before non-operating items, income taxes and noncontrolling interest
2.60

 
2.03

Interest expense and finance charges, net
(0.25
)
 
(0.24
)
Other income, net
0.09

 
0.04

Income from operations before income taxes and noncontrolling interest
2.44

 
1.83

Provision for income taxes
(0.85
)
 
(0.64
)
Net income
1.59

 
1.19

Net income attributable to noncontrolling interest
(0.04
)
 
0.00

Net income attributable to SYNNEX Corporation
1.55
 %
 
1.19
 %
Three Months Ended February 29, 2012 and February 28, 2011
Revenue  
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
(in thousands)
 
 
Revenue
$
2,460,694

 
$
2,500,934

 
(1.6
)%
Distribution Revenue
2,423,264

 
2,468,614

 
(1.8
)%
GBS Revenue
45,062

 
39,238

 
14.8
 %
Inter-Segment Elimination
(7,632
)
 
(6,918
)
 
10.3
 %
In our distribution business, we sell in excess of 25,000 technology products (as measured by active SKUs) from more than 200 IT, CE and OEM suppliers to more than 20,000 resellers. The prices of our products are highly dependent on the volumes purchased within a product category. The products we sell from one period to the next are often not comparable because of rapid changes in product models and features. The revenue generated in our GBS segment relates to BPO services such as post-sales technical support, demand generation, renewals management, back office support, ITO, product marketing, pre-sales support and print and fulfillment. The inter-segment elimination relates to the inter-segment, back office support services provided by our GBS segment to our distribution segment. Third-party GBS revenue can be derived by netting the inter-segment eliminations into GBS revenue. The GBS programs and customer service requirements change frequently from one period to the next and are often not comparable.
During the three months ended February 29, 2012, our revenue in the distribution segment decreased compared to the three months ended February 28, 2011 primarily due to the effects of transitioning a certain customer contract from a traditional full service distribution relationship that had existed, to a fee-for-service basis starting in the fourth quarter of fiscal year 2011. The impact of this change resulted in approximately $150.0 million lower revenue recorded during the three months ended February 29, 2012. In comparison to the three months ended February 28, 2011, our sales of systems and system components increased by 7% and 6%, respectively, our sales of peripherals, networking and software decreased by 10%, 11% and 6%, respectively. The change in the customer contract to fee-for-service basis resulted in lower revenue recorded in all product categories and was the primary cause for the decrease in revenue recorded for software and networking sales. The demand environment in North America for IT products was stable during the first quarter of 2012.
In our GBS segment, the increase in revenue in the three months ended February 29, 2012 from the three months ended February 28, 2011 was primarily due to revenue generated from businesses acquired in the fourth quarter of fiscal year 2011.

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Gross Profit
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
(in thousands)
 
 
Gross Profit
$
169,272

 
$
143,796

 
17.7
%
Percentage of Revenue
6.88
%
 
5.75
%
 
 
Our gross profit is affected by a variety of factors, including competition, average selling prices, the variety of products and services we sell, our customers, our sources of revenue by segments, rebate and discount programs from our suppliers, freight costs, charges for inventory losses, acquisitions and divestitures of business units, fluctuations in revenue, and our mix of business including our GBS services.
Our gross profit as a percentage of revenue in the three months ended February 29, 2012 increased by 113 basis points over the three months ended February 28, 2011 . Our margins benefited from the transitioning a certain distribution customer's revenue to a fee-for-service basis beginning in the fourth quarter of fiscal year 2011. In addition, our gross margin was favorably impacted by the continuing supply-demand constraints of certain products and changes in our product mix.
Selling, General and Administrative Expenses
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
(in thousands)
 
Selling, General and Administrative Expenses
$
105,284

 
$
92,943

 
13.3
%
Percentage of Revenue
4.28
%
 
3.72
%
 
 
 
Approximately two-thirds of our selling, general and administrative expenses consist of personnel costs such as salaries, commissions, bonuses, share-based compensation, deferred compensation expense or income, and temporary personnel costs. Selling, general and administrative expenses also include costs of our facilities, utility expense, professional fees, depreciation expense on our capital equipment, bad debt expense, amortization expense on our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
The increase in selling, general and administrative expenses in the three months ended February 29, 2012 from the three months ended February 28, 2011 was primarily due to an increase in personnel costs of approximately $4.8 million to support the organic growth in our business and an increase in operating expenses of approximately $3.5 million for our fiscal year 2011 fourth quarter acquisitions. In addition, our allowance for doubtful accounts was higher by approximately $1.0 million, the impact of fluctuation in foreign exchange rates was approximately $0.7 million and the increase in deferred compensation was $0.7 million.
Income from Operations before Non-Operating Items, Income Taxes and Noncontrolling Interests
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
(in thousands)
 
 
Income from operations before non-operating items, income taxes and noncontrolling interest
$
63,988

 
$
50,853

 
25.8
 %
Percentage of Total Revenue
2.60
%
 
2.03
%
 
 
Distribution income from operations before non-operating items, income taxes and noncontrolling interest
62,365

 
47,219

 
32.1
 %
Percentage of Distribution Revenue
2.57
%
 
1.91
%
 
 
GBS income from operations before non-operating items, income taxes and noncontrolling interest
1,992

 
3,634

 
-45.2
 %
Percentage of GBS Revenue
4.42
%
 
9.26
%
 
 
Inter-segment eliminations
(369)

 

 
 
Our income from operations before non-operating items, income taxes and noncontrolling interest as a percentage of revenue increased to 2.60% in the three months ended February 29, 2012 from 2.03% in the three months ended February 28,

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2011 , primarily as a result of transitioning certain distribution customer revenue to a fee-for-service basis beginning from the fourth quarter of fiscal year 2011 and due to changes in our product mix. The benefits from our higher gross margins were partially offset by higher selling, general and administrative expenses.
Our distribution segment income from operations before non-operating items, income taxes and noncontrolling interest as a percentage of distribution revenue improved by 66 basis points to 2.57% during the three months ended February 29, 2012 as compared with 1.91% in the three months ended February 28, 2011 . The improvement in our margins was mainly driven by the impact of transitioning a certain customer's revenue to a fee-for-service basis in the fourth quarter of fiscal year 2011, the continuing supply-demand constraints of certain products and by changes in our product mix. These increases were offset by higher selling, general and administrative expenses.
Our GBS segment income from operations before non-operating items, income taxes and noncontrolling interest as a percentage of GBS revenue decreased by 484 basis points to 4.42% during the three months ended February 29, 2012 as compared to 9.26% in three months ended February 28, 2011 . This decrease in our margins was due to higher operating costs pertaining to our recent acquisitions and increase in selling, general and administrative expenses due to continued investments in growth including investments in our sales organization.
Interest Expense and Finance Charges, Net
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
 
(in thousands)
 
 
 
Interest expense and finance charges, net
$
6,035

 
$
6,169

 
-2.2
 %
 
Percentage of revenue
0.25
%
 
0.24
%
 
 
 
 
Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit and other debt, fees associated with third party accounts receivable flooring arrangements, non-cash interest expense on our convertible debt and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments and financing income from our multi-year contracts in our Mexico operation.
The decrease in interest expense and finance charges, net, during the three months ended February 29, 2012 was due to higher interest income from our Mexico contracts compared to the three months ended February 28, 2011 .
Other Income, Net
 
Three Months Ended
 
 
 
February 29, 2012
 
February 28, 2011
 
Percent Change
 
(in thousands)
 
 
Other income, net
$
2,099

 
$
965

 
117.5
%
Percentage of revenue
0.09
%
 
0.04
%
 
 
 
Amounts recorded as other income, net include foreign currency transaction gains and losses, investment gains and losses (including those in our deferred compensation plan) and other non-operating gains and losses.
The increase in other income, net during the three months ended February 29, 2012 from the three months ended February 28, 2011 was primarily due to higher foreign exchange gains of approximately $0.6 million, higher gains from our deferred compensation investments of approximately $0.2 million and higher income of $0.2 million from our equity method investee.
Provision for Income Taxes
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
Our effective tax rate for the three months ended February 29, 2012 was 34.8% as compared to 35.0% for the three months ended February 28, 2011 . Our effective tax rate was impacted by changes in the mix of income in the different tax jurisdictions in which we operate.
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and earnings being higher than anticipated in countries where we have higher statutory rates, by

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changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws, regulations or accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests represents the share of net income attributable to others, which is recognized for the portion of subsidiaries’ equity not owned by us. The noncontrolling interest primarily represents SB Pacific’s 30% ownership of Infotec Japan and has been reflected in the results of our distribution segment.

Liquidity and Capital Resources  
Cash Flows  
Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on debt, accounts receivable arrangements, our securitization programs and our revolver programs for our working capital needs.
We have financed our growth and cash needs to date primarily through working capital financing facilities, convertible debt, bank credit lines and cash generated from operations.
To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by additional borrowings or issuing common stock or debt securities.
Net cash provided by operating activities was $74.2 million for the three months ended February 29, 2012 , primarily due to the changes in our working capital, following our seasonally high fourth quarter of fiscal year 2011, and our net income of $39.2 million. The changes in our working capital included $113.9 million lower accounts receivable and $22.2 million lower inventory balances, offset by $95.3 million lower accounts payable. Net cash provided by operating activities for the three months ended February 28, 2011 was $59.4 million primarily due to $158.0 million lower accounts receivable, $43.8 million lower inventory and our net income of $29.7 million, offset by $161.2 million lower accounts payable.
Net cash provided by investing activities for the three months ended February 29, 2012 was $7.1 million , which was primarily due to the $10.7 million decrease in our restricted cash. The changes in our restricted cash are caused by the timing of lockbox collections under our borrowing arrangements. Our capital expenditure during the period was $4.6 million, which was used for the investment in equipment and infrastructure. Net cash used in investing activities in the three months ended February 28, 2011 was $72.5 million which included $38.3 million used for our acquisition of Encover, Inc. and e4e, Inc. in our GBS segment and $4.5 million used for the acquisition of Infotec Japan, net of cash acquired in our distribution segment. Our capital expenditures during the quarter were $8.6 million, which included a $2.4 million deposit for a warehouse and logistics facility in the United States, the purchase of which was completed in the fourth quarter of fiscal year 2011, and $1.3 million invested in property in Costa Rica. In addition, we invested $3.7 million in SB Pacific, our equity-method investee.
Net cash used in financing activities for the three months ended February 29, 2012 was $79.6 million, consisting primarily of $78.0 million net payments on our securitization arrangements, revolving lines of credit, and our term loans. The book overdraft was higher by $9.5 million, due to timing of payments. Proceeds from the exercise of employee stock options was $5.7 million during the period. Net cash provided by financing activities for the three months ended February 28, 2011 was $27.4 million, consisting primarily of $7.9 million net receipts from our securitization arrangements, our revolving lines of credit and the debt refinancing of Infotec Japan with a new credit facility. The book overdraft was lower by $12.8 million, due to timing of payments. In addition, the capital contribution by noncontrolling interests in Infotec Japan was $6.5 million and financing from the exercise of employee stock options was $2.2 million during the quarter, offset by taxes paid for net share settlement of equity awards of $2.9 million.
We have also issued guarantees to certain vendors and lenders of our subsidiaries for trade credit lines and loans, totaling $233.8 million as of February 29, 2012 and $238.7 million as of November 30, 2011 . We are obligated under these guarantees to pay amounts due should our subsidiaries not pay valid amounts owed to their vendors or lenders.
Capital Resources  
Our cash and cash equivalents totaled $68.8 million and $67.6 million as of February 29, 2012 and November 30, 2011 ,

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respectively. Of our total cash and cash equivalents the cash held by our foreign subsidiaries was $64.5 million and $59.5 million as of February 29, 2012 and November 30, 2011, respectively. Repatriation of the cash held by our foreign subsidiaries would be subject to United States federal income taxes. Also, repatriation of some foreign balances is restricted by local laws. However, we have historically fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future, our intentions change and we repatriate the cash back to the United States, we will report the expected impact of the applicable taxes depending upon the planned timing and manner of such repatriation. Presently, the Company believes it has sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital requirements.
We believe we will have sufficient resources to meet our present and future working capital requirements for the next twelve months, based on our financial strength and performance, existing sources of liquidity, available cash resources and funds available under our various borrowing arrangements.  
In May 2008, we issued $143.8 million of aggregate principal amount of our 4.0% Convertible Senior Notes due 2018, or the Convertible Senior Notes, in a private placement. However, under certain circumstances we 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 plus any accrued and unpaid interest. In addition, if certain triggering events are met, the Convertible Senior Notes can be converted into shares of common stock at any time before their maturity. Because we currently intend to settle the Convertible Senior Notes using cash at some future date, we maintain within our Amended and Restated U.S. Arrangement, the Amended and Restated Revolver and the U.S. unsecured revolving line of credit ongoing features that allow us to utilize cash from these facilities to cash settle the Convertible Senior Notes. (See On-Balance Sheet Arrangements below). These borrowing arrangements are renewable on their expiration dates. We have no reason to believe that these arrangements will not be renewed as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company. We also retain the ability to issue equity securities and utilize the proceeds to cash-settle the Convertible Senior Notes. See Note 11 Convertible Debt.
On-Balance Sheet Arrangements  
We primarily finance our United States operations with an accounts receivable securitization program, or the U.S. Arrangement. In November 2010, we amended and restated the U.S. Arrangement, or the Amended and Restated U.S. Arrangement, replacing the lenders and the lead agent. We can now pledge up to a maximum of $400.0 million in United States trade accounts receivable, or the U.S. Receivables, as compared to a maximum of $350.0 million 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 under the Amended and Restated U.S. Arrangement as of February 29, 2012 and November 30, 2011 were $5.4 million and $64.5 million , respectively.
Under the terms of the Amended and Restated U.S. Arrangement, we sell, on a revolving basis, our 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 our consolidated balance sheet. 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 our cost of borrowing or loss of our 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 our financial condition and results of operations.
We have a senior secured revolving line of credit arrangement, or the Revolver, with a financial institution. In November 2010, we amended and restated the Revolver, or the Amended and Restated Revolver, to remove one of the lenders and increase the maximum commitment of the remaining lender from $80.0 million to $100.0 million. The Amended and Restated Revolver retains an accordion feature to increase the maximum commitment by an additional $50.0 million to $150.0 million at our 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, or LIBOR, at our option. The margin on the LIBOR is determined in accordance with our fixed charge coverage ratio under the Amended and Restated Revolver and is currently 2.25%. Our 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

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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 our 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 $60.0 million or we have 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, we do 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 we have no amounts outstanding under the Amended and Restated Revolver at such time. There were no borrowings outstanding as of both February 29, 2012 and November 30, 2011 .
In February 2011, we 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 $25.0 million. 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 the LIBOR, at our option. The margin on the LIBOR is 2.00%. Our base rate is the financial institution’s prime rate minus 0.25%. The agreement expires in February 2014. As of both February 29, 2012 and November 30, 2011 there were no borrowings outstanding under this arrangement.
SYNNEX Canada, has a revolving line of credit arrangement with a financial institution for a maximum commitment of C$125.0 million, or the Canadian Revolving Arrangement. The Canadian Revolving Arrangement also provides a sublimit of $5.0 million for the issuance of standby letters of credit. As of February 29, 2012 , outstanding standby letters of credit totaled $3.5 million . SYNNEX Canada has granted a security interest in substantially all of its assets in favor of the lender under the Canadian Revolving Arrangement. In addition, we pledged our 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. The balances outstanding under our Canadian Revolving Arrangement as of February 29, 2012 and November 30, 2011 were $9.9 million and $27.3 million , respectively.
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. The balance outstanding on the term loan as of February 29, 2012 and November 30, 2011 was $9.2 million and $9.1 million , respectively.
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY10.0 billion. The credit agreement is comprised of a JPY6.0 billion long-term loan and a JPY4.0 billion short-term revolving credit facility. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate, or 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. We have issued a guarantee of JPY7.0 billion under this credit facility. As of February 29, 2012 , the balance outstanding under the term loan was $73.9 million and the revolving credit facility was $49.3 million.
Infotec Japan has term loans from financial institutions with an aggregate amount outstanding of $14.0 million and $15.1 million as of February 29, 2012 and November 30, 2011 , respectively. This includes a one-year revolving credit facility of JPY 1.0 billion , which expires in February 2013 and bears an interest rate that is based on TIBOR plus a margin of 1.75%, and a term loan of JPY 140.0 million , which expires in December 2012 and bears a fixed interest rate of 1.50%. In addition, as of February 29, 2012 and November 30, 2011 , there was $0.2 million and $0.5 million, 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 February 29, 2012 and November 30, 2011 , we had capital lease obligations of $1.4 million and $1.5 million , respectively, primarily pertaining to Infotec Japan.
Covenants Compliance  
In relation to our 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, we have a number of covenants and restrictions that, among other things, require us to comply with certain financial and other covenants. These covenants require us to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratios. They also limit our ability to incur additional debt, make or forgive intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens,

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cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. The covenants also limit our ability to pay cash upon conversion, redemption or repurchase of the Convertible Senior Notes, subject to certain liquidity tests. As of February 29, 2012 , we were in compliance with all material covenants for the above arrangements.  
Convertible Debt  
In May 2008, we issued $143.8 million of aggregate principal amount of our 4.0% Convertible Senior Notes due 2018, or 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, we 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 our 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, or the Measurement Period, in which the trading price per $1,000 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 we have 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 February 29, 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, we will pay or deliver, as the case may be, cash, shares of the common stock or a combination thereof at our election. The initial conversion rate for the Convertible Senior Notes is 33.9945 shares of common stock per $1,000 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. We may enter into convertible hedge arrangements to hedge the in-the-money feature of the Convertible Senior Notes to counter the potential share dilution.
We may not redeem the Convertible Senior Notes prior to May 20, 2013. We 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.
Holders may require us 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 up to (including any additional interest and any contingent interest), but excluding, the repurchase date. If we undergo a fundamental change, holders may require us 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 up to (including any additional interest and any contingent interest), but excluding, the fundamental change repurchase date.
The Convertible Senior Notes are senior unsecured obligations 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 our 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 our 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

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Association, as trustee, and us, which contains customary events of default.
The Convertible Senior Notes as hybrid instruments are accounted as convertible debt and are recorded at carrying value. The right of the holders of the Convertible Senior Notes to require us 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, we recognized both a liability and an equity component of the Convertible Senior Notes in a manner that reflects our 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 $120.3 million. The difference between the Convertible Senior Note cash proceeds and this estimated fair value was estimated to be $23.4 million 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 February 29, 2012 , the remaining amortization period is approximately fourteen 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%, we recorded contractual interest expense of $1.6 million during both the three months ended February 29, 2012 and February 28, 2011 . Based on an effective rate of 8.0%, we recorded non-cash interest expense of $1.3 million and $1.2 million during the three months ended February 29, 2012 and February 28, 2011 , respectively. As of both February 29, 2012 and November 30, 2011 , the carrying value of the equity component of the Convertible Senior Notes, net of allocated issuance costs, was $22.8 million .
The Convertible Senior Notes contain various features that 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 the various features of the Convertible Senior Notes including put and call elements. Because we currently intend to settle the Convertible Senior Notes using cash at some future date, we maintain within our Amended and Restated U.S. Arrangement, Amended and Restated Revolver and U.S. unsecured revolving line of credit ongoing features that allow us to utilize cash from these facilities to cash settle the Convertible Senior Notes, if desired.
Related Party Transactions  
We have a business relationship with MiTAC International Corporation, or MiTAC International, a publicly-traded company in Taiwan that began in 1992 when it became our primary investor through its affiliates. As of February 29, 2012 and November 30, 2011 , MiTAC International and its affiliates beneficially owned approximately 27% and 29% , respectively, of our common stock. In addition, Matthew Miau, our 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 us and over the outcome of all matters submitted to stockholders for consideration, including any of our mergers or acquisitions. Among other things, this could have the effect of delaying, deterring or preventing a change of control over us.
Until July 31, 2010, we 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 us to build relationships with MiTAC International’s customers. On July 31, 2010, MiTAC International purchased certain assets related to our contract assembly business, including inventory and customer contracts, primarily related to customers then being jointly serviced by MiTAC International and us. As part of this transaction, we 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 months ended February 29, 2012 and February 28, 2011 , we recorded $0.9 million and $1.5 million, respectively, for service fees earned and reimbursements for facilities and overhead costs.
We purchased inventories, from MiTAC International and its affiliates totaling $0.2 million and $1.4 million during the three months ended February 29, 2012 and February 28, 2011 , respectively. Our sales to MiTAC International and its affiliates during the three months ended February 29, 2012 and February 28, 2011 totaled $1.1 million and $0.3 million , respectively.
Our 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.
During the period of time that we worked with MiTAC International, we 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, we believe that the significant terms under our arrangements with MiTAC International, including pricing, will not materially differ from the terms we could have negotiated

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with unaffiliated third parties, and we have adopted a policy requiring that material transactions with MiTAC International or its related parties be approved by our 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. As MiTAC International’s ownership interest in us decreases as a result of sales of our stock and additional dilution, its interest in the success of the business and operations may decrease as well.
Beneficial Ownership of Our Common Stock by MiTAC International  
As noted above, MiTAC International and our affiliates in the aggregate beneficially owned approximately 27% of our common stock as of February 29, 2012 . These shares are owned by the following entities:  
 
 
 
As of February 29, 2012
 
(shares in thousands)
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 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., or Synnex Technology International, is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC International owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.9% 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 our business in the past, and we do not expect it to do so in the future.  
We own shares of MiTAC International and one of its affiliates related to the deferred compensation plan of Robert Huang, our founder and former Chairman. As of February 29, 2012 , the value of the investment was $0.9 million . Except as described herein, none of our 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 our potential competitor. Neither MiTAC International, nor Synnex Technology International is restricted from competing with us.  
Others  
On August 31, 2010, we acquired a 33.3% noncontrolling interest in SB Pacific. We are not the primary beneficiary in SB Pacific. The controlling shareholder of SB Pacific is Robert Huang, who is our founder and former Chairman. Our 33.3% investment in SB Pacific is accounted for as an equity-method investment and is included in other assets. The balances of our investment as of February 29, 2012 and November 30, 2011 were $6.2 million and $6.0 million , respectively. We regard SB Pacific to be a variable interest entity and as of February 29, 2012 , our maximum exposure to loss was limited to our investment of $6.2 million . As of February 29, 2012, SB Pacific owned a 30.0% noncontrolling interest in Infotec Japan.
As of April 1, 2012, we reduced our ownership in SB Pacific from 33.3% to 19.7%.
Recent Accounting Pronouncements  
In May 2011, the Financial Accounting Standards Board, or 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 us beginning in the second quarter of fiscal year 2012. We are evaluating the impact of this new accounting update on our consolidated financial statements.
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 us beginning in the first quarter of fiscal year 2013. We will update our presentation of comprehensive income to comply with the updated disclosure requirements.

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During fiscal year 2012, the following accounting standards are applicable:
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. We will adopt the accounting update for our 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. We adopted the new disclosure requirements in the fiscal year ending November 30, 2012. The accounting update did not have a material impact on our financial statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk  
There have been no material changes in our quantitative and qualitative disclosures about market risk for the three month period ended February 29, 2012 from our Annual Report on Form 10-K for the year ended November 30, 2011 . For further discussion of quantitative and qualitative disclosures about market risk, reference is made to our Annual Report on Form 10-K for the year then ended.

ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
 
ITEM 1A. Risk Factors  
The following are certain risk factors that could affect our business, financial results and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. Before you invest in our Company, you should know that making such an investment involves some risks, including the risks described below. The risks that have been highlighted here are not the only ones that we face. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.