SYNNEX Corporation
SYNNEX CORP (Form: 10-Q, Received: 04/08/2014 16:31:10)
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 28, 2014
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 31, 2014
Common Stock, $0.001 par value
 
39,099,916


 



Table of Contents

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

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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 28,
2014
 
November 30,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
148,403

 
$
151,622

Short-term investments
14,007

 
15,134

Accounts receivable, net
1,556,993

 
1,593,191

Receivable from related parties
780

 
146

Inventories
1,225,487

 
1,095,107

Current deferred tax assets
18,478

 
22,031

Other current assets
160,541

 
54,502

Total current assets
3,124,689

 
2,931,733

Property and equipment, net
168,508

 
133,249

Goodwill
376,402

 
188,535

Intangible assets, net
200,542

 
23,772

Deferred tax assets
366

 
7,867

Other assets
58,066

 
40,733

Total assets
$
3,928,573

 
$
3,325,889

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under securitization, term loans and lines of credit
$
480,881

 
$
252,523

Accounts payable
1,304,717

 
1,350,040

Payable to related parties
9,902

 
3,861

Accrued liabilities
225,272

 
181,325

Income taxes payable
12,008

 
1,629

Total current liabilities
2,032,780

 
1,789,378

Long-term borrowings
281,826

 
65,405

Long-term liabilities
77,027

 
56,418

Deferred tax liabilities
10,999

 
3,047

Total liabilities
2,402,632

 
1,914,248

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, 39,450 and 38,052 shares issued as of February 28, 2014 and November 30, 2013, respectively
39

 
38

Additional paid-in capital
364,319

 
286,329

Treasury stock, 843 and 842 shares as of February 28, 2014 and November 30, 2013, respectively
(27,522
)
 
(27,450
)
Accumulated other comprehensive income
17,092

 
19,168

Retained earnings
1,171,554

 
1,133,137

Total SYNNEX Corporation stockholders’ equity
1,525,482

 
1,411,222

Noncontrolling interest
459

 
419

Total equity
1,525,941

 
1,411,641

Total liabilities and equity
$
3,928,573

 
$
3,325,889


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

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Table of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Revenue
$
3,026,984

 
$
2,460,839

Cost of revenue
(2,820,338
)
 
(2,304,752
)
Gross profit
206,646

 
156,087

Selling, general and administrative expenses
(144,696
)
 
(100,147
)
Income before non-operating items, income taxes and noncontrolling interest
61,950

 
55,940

Interest expense and finance charges, net
(4,498
)
 
(5,493
)
Other income, net
2,968

 
1,261

Income before income taxes and noncontrolling interest
60,420

 
51,708

Provision for income taxes
(21,962
)
 
(18,317
)
Net income
38,458

 
33,391

Net income attributable to noncontrolling interest
(41
)
 
(22
)
Net income attributable to SYNNEX Corporation
$
38,417

 
$
33,369

Earnings per share attributable to SYNNEX Corporation:
 
 
 
Basic
$
1.02

 
$
0.91

Diluted
$
1.01

 
$
0.88

Weighted-average common shares outstanding:
 
 
 
Basic
37,656

 
36,663

Diluted
38,225

 
38,030

 

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 28, 2014
 
February 28, 2013
Net income
$
38,458

 
$
33,391

Other comprehensive income (loss):
 
 
 
Unrealized gains on available-for-sale securities, net of $0 tax for both the three months ended February 28, 2014 and 2013, respectively
32

 
239

 
 
 
 
Cash flow hedging instrument:
 
 
 
Change in unrecognized loss, net of $5 and $0 tax for the three months ended February 28, 2014 and 2013, respectively
(34
)
 

Net losses reclassified into earnings
27

 

 
 
 
 
Foreign currency translation adjustments, net of tax of $522 and $448 for the three months ended February 28, 2014 and 2013, respectively
(2,102
)
 
(10,962
)
 
 
 
 
Other comprehensive loss
(2,077
)
 
(10,723
)
Comprehensive income:
36,381

 
22,668

Comprehensive income attributable to noncontrolling interest
(40
)
 
(14
)
Comprehensive income attributable to SYNNEX Corporation
$
36,341

 
$
22,654

 

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 28, 2014
 
February 28, 2013
Cash flows from operating activities:
 
 
 
Net income
$
38,458

 
$
33,391

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
5,657

 
4,275

Amortization of intangible assets
5,697

 
1,953

Accretion of convertible notes discount

 
1,388

Share-based compensation
2,584

 
2,483

Provision for doubtful accounts
1,838

 
1,699

Tax benefits from employee stock plans
1,397

 
240

Excess tax benefit from share-based compensation
(1,333
)
 
(416
)
(Gains) losses on investments
229

 
(569
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable
52,032

 
176,302

Receivable from related parties
(635
)
 
(43
)
Inventories
(136,894
)
 
(9,023
)
Other assets
(16,127
)
 
(7,200
)
Accounts payable
(30,713
)
 
(147,327
)
Payable to related parties
6,040

 
494

Accrued liabilities
39,782

 
(12,476
)
Deferred liabilities
(3,030
)
 
(4,266
)
Net cash provided by (used in) operating activities
(35,018
)
 
40,905

Cash flows from investing activities:
 
 
 
Purchase of trading investments
(272
)
 
(155
)
Proceeds from sale of trading investments
1,334

 
927

Acquisition of businesses, net of cash acquired
(390,433
)
 
(877
)
Purchase of property and equipment
(4,293
)
 
(3,041
)
Loans and deposits to third parties, net of repayments received
831

 
279

Proceeds from sale of equity-method investee

 
4,153

Changes in restricted cash
4,097

 
(387
)
Net cash provided by (used in) investing activities
(388,736
)
 
899

Cash flows from financing activities:
 
 
 
Proceeds from securitization and revolving line of credit
1,126,008

 
136,735

Payment of securitization and revolving line of credit
(907,044
)
 
(101,967
)
Proceeds from long-term credit facility and term loans
225,000

 

Payment of long-term bank loans, capital leases and other borrowings
(260
)
 
(690
)
Excess tax benefit from share-based compensation
1,333

 
416

Increase (decrease) in book overdraft
(28,776
)
 

Payment of acquisition-related contingent consideration
(400
)
 

Cash paid for repurchase of treasury stock

 
(103
)
Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
2,705

 
1,249

Payment for purchase of shares of subsidiary from noncontrolling interest

 
(11,400
)
Net cash provided by financing activities
418,566

 
24,240

Effect of exchange rate changes on cash and cash equivalents
1,969

 
2,331

Net increase (decrease) in cash and cash equivalents
(3,219
)
 
68,375

Cash and cash equivalents at beginning of period
151,622

 
163,699

Cash and cash equivalents at end of period
$
148,403

 
$
232,074

 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 
 
Fair value of common stock issued for acquisition of business
$
71,103

 
$

 

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 28, 2014 and 2013
(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, original equipment manufacturers (“OEMs”), financial and insurance institutions and several other industry verticals worldwide. SYNNEX is headquartered in Fremont, California and has operations in North America, Central America, Asia, Australia and Europe.
The Company operates in two segments: distribution services, hereinafter referred to as Technology Solutions, and global business services, hereinafter referred to as Concentrix. The Technology Solutions segment distributes peripherals, information technology (“IT”) systems, including data center server and storage solutions, system components, software, networking equipment, consumer electronics (“CE”) , and complementary products. The Technology Solutions segment also provides systems design and integration services. The Concentrix segment offers a range of global business outsourcing services around process optimization, customer engagement strategy and backoffice automation to customers in various industry verticals.
The accompanying interim unaudited Consolidated Financial Statements as of February 28, 2014 and for the three months ended February 28, 2014 and 2013 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, 2013 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the fiscal year ended November 30, 2013 , 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 28, 2014 is not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2014, 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, 2013 . 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, 2013 .
Restricted cash  
Restricted cash balances relate to temporary restrictions caused by the timing of lockbox collections under the Company’s borrowing arrangements, future payments to contractors for the long-term projects at the Company’s Mexico operation and deposits.
The following table summarizes the restricted cash balances as of February 28, 2014 and November 30, 2013 and the location where these amounts are recorded on the Consolidated Balance Sheets:
 
As of 
 
February 28, 2014
 
November 30, 2013
Related to borrowing arrangements and others:
 
 
 
        Other current assets
$
18,232

 
$
22,349

Related to long-term projects:
 
 
 
        Other assets
1,858

 
1,865

Total restricted cash
$
20,090

 
$
24,214

 

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(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 cash and cash equivalents and accounts receivable.
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 28, 2014 , 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 28, 2014 , such losses have been within management’s expectations.  
In the three months ended February 28, 2014 , no customer accounted for 10% or more of the Company's total revenue. In the three months ended February 28, 2013 , one customer accounted for 10% of the Company's total revenue. Products purchased from the Company’s largest OEM supplier, Hewlett-Packard Company (“HP”), accounted for approximately 28% and 31% for the three months ended February 28, 2014 and 2013, respectively.
As of both February 28, 2014 and November 30, 2013, no customer exceeded 10% of the total consolidated accounts receivable balance.
Revenue recognition
Technology Solutions
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 and allowances 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 presented net of taxes collected from customers and remitted to government authorities. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. The Company recognizes revenue on a net basis on certain contracts, including service contracts, post-contract software support services and extended warranty contracts, where it is not the primary obligor, by recognizing the margins earned in revenue with no associated cost of revenue.
Concentrix
The Company recognizes revenue from business process outsourcing service contracts when evidence of an arrangement exists, services are delivered, fees are fixed or determinable and collectability is reasonably assured. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. Revenue on fixed price contracts is recognized on a straight-line basis over the term of the contract as services are provided. Revenue on unit-price transactions is recognized using an objective measure of output including staffing hours or the number of transactions processed by service agents. Client contract terms typically can span from less than one year to over five years.
Recurring operating costs for services contracts, including costs related to bid and proposal activities, are recognized as incurred. Where a contract requires an up-front investment, which typically includes transition and set-up costs related to systems and processes, costs are amortized on a straight-line basis over the expected period of benefit. Additionally, the Company will defer certain eligible fulfillment costs incurred in the initial phases of the contract. These costs are amortized on a straight-line basis over the expected period of benefit, not to exceed the term of the contract.
Earnings per common share  
Earnings 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.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Earnings 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.
It was the Company’s intent to settle the principal amount of the 4% Convertible Senior Notes due 2018 (the "Convertible Senior Notes") in cash; accordingly, the principal amount was excluded from the determination of diluted earnings per share. In April 2013, the Company decided to settle the payment of the conversion premium in cash as discussed in Note 11 — Convertible Debt. Through April 2013, the Company accounted for the conversion premium using the treasury stock method by adjusting the diluted weighted-average common shares if the effect was dilutive. From April 2013 through the date of settlement in August 2013, the numerator for the computation of earnings per common share-diluted was adjusted for the changes in the estimated value of the conversion premium until the final settlement date.
The calculation of earnings per common share attributable to SYNNEX Corporation is presented in Note 12.  
Reclassifications
Certain reclassifications have been made to prior period amounts in the Consolidated Statements of Cash Flows to conform to current period presentation. Such reclassifications have no effect on the cash flow from operating, investing and financing activities as previously reported.
Effective in the first quarter of fiscal year 2014, the Company realigned its business segments to better serve its global markets and customers. Certain operations of the Company that were previously reported under the Concentrix segment and that primarily provided inter-segment support and IT services have now been aligned with and report into the Technology Solutions segment. The financial information presented herein reflects the impact of the preceding segment structure change for all periods presented.
Recent accounting pronouncements  
In March 2013, the Financial Accounting Standards Board ("FASB") issued an accounting update that clarifies the applicable guidance for the release of the cumulative translation adjustment when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets that is a business within a foreign entity. The guidance clarifies that the accounting for the release of cumulative translation adjustment into net income for sales or transfers of a controlling financial interest within a foreign entity is the same irrespective of whether the sale or transfer is of a subsidiary or a group of assets that is a business. The accounting update is applicable for fiscal years and interim reporting periods within those years beginning after December 15, 2013 with early adoption permitted. The accounting update will be applicable for the Company in the second quarter of fiscal year 2014.
In July 2013, the FASB issued a new accounting standard that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new accounting update will be applicable to the Company in the first quarter of fiscal 2015; however, early adoption and retrospective application are permitted. The Company is currently evaluating the impact of this new standard on its Consolidated Financial Statements.
During fiscal year 2014, the following accounting standard was adopted:
In February 2013, the FASB issued an accounting update that requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012 with early adoption permitted. The Company adopted the accounting update in the first quarter of fiscal year 2014.


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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 3—ACQUISITIONS:
Fiscal year 2014 acquisitions
IBM customer care business acquisition
On January 31, 2014, under the terms of a Master Asset Purchase Agreement, the Company completed the initial closing of its acquisition of the assets of the customer care business of International Business Machines Corporation, a New York corporation (“IBM”). The preliminary aggregate purchase price of $503,100 is subject to certain post-closing adjustments. The initial closing represents countries which comprise approximately 80% of the preliminary valuation of the customer care business. The subsequent closings are expected to occur in the second fiscal quarter of 2014, but contractually no later than June 30, 2015, and are subject to customary closing conditions, including regulatory approvals. As of February 28, 2014, the Company had paid $69,000 (recorded in "Other current assets") towards the subsequent closings of the acquisition and expects to pay an additional amount of $40,000 in cash at the final closing.
The acquisition has been integrated into the Concentrix segment and expands the Company's service portfolio, delivery capabilities and geographic reach.
The acquisition has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their preliminary fair values as of January 31, 2014. The total preliminary purchase price consideration for the initial closing is as follows:
Preliminary purchase consideration:
Fair Value         
Cash payment
$
321,000

Stock consideration
71,103

Preliminary fair value of stock awards assumed
1,987

 
$
394,090

The Company issued 1,266 shares of its common stock, at a fair value of $71,103 based on the closing price of the Company’s common stock on the New York Stock Exchange Composite Transactions Tape as of the date of acquisition. Additionally, the Company assumed unvested restricted IBM stock-based awards with a preliminary estimated fair value of $10,052 on the date of acquisition. The Company exchanged the acquisition date fair value of the unvested restricted IBM stock awards of employees with the Company's equity-based awards or cash settled with deferred payouts. The fair value of the replaced IBM awards was based on the market value of the Company’s common stock on the acquisition date. The fair value of the cash settled awards was based on IBM’s stock price on the acquisition date, adjusted for the exclusion of dividend equivalents. Of the equity awards issued, a portion relating to the pre-combination service period was preliminarily allocated to the purchase consideration and the remainder of the preliminary estimated fair value will be expensed over the remaining service periods on a straight-line basis.
The total preliminary purchase price has been allocated between the acquisition of the IBM customer care business and a separate element representing IBM-initiated prepaid compensation plans. Of the total $16,241 prepaid amount, $12,951 is recorded in "Other current assets" and $3,290 in "Other assets" and is being expensed to "Selling, general and administrative expenses" over the service period.
The portion of the preliminary purchase price for the acquisition was allocated to the net tangible and intangible assets based on their preliminary fair values as of January 31, 2014. The excess of the purchase price over the preliminary net tangible assets and preliminary intangible assets was recorded as goodwill. The goodwill balance is attributed to the assembled workforce and expanded market opportunities due to the expanded service portfolio delivery capabilities and geographic reach as a result of the acquisition. The preliminary allocation of the purchase price was based upon a preliminary valuation and the Company's estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income and non-income based taxes and residual goodwill. The Company expects to continue to obtain information for the purpose of determining the fair value of the net assets acquired at the acquisition date during the measurement period and the amount of goodwill that will be deductible for tax purposes.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The total preliminary purchase price allocation is as follows:
Preliminary purchase price allocation:
Fair Value
Accounts receivable
$
24,788

Other current assets
23,080

Property, plant and equipment
36,974

Goodwill
186,266

Intangible assets
180,649

Other assets
26,123

Accounts payable
(20,326
)
Accrued liabilities
(24,978
)
Deferred tax liabilities, non-current
(16,426
)
Other long-term liabilities
(22,060
)
 
$
394,090

The identifiable intangible assets acquired and their estimated useful lives are summarized as follows:
 
 
Fair Value
 
Useful Life
Customer contracts
 
$
168,449

 
10 years
Technology
 
7,200

 
3-10 years
Trade names
 
5,000

 
5-10 years
Total intangibles acquired
 
$
180,649

 
 
During the three months ended February 28, 2014 , the IBM customer care business contributed $74,493 of revenue to the Company's total consolidated results of operations. Earnings contributed by the acquired business are not separately identifiable as a result of the Company's integration activities. Acquisition and integration expenses recorded in "Selling, general and administrative expenses" were $8,908 during the three months ended February 28, 2014 and consist of costs incurred to complete the acquisition and integrate the business.
The following unaudited pro forma financial information combines the unaudited Consolidated Results of Operations as if the initial closing of the acquisition of the IBM customer care business had occurred at the beginning of the periods presented and excludes the results of the subsequently closing countries. Pro forma adjustments include only the effects of events directly attributable to transactions that are factually supportable. The pro forma results contained in the table below include pro forma adjustments for amortization of acquired intangibles, interest expense incurred on borrowings to fund the acquisition, stock-based compensation expense, other employee-related payments, the related tax effects of the pro forma adjustments and the issuance of shares.
The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition and any borrowings undertaken to finance the acquisition had taken place at the beginning of fiscal periods presented.
 
 
Three Months Ended
 
 
February 28, 2014
 
February 28, 2013
Revenue
 
$
3,221,784

 
$
2,791,339

Net income attributable to SYNNEX Corporation
 
42,512

 
29,662

Net income from continuing operations per share - basic
 
$
1.10

 
$
0.78

Net income from continuing operations per share - diluted
 
$
1.09

 
$
0.75

Fiscal year 2013 acquisitions
In April 2013, the Company acquired substantially all of the assets of Supercom Canada Limited ("Supercom Canada"), a distributor of IT and consumer electronics products and services in Canada. The purchase price was approximately

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

CAD37,593 , or US$36,665 , in cash, including CAD4,450 , or US$4,340 , in deferred payments, subject to certain post-closing conditions, payable within 18 months. Subsequent to the acquisition, the Company repaid debt and working capital lines in the amount of US$53,721 . Based on the preliminary purchase price allocation, the Company recorded net tangible assets of US$26,912 , goodwill of US$5,384 and intangible assets of US$4,369 in relation to this acquisition. This acquisition did not meet the conditions of a material business combination and was not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting. The acquisition is integrated into the Technology Solutions segment and has expanded the Company's existing product and service offerings in Canada.
NOTE 4—SHARE-BASED COMPENSATION:  
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units and employee stock purchases, based on estimated fair values.
The Company uses the Black-Scholes valuation model to estimate fair value of stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock.
The following table summarizes the number of share-based awards granted under the Company’s 2013 Stock Incentive Plan, as amended, during the three months ended February 28, 2014 and the Company's Amended and Restated 2003 Stock Incentive Plan, as amended, during the three months ended February 28, 2013 and the grant-date fair value of the awards:
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
 
Shares awarded
 
Fair value of grants
 
Shares awarded
 
Fair value of grants
Restricted stock awards
80

 
$
4,544

 
2

 
$
54

Restricted stock units
46

 
2,704

 
98

 
3,467

 
126

 
$
7,248

 
100

 
$
3,521

The Company recorded share-based compensation expenses of $2,584 and $2,483 in "Selling, general and administrative expenses" for the three months ended February 28, 2014 and 2013, respectively.

NOTE 5—BALANCE SHEET COMPONENTS:
 
As of
 
February 28, 2014
 
November 30, 2013
Short-term investments:
 
 
 
Trading securities
$
3,741

 
$
4,728

Held-to-maturity securities
8,673

 
8,753

Cost method investments
1,593

 
1,653

 
$
14,007

 
$
15,134


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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

 
As of
 
February 28, 2014
 
November 30, 2013
Accounts receivable, net:
 
 
 
Accounts receivable
$
1,628,303

 
$
1,681,917

Less: Allowance for doubtful accounts
(14,621
)
 
(14,010
)
Less: Allowance for sales returns
(56,689
)
 
(74,716
)
 
$
1,556,993

 
$
1,593,191

 
As of
 
February 28, 2014
 
November 30, 2013
Property and equipment, net:
 
 
 
Land
$
22,406

 
$
22,665

Equipment and computers
125,914

 
107,528

Furniture and fixtures
35,288

 
21,480

Buildings, building improvements and leasehold improvements
122,327

 
113,777

Construction in progress
933

 
1,621

Total property and equipment, gross
306,868

 
267,071

Less: Accumulated depreciation
(138,360
)
 
(133,822
)
 
$
168,508

 
$
133,249

Goodwill:
Technology Solutions
 
Concentrix
 
Total
Balance at the beginning of the period
$
108,218

 
$
80,317

 
$
188,535

Additions from acquisitions, net of adjustments

 
186,266

 
186,266

Foreign exchange translation
(1,869
)
 
3,470

 
1,601

Balance at the end of the period
$
106,349

 
$
270,053

 
$
376,402

 
As discussed in Note 13 Segment Information, in the first quarter of fiscal year 2014, the Company completed a realignment of its business segments. The change has been reflected in the goodwill balances by business segment above for all periods presented.
The additions to "Goodwill" recorded during the three months ended February 28, 2014 relate to the acquisition of IBM customer care business in the Concentrix segment.
Intangible assets, net
As of February 28, 2014
 
As of November 30, 2013
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Vendor lists
$
36,815

 
$
(30,564
)
 
$
6,251

 
$
36,815

 
$
(30,180
)
 
$
6,635

Customer relationships
222,405

 
(40,147
)
 
182,258

 
52,179

 
(35,379
)
 
16,800

Technology
7,200

 
(154
)
 
7,046

 

 

 

Other intangible assets
9,435

 
(4,448
)
 
4,987

 
4,857

 
(4,520
)
 
337

 
$
275,855

 
$
(75,313
)
 
$
200,542

 
$
93,851

 
$
(70,079
)
 
$
23,772

 
Amortization expenses were $5,697 and $1,953 for the three months ended February 28, 2014 and 2013, respectively. The increase in intangible assets, net from November 30, 2013 to February 28, 2014 is due to the acquisition of the IBM customer care business in the Concentrix segment.

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Estimated future amortization expense, which includes the preliminary estimates of amortization for the assets acquired through the initial closing of the IBM customer care acquisition, is as follows:
Fiscal Years Ending November 30,
 
2014
$
43,994

2015
42,093

2016
33,562

2017
25,401

2018
18,422

thereafter
37,070

Total
$
200,542

Accumulated other comprehensive income 
The components of accumulated other comprehensive income, net of taxes, excluding noncontrolling interests were as follows:
 
 
Losses on cash flow hedges, net of taxes
 
Unrealized gains on available-for-sale securities, net of taxes
 
Unrecognized pension and post-retirement benefit costs, net of taxes
 
Foreign currency translation adjustment, net of taxes
 
Total
Beginning balance
 
$

 
$
543

 
$
(365
)
 
$
18,990

 
$
19,168

Other comprehensive income (loss) before reclassifications
 
(34
)
 
33

 

 
(2,102
)
 
(2,103
)
Net loss reclassified into earnings
 
27

 

 

 

 
27

Ending balance
 
$
(7
)
 
$
576

 
$
(365
)
 
$
16,888

 
$
17,092


NOTE 6—INVESTMENTS:  
The carrying amount of the Company’s investments is shown in the table below:  
 
As of
 
February 28, 2014
 
November 30, 2013
 
Cost Basis
 
Unrealized Gains
 
Carrying
Value
 
Cost Basis
 
Unrealized Gains
 
Carrying
Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Trading securities
$
2,833

 
$
908

 
$
3,741

 
$
3,857

 
$
871

 
$
4,728

Held-to-maturity investments
8,673

 

 
8,673

 
8,753

 

 
8,753

Cost method securities
1,593

 

 
1,593

 
1,653

 

 
1,653

 
$
13,099

 
$
908

 
$
14,007

 
$
14,263

 
$
871

 
$
15,134

Long-term investments in other assets:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
961

 
$
412

 
$
1,373

 
$
909

 
$
366

 
$
1,275

Cost-method investments
4,968

 

 
4,968

 
4,981

 

 
4,981

 
Short-term trading securities generally consist of equity securities relating to the Company’s deferred compensation plan. 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. Short-term cost-method securities primarily

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

consist of investments in a hedge fund under the Company’s deferred compensation plan. Long-term cost-method investments consist of investments in equity securities of private entities.
Trading securities and available-for-sale securities are recorded at fair value in each reporting period and therefore the carrying value of these securities equals their fair value. For cost-method securities, the Company records an impairment charge when the decline in fair value is determined to be other-than-temporary. The fair value of the cost-method investments is based on the published fund values or an internal valuation of the investee.
The following table summarizes the total gains and losses recorded in “Other income, net” in the Consolidated Statements of Operations for changes in the fair value of the Company's trading investments:
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Gain on trading investments
$
59

 
$
569


NOTE 7—DERIVATIVE INSTRUMENTS:  
In the ordinary course of business, the Company is exposed to foreign currency risk, interest risk, equity risk and credit risk. The Company’s transactions in some of its foreign operations are denominated in local currency. The Company’s foreign locations enter into transactions, and own monetary assets and liabilities, that are denominated in currencies other than their functional currency.
As part of its risk management strategy, the Company uses short-term forward contracts to minimize its balance sheet exposure to foreign currency risk. These forward-exchange contracts are not designated as hedging instruments. The forward exchange contracts are recorded at fair value in each reporting period and any gains or losses, resulting from the changes in fair value, are recorded in earnings in the period of change.
The Company enters into forward contracts to protect against the foreign currency risk relating to its forecasted revenue denominated in currencies other than the functional currency of the selling entity. These forward contracts are designated at inception as cash flow hedges. The Company initially records the effective portion of the gain or loss in "Accumulated other comprehensive income" and subsequently reclassifies these amounts into revenue in the period during which the underlying sale is recognized.
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 28, 2014 and November 30, 2013 :
   
 
Fair Value as of
 
 
February 28, 2014
 
November 30, 2013
Derivative instruments designated as hedging instruments
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other current liabilities
$
12

 
$

Derivative instruments not designated as hedging instruments
 
 
 
 
Foreign exchange contracts
Other current assets
$
1,540

 
$
2,386

Foreign exchange contracts
Other current liabilities
572

 
80

The notional amounts of the foreign exchange forward contracts that were outstanding as of February 28, 2014 and November 30, 2013 were $269,632 and $158,950 , respectively. The notional amounts represent the gross amounts of foreign

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

currency that will be bought or sold at maturity. In relation to its forward contracts not designated as hedging instruments, the Company recorded gains of $3,969 and $3,428 in “Other income (expense), net” during the three months ended February 28, 2014 and 2013, respectively. In relation to its forward contracts designated as cash flow hedging instruments, the Company recorded a loss of $39 in "Accumulated other comprehensive income" and reclassified a loss of $27 into revenue during the three months ended February 28, 2013.

NOTE 8—FAIR VALUE MEASUREMENTS:  
The Company’s fair value measurements are classified and disclosed in one of the following three categories:  
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:  
 
As of February 28, 2014
 
As of November 30, 2013
 
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
$
25,867

 
$
25,867

 
$

 
$

 
$
28,779

 
$
28,779

 
$

 
$

Trading securities
3,741

 
3,741

 

 

 
4,728

 
4,728

 

 

Available-for-sale securities in other assets
1,373

 
1,373

 

 

 
1,275

 
1,275

 

 

Forward foreign currency exchange contracts
1,540

 

 
1,540

 

 
2,386

 

 
2,386

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
584

 
$

 
$
584

 
$

 
$
80

 
$

 
$
80

 
$

Acquisition-related contingent consideration
2,527

 

 

 
2,527

 
2,996

 

 

 
2,996

 
The Company's cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying value of the cash equivalents approximates the fair value since they are near their maturity. 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.
The acquisition-related contingent consideration liability represents the future potential earn-out payments relating to acquisitions. The fair values of the contingent consideration liabilities are based on the Company’s probability assessment of the established profitability measures during the periods ranging from one year to three years from the date of the acquisitions. The change in the carrying value of the liability is primarily due to $400 paid to the sellers, during the three months ended February 28, 2014, for the achievement of earn-out targets.
The carrying value of held-to-maturity securities, accounts receivable, accounts payable and short-term debt, approximate fair value due to their short maturities and the interest rates which are variable in nature. The carrying value of the Company's term loans approximate their fair value since they bear interest rates that are similar to existing market rates.

16

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

During the three months ended February 28, 2014 , there were no transfers between the fair value measurement category levels.

NOTE 9—ACCOUNTS RECEIVABLE ARRANGEMENTS:  
The Company primarily finances its United States operations with an accounts receivable securitization program (the “U.S. Arrangement”). Until September 2013, the Company’s subsidiary, which is the borrower under the U.S. Arrangement, could borrow up to a maximum of $400,000 in U.S. trade accounts receivable (“U.S. Receivables”). In September 2013, the Company amended the U.S Arrangement to increase the commitment of the lenders to $500,000 . In addition, the amendment also included an accordion feature to allow requests for an increase in the lenders' commitment by an additional $100,000 to a maximum commitment of $600,000 . The maturity date of the U.S. Arrangement is October 18, 2015. The effective borrowing cost under the U.S. Arrangement is a blended rate that includes prevailing dealer commercial paper rates and the daily London Interbank Offered Rate (“LIBOR”), plus a program fee of 0.425% per annum based on the used portion of the commitment, and a facility fee of 0.425% per annum payable on the aggregate commitment of the lenders. As of February 28, 2014 and November 30, 2013 , there were $380,000 and $144,000 , respectively, of borrowings outstanding under the U.S. Arrangement.
Under the terms of the 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 acquired by the Company's subsidiary as security. Any borrowings under the 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, or if the lender whose commercial paper issuer or liquidity back-up provider is not replaced does not elect to offer the Company an alternative rate. 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 28, 2014
 
February 28, 2013
Net sales financed
$
281,990

 
$
186,335

Flooring fees (1)
1,569

 
1,227

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of February 28, 2014 and November 30, 2013 , accounts receivable subject to flooring agreements were $57,578 and $89,589 , respectively.
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 collected as of February 28, 2014 and November 30, 2013 were $12,775 and $13,862 , respectively.


17

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 10—BORROWINGS:  
Borrowings consist of the following:  
 
As of
 
February 28, 2014
 
November 30, 2013
SYNNEX U.S. securitization
$
380,000

 
$
144,000

SYNNEX U.S. credit agreement
225,000

 

SYNNEX Canada term loan
6,947

 
7,419

Infotec Japan credit facility
120,849

 
136,679

Other borrowings and capital leases
29,911

 
29,830

Total borrowings
762,707

 
317,928

Less: Current portion
(480,881
)
 
(252,523
)
Non-current portion
$
281,826

 
$
65,405

SYNNEX U.S. securitization  
The Company's subsidiary which is the borrower under the U.S Arrangement can borrow up to a maximum of $500,000 under its U.S. Arrangement, secured by U.S. Receivables. See Note 9—Accounts Receivable Arrangements. The effective borrowing cost under the U.S. Arrangement is a blended rate that includes the prevailing dealer commercial paper rates and LIBOR, plus a program fee on the used portion of the commitment and a facility fee payable on the aggregate commitment. As of February 28, 2014 and November 30, 2013 , the outstanding balances under the U.S. arrangement were $380,000 and $144,000 , respectively.
SYNNEX U.S. credit agreement
In November 2013, the Company entered into a senior secured credit agreement (the “U.S. Credit Agreement”) which is comprised of $275,000 in a revolving credit facility and a term loan in an aggregate principal amount not to exceed $225,000 The Company may request incremental commitments to increase the principal amount of revolving loans or term loans available under the U.S. Credit Agreement up to $125,000 . The U.S. Credit Agreement matures in November 2018.
Interest on borrowings under the Credit Agreement can be based on LIBOR or a base rate at the Company's option. Loans borrowed under the U.S. Credit Agreement bear interest, in the case of LIBOR loans, at a per annum rate equal to the applicable LIBOR, plus a margin which may range from 1.75% to 2.25% , based on the Company's consolidated leverage ratios, as determined in accordance with the U.S. Credit Agreement. Loans borrowed under the Credit Agreement that are not LIBOR loans, and are instead base rate loans, bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus a margin of 1/2 of 1.0% , (B) LIBOR plus 1.0% per annum, and (C) the rate of interest announced, from time to time, by the agent, Bank of America, N.A, as its “prime rate,” plus (ii) a margin which may range from 0.75% to 1.25% , based on the Company's consolidated leverage ratios as determined in accordance with the U.S. Credit Agreement.
When drawn, the outstanding principal amount of the long-term loan will be repayable in quarterly installments, in an amount equal to (a) for each of the first eight calendar quarters ending after the term loan is made, 1.25% of the initial principal amount of the term loan, (b) for each calendar quarter ending thereafter, 2.50% of the initial principal amount of the term loan and (c) on the November 2018 maturity date of the term loan, the outstanding principal amount of the term loan. The Company’s obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets and are guaranteed by certain of its United States domestic subsidiaries.
There were $225,000 borrowings outstanding under the term loan component of the U.S. Credit Agreement as of February 28, 2014. In addition, there was $1,500 outstanding as of February 28, 2014 in standby letters of credit under the U.S. Credit Agreement. There were no borrowings outstanding under the U.S. Credit Agreement as of November 30, 2013 .
SYNNEX Canada revolving line of credit  
SYNNEX Canada Limited ("SYNNEX Canada") has a revolving line of credit arrangement with a financial institution (the “Canadian Revolving Arrangement”) which has a maximum commitment of CAD100,000 and includes an accordion

18

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

feature to increase the maximum commitment by an additional CAD25,000 to CAD125,000 , at SYNNEX Canada's request. The Canadian Revolving Arrangement also provides a sublimit of US$5,000 for the issuance of standby letters of credit. As of both February 28, 2014 and November 30, 2013 , there were no letters of credit outstanding.
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 interest rate applicable under the Canadian Revolving Arrangement is equal to (i) the Canadian base rate plus a margin of 0.75% for a Base Rate Loan in Canadian Dollars, (ii) the US base rate plus a margin of 0.75% for a Base Rate Loan in U.S. Dollars, and (iii) the Bankers' Acceptance rate ("BA") plus a margin of 2.00% for a BA Rate Loan. The Canadian base rate means the greater of (a) the prime rate determined by a major Canadian financial institution and (b) the one month Canadian Dealer Offered Rate ("CDOR") (the average rate applicable to Canadian dollar bankers' acceptances for the applicable period) plus 1.50% . The US base rate means the greater of (a) a reference rate determined by a major Canadian financial institution for US dollar loans made to Canadian borrowers and (b) the US federal funds rate plus 0.50% . A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. The credit arrangement expires in May 2017. There was no borrowing outstanding under the Canadian Revolving Arrangement as of both February 28, 2014 and November 30, 2013 .
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. The balances outstanding on the term loan as of February 28, 2014 and November 30, 2013 were $6,947 and $7,419 , respectively.
Infotec Japan credit facility
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY14,000,000 . The credit agreement is comprised of a JPY6,000,000 long-term loan and a JPY8,000,000 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 that was 1.90% per annum, however, in December 2013, the Company amended the credit agreement to lower this margin to 1.40% per annum. The unused line fee on the revolving credit facility was 0.50% per annum. In December 2013, the Company amended this credit agreement to lower this fee to 0.10% per annum. This credit facility expires in December 2016. As of February 28, 2014 and November 30, 2013 , the balance outstanding under the credit facility was $120,849 and $136,679 , respectively. The long-term loan can be repaid at any time prior to expiration date without penalty. The Company has issued a guarantee to cover up to 110% of the outstanding principal amount obligations of Infotec Japan to the lenders.
Other borrowings and capital leases
In September 2013, Infotec Japan established a short-term revolving credit facility of JPY2,000,000 with a financial institution. The interest rate for the credit facility is based on TIBOR plus a margin of 0.50% per annum. In addition, there is a facility fee of 0.425% per annum. The credit facility can be renewed annually. As of February 28, 2014 and November 30, 2013, the balances outstanding under this credit facility were $19,650 and $19,526 , respectively.
Infotec Japan has a short-term revolving credit facility of JPY1,000,000 with a financial institution. The credit facility can be renewed annually and bears an interest rate that is based on TIBOR plus a margin of 1.20% per annum. As of February 28, 2014 and November 30, 2013 , the balances outstanding under this credit facility were $9,826 and $9,763 , respectively.
As of February 28, 2014 and November 30, 2013 , the Company also had $435 and $541 , respectively, in outstanding capital lease obligations and obligations for the sale and financing of approved accounts receivable and notes receivable with recourse provisions to Infotec Japan.

19

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Future principal payments
Future principal payments under the above loans and capital leases as of February 28, 2014 are as follows:  
Fiscal Years Ending November 30,
 
2014
$
480,674

2015
12,052

2016
23,282

2017
82,258

2018
161,164

Thereafter
3,277

 
$
762,707

Interest expense and finance charges 
For the three months ended February 28, 2014 and 2013, the total interest expense and finance charges for the Company's borrowings were $5,593 and $6,556 , respectively. The interest expense for the three months ended February 28, 2013 includes non-cash interest expenses of $1,388 for the 4% Convertible Senior Notes due May 2018 (the "Convertible Senior Notes"). The variable interest rates ranged between 0.61% and 3.75% during the three months ended February 28, 2014 and between 0.67% and 3.53% during the three months ended February 28, 2013 .
Covenants compliance  
In relation to the U.S. Arrangement, the U.S. Credit Agreement, the Revolver, the Canadian Revolving Arrangement and the Infotec Japan credit facility, 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.
Guarantees  
The Company has issued guarantees to certain vendors, customers and lenders of its subsidiaries for trade credit lines and loans, and to a certain customer's lessor. In addition, the Company, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35,035 in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The total guarantees issued by the Company as of February 28, 2014 and November 30, 2013 were $366,297 and $364,744 , respectively. The Company is obligated under these guarantees to pay amounts due should its subsidiaries or customer not pay valid amounts owed to their vendors or lenders or not comply with subsidiary sales agreements.
NOTE 11—CONVERTIBLE DEBT:
In August 2013, the Company settled its Convertible Senior Notes with an aggregate principal amount of $143,750 which were issued in May 2008 in a private placement. The Convertible Senior Notes bore a cash coupon interest rate of 4.0% per annum and the initial conversion rate was 33.9945 shares of common stock per $1 principal amount, equivalent to an initial conversion price of $29.42 per share of common stock. The Convertible Senior Notes were called in the second quarter of fiscal year 2013. No interest was accrued subsequent to May 2013 in accordance with the Indenture. The final settlement amount of $218,870 was paid in cash and comprised of $143,750 in principal payments and $75,120 in payment of conversion premium. The conversion premium, which represents the total settlement amount less the principal, was recorded as a reduction of "Additional paid-in capital.” The final settlement amount was calculated in accordance with the Indenture based on the volume weighted-average trading price of the Company's common stock over the 60 consecutive trading-day period beginning on and including the third trading day after the related conversion.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Based on a cash coupon interest rate of 4.0% , the Company recorded contractual interest expense of $1,624 during the three months ended February 28, 2013 . Based on an effective rate of 8.0% , the Company recorded non-cash interest expenses of $1,388 for the three months ended February 28, 2013 .

NOTE 12—EARNINGS PER COMMON SHARE:  
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated:  
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Numerator:
 
 
 
Net income attributable to SYNNEX Corporation
$
38,417

 
$
33,369

 
 
 
 
Denominator:
 
 
 
Weighted-average common shares - basic
37,656

 
36,663

Effect of dilutive securities:
 
 
 
Stock options, restricted stock awards and restricted stock units
569

 
520

Conversion spread of convertible debt

 
847

Weighted-average common shares - diluted
38,225

 
38,030

 
 
 
 
Earnings per share attributable to SYNNEX Corporation:
 
 
 
Basic
$
1.02

 
$
0.91

Diluted
$
1.01

 
$
0.88

During the three months ended February 28, 2013, the Company accounted for the conversion premium of the Convertible Senior Notes using the treasury stock method by adjusting the diluted weighted-average common shares if the effect was dilutive. The Convertible Senior Notes were settled in August 2013 as discussed in Note 11- Convertible Debt.
Options to purchase 12 and 19 shares during the three months ended February 28, 2014 and 2013, have not been included in the computation of diluted earnings per share as their effect would have been anti-dilutive.

NOTE 13—SEGMENT INFORMATION:  
Operating segments
Operating segments are based on components of the Company that engage in business activity that earn revenue and incur expenses and (a) whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resource allocation and performance and (b) for which discrete financial information is available.
The Company operates in two segments the distribution services segment, hereinafter referred to as "Technology Solutions" and the GBS segment hereinafter referred to as "Concentrix." The Technology Solutions segment distributes peripherals, IT systems including data center server and storage solutions, system components, software, networking equipment, CE, and complementary products. The Technology Solutions segment also provides systems design and integration services.
The Concentrix segment offers a range of global business services focused on process optimization, customer engagement strategy and backoffice automation to clients in various industry verticals. The portfolio of services offered by this segment are comprised of end-to-end process outsourcing services that are delivered through omni-channels including both voice and non voice. They range from end-to-end process outsourcing to customers in various industry verticals. Clients include corporations in the automotive, banking and financial services, healthcare and pharmaceutical, insurance, media and

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

communications, retail and ecommerce, consumer electronics, technology, travel and telecommunications industries and the government and public sector.
Effective in the first quarter of 2014, the Company realigned its business segments. Certain operations of the Company that were previously reported under the Concentrix segment and that provided inter-segment support and IT services to the Technology Solutions segment have now been aligned with and report into the Technology Solutions segment. The Concentrix segment includes the legacy Concentrix business and the newly acquired IBM customer care business. The financial information presented herein reflects the impact of the segment structure change for all periods presented.
Summarized financial information related to the Company’s reportable business segments for the three months ended February 28, 2014 and 2013 is shown below:
 
Technology Solutions
 
Concentrix
 
Inter-Segment
Elimination
 
Consolidated
Three months ended February 28, 2014
 
 
 
 
 
 
 
Revenue
$
2,902,907

 
$
126,965

 
$
(2,888
)
 
$
3,026,984

Income (loss) from operations before non-operating items, income taxes and noncontrolling interest
63,531

 
(1,779
)
 
198

 
61,950

Three months ended February 28, 2013
 
 
 
 
 
 
 
Revenue
2,418,916

 
44,350

 
(2,427
)
 
2,460,839

Income from operations before non-operating items, income taxes and noncontrolling interest
53,536

 
2,424

 
(20
)
 
55,940

 
 
 
 
 
 
 
 
Total assets as of February 28, 2014
$
3,750,868

 
$
777,417

 
$
(599,712
)
 
$
3,928,573

Total assets as of November 30, 2013
3,271,804

 
273,135

 
(219,050
)
 
3,325,889

Inter-segment elimination represents services and transactions generated between our reportable segments that are eliminated on consolidation.
Segment by geography
The Company's sources of revenue are primarily from North America. The United States and Canada are included in the “North America” operations. Australia, China, India, Japan and the Philippines are included in “Asia-Pacific” operations and Europe, Mexico and Central America are included in “Other” operations. The revenues attributable to countries are based on geography of entities from where the products are distributed and from where customer service contracts are managed.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Shown below is summarized financial information related to the geographic areas in which the Company operated during the three months ended February 28, 2014 and 2013:
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Revenue:
 
 
 
North America
$
2,580,253

 
$
2,129,513

Asia-Pacific
391,824

 
311,624

Other
54,907

 
19,702

 
$
3,026,984

 
$
2,460,839

 
As of
 
February 28, 2014
 
November 30, 2013
Property and equipment, net:
 
 
 
North America
$
99,099

 
$
95,344

Asia-Pacific
49,863

 
19,853

Other
19,546

 
18,052

 
$
168,508

 
$
133,249

Revenue in the United States was approximately 72% and 74% of the total revenue for the three months ended February 28, 2014 and 2013, respectively. Revenue in Canada was approximately 13% of total revenue for both the three months ended February 28, 2014 and 2013. Revenue in Japan was approximately 12% of the total revenue for both the three months ended February 28, 2014 and 2013.
Net property and equipment in the United States was approximately 49% and 59% of the total as of February 28, 2014 and November 30, 2013 , respectively. Net property and equipment in the Philippines represented 16% and 6% of the total as of February 28, 2014 and November 30, 2013, respectively. Net property and equipment in Canada was approximately 10% and 13% of the total as of February 28, 2014 and November 30, 2013 , respectively. As of both February 28, 2014 and November 30, 2013 , no other country represented more than 10% of the total net property and equipment.

NOTE 14—RELATED PARTY TRANSACTIONS: 
The Company had a business relationship with MiTAC International Corporation (“MiTAC International”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC International became the Company's primary investor through its affiliates. In September 2013, MiTAC Holdings Corporation ("MiTAC Holdings") was established through a stock swap from MiTAC International and became a publicly traded company on the Taiwan Stock Exchange. MiTAC International is now a wholly-owned subsidiary of MiTAC Holdings. As of February 28, 2014 and November 30, 2013 , MiTAC Holdings and its affiliates beneficially owned approximately 25% and 26% of the Company’s common stock. Matthew Miau, the Company’s Chairman Emeritus of the Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Beneficial ownership of the Company’s common stock by MiTAC Holdings  
As noted above, MiTAC Holdings and its affiliates in the aggregate beneficially owned approximately 25% of the Company’s common stock as of February 28, 2014 . These shares are owned by the following entities:  
 
As of February 28, 2014
MiTAC Holdings (1)
5,552

Synnex Technology International Corp. (2)
4,283

Total
9,835

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 442 shares directly held by Matthew Miau.
(2)
Synnex Technology International Corp. ("Synnex Technology International") is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.6% in Synnex Technology International.
MiTAC Holdings 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.
The Company purchased inventories from MiTAC Holdings and its affiliates totaling $18,885 and $5,324 during the three months ended February 28, 2014 and 2013, respectively. The Company’s sales to MiTAC Holdings and its affiliates during the three months ended February 28, 2014 and 2013, totaled $862 and $1,363 , respectively. In addition, the Company received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings amounting to $16 and $931 during the three months ended February 28, 2014 and 2013, respectively.
The Company’s business relationship with MiTAC Holdings has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. The Company negotiates manufacturing, pricing and other material terms on a case-by-case basis with MiTAC Holdings and its contract assembly customers for a given project. While MiTAC Holdings is a related party and a controlling stockholder, the Company believes that the significant terms under its arrangements with MiTAC Holdings, including pricing, do 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 Holdings 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.  
Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also a potential competitor of the Company. Neither MiTAC Holdings, nor Synnex Technology International is restricted from competing with the Company.

NOTE 15—PENSION AND EMPLOYEE BENEFITS PLANS:  
The employees of 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.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The components of net periodic pension costs pertaining to the Company's single employer benefit plan during the three months ended February 28, 2014 and 2013 were as follows:
 
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Service cost
$
158

 
$
161

Interest cost
35

 
41

Expected return on plan assets
(17
)
 
(16
)
Net periodic pension costs
$
176

 
$
186

During the three months ended February 28, 2014 and 2013, the Company contributed $149 and $173 , respectively, to the single-employer benefit plan.
Following the Company's acquisition of the IBM customer care business, certain employees of the acquired business are covered by defined benefit pension plans. The pension costs recorded during the three months ended February 28, 2014 were not material to the financial statements.

NOTE 16—EQUITY:
Share repurchase program 
In June 2011, the Board of Directors authorized a three -year $65,000 share repurchase program. As of February 28, 2014 the Company had purchased 361 shares for a total cost of $11,340 . No purchases were made during the three months ended February 28, 2014.
The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes.

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Changes in equity
A reconciliation of the changes in equity for the three months ended February 28, 2014 and February 28, 2013 is presented below:
 
 
Three Months Ended February 28, 2014
 
Three Months Ended February 28, 2013
 
 
  Attributable to  
SYNNEX
Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
 
Attributable
  to SYNNEX  
    Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
Beginning balance of equity:
 
$
1,411,222

 
$
419

 
$
1,411,641

 
$
1,319,023

 
$
332

 
$
1,319,355

Issuance of common stock on exercise of options
 
2,449

 

 
2,449

 
1,041

 

 
1,041

Issuance of common stock for employee stock purchase plan
 
328

 

 
328

 
308

 

 
308

Tax benefit from employee stock plans
 
1,397

 

 
1,397

 
240

 

 
240

Taxes paid for the settlement of equity awards
 
(72
)
 

 
(72
)
 
(99
)
 

 
(99
)
Shares and employee stock awards issued for acquisition of IBM customer care business
 
71,233

 

 
71,233

 

 

 

Share-based compensation
 
2,584

 

 
2,584

 
2,483

 

 
2,483

Repurchase of treasury stock
 

 

 

 
(103
)
 

 
(103
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
38,417

 
41

 
38,458

 
33,369

 
22

 
33,391

Other comprehensive income:
 

 

 

 

 

 

Changes in unrealized gains (losses) on available-for-sale securities
 
33

 
(1
)
 
32

 
239

 

 
239

Net change in unrealized loss on cash flow hedge
 
(7
)
 

 
(7
)
 

 

 

Foreign currency translation adjustments
 
(2,102
)
 

 
(2,102
)
 
(10,954
)
 
(8
)
 
(10,962
)
Total other comprehensive income
 
(2,076
)
 
(1
)
 
(2,077
)
 
(10,715
)
 
(8
)
 
(10,723
)
Total comprehensive income
 
36,341

 
40

 
36,381

 
22,654

 
14

 
22,668

Ending balance of equity:
 
$
1,525,482

 
$
459

 
$
1,525,941

 
$
1,345,547

 
$
346

 
$
1,345,893


NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of February 28, 2014 under agreements to repurchase repossessed inventory acquired by Flooring Companies as a result of default on floor plan financing arrangements by the Company's customers. These arrangements are described in Note 9 Accounts Receivable Arrangements. Losses, if any, would be the difference between the

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SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three months ended February 28, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

repossession cost and the resale value of the inventory. There have been no repurchases through February 28, 2014 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations. From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, the Company is involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company is not currently involved in any material proceedings.
In January 2014, the Company received a Civil Investigative Demand in connection with a Federal Trade Commission investigation concerning the use of a database program that has operated for several years under the auspices of the Global Technology Distribution Council ("GTDC"), a trade group of which the Company is a member. Certain GTDC members who participate in the program provide sales data to a third party independent contractor chosen by the GTDC. The contractor aggregates the data and makes it available to program participants. The Company understands that other GTDC members participating in the program have received similar Civil Investigative Demands.
In December 2009, the Company sold China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. In conjunction with this sale, the Company has recorded a contingent indemnification liability of $4,122 .
The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.


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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report.  
When used in this Quarterly Report on Form 10-Q or the Report, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “may,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about market trends, our business model and our services, our market strategy, including expansion of our product lines, our infrastructure, anticipated benefits, costs, and timing of our acquisitions, including our acquisition of the customer care business of International Business Machines Corporation, or IBM, our employee hiring, impact of MiTAC Holdings Corporation, or MiTAC Holdings, 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, including our Concentrix business, 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, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of our accounting policies, our tax rates, 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 information technology, or 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, offering a comprehensive range of services to resellers, retailers, original equipment manufacturers, or OEMs, financial and insurance institutions and several other industry verticals worldwide. Our primary business process services are wholesale IT distribution and global business services. We operate in two segments: distribution services, hereinafter referred to as Technology Solutions, and global business services, hereinafter referred to as Concentrix. Our Technology Solutions segment distributes peripherals, IT systems including data center server and storage solutions, system components, software, networking equipment, CE, and complementary products. Within our Technology Solutions services segment, we also provide systems design and integration services. Our Concentrix segment offers a range of global business services around process optimization, customer engagement strategy and backoffice automation to customers in various industry verticals.
On January 31, 2014, under the terms of a Master Asset Purchase Agreement, we completed the initial closing of our acquisition of the assets of the customer care business of International Business Machines Corporation, or IBM. The preliminary aggregate purchase price of $503.1 million is subject to certain post-closing adjustments. The initial closing represents countries which comprise approximately 80% of the preliminary valuation of the customer care business. The subsequent closings are expected to occur in the second fiscal quarter of 2014, but contractually no later than June 30, 2015, and are subject to customary closing conditions, including regulatory approvals. As of February 28, 2014, we have paid $69.0 million towards the subsequent closings of the acquisition and expect to pay an additional amount of $40.0 million in cash at the final closing. The acquisition has been integrated into our Concentrix segment. The acquisition in its entirety, including subsequent closures, is anticipated to add approximately 33,000 employees in six continents, providing business process outsourcing delivery capabilities in over 40 languages to approximately 170 customers in 36 countries.
We combine our core strengths in distribution with our customer engagement 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 30,000 technology products (as measured by active SKUs) from more than 300 IT, CE and OEM suppliers to more than 20,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Mexico. As of February 28, 2014 , we had approximately 49,000 full-time, contractors and temporary employees worldwide.

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From a geographic perspective, approximately 85% and 87% , of our total revenue was from North America for the three months ended February 28, 2014 and 2013, respectively.
In our Technology Solutions segment, we purchase peripherals, IT systems, system components, software, networking equipment, including CE and complementary products from our primary suppliers such as Hewlett-Packard Company, or HP, Lenovo, AsusTek Computer Inc., Beats Electronics LLC and Seagate Technologies LLC 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 Technology Solutions, we also provide comprehensive IT solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of print management, renewals, networking, logistics services and supply chain management. Additionally, within our Technology Solutions segment, we provide our customers with systems design and integration services for data center servers and storage solutions built specific to our customers' datacenter environments.
In our Concentrix segment, our portfolio of services includes end to end process outsourcing to customers in various industry vertical markets delivered through omni-channels that include both voice and non-voice mediums. Our clients include corporations in the automotive, banking and financial services, healthcare and pharmaceutical, insurance, media and communications, retail and ecommerce, consumer electronics, technology and travel and telecommunications industries and the government and public sector.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates for the three months ended February 28, 2014 from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2013. For more information on all of our critical accounting policies, please see the discussion in our Annual Report on Form 10-K for the fiscal year ended November 30, 2013 and Note 2 of the financial statements.
Recent Acquisitions and Divestitures 
We continually seek to augment our product and service offerings through both internal expansion and strategic acquisitions of businesses and assets that complement and expand our global operational capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. Our historical acquisitions 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. Our prior acquisitions have brought us new reseller and retail customers, OEM suppliers, product lines and service offerings and technological capabilities. We account for acquisitions using the purchase method of accounting and include acquired entities within our Consolidated Financial Statements from the closing date of the acquisition.  
Acquisitions during fiscal year 2014
IBM customer care business acquisition
On January 31, 2014, under the terms of a Master Asset Purchase Agreement, we completed the initial closing of our acquisition of the assets of the customer care business of IBM. The preliminary aggregate purchase price of $503.1 million is subject to certain post-closing adjustments. The initial closing represents countries which comprise approximately 80% of the preliminary valuation of the customer care business. The subsequent closings are expected to occur in the second fiscal quarter of 2014, but contractually, no later than June 30, 2015, and are subject to customary closing conditions, including regulatory approvals. As of February 28, 2014, we have paid $69.0 million (recorded in other current assets) towards the subsequent closings of the acquisition and expect to pay an additional amount of $40.0 million in cash at the final closing. We issued 1,266,357 shares of our common stock at a fair value of $71.1 million based on the closing price of our common stock on the date of acquisition.
The estimated purchase price allocation consisted of $27.2 million of net tangible assets, $180.6 million of intangible assets and $186.3 million of goodwill. The purchase price allocation is preliminary, subject to finalization of valuation procedures.
The acquisition has been integrated into the Concentrix segment and extends our service portfolio, delivery capabilities and geographic reach.

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Table of Contents

Acquisitions during fiscal year 2013
In April 2013, we acquired substantially all of the assets of Supercom Canada Limited or Supercom Canada, a distributor of IT and consumer electronics products and services in Canada. The purchase price was approximately CAD37.6 million , or US$36.7 million , in cash, including approximately CAD4.5 million , or US$4.3 million , in deferred payments, subject to certain post-closing conditions, payable within 18 months. Subsequent to the acquisition, we repaid debt and working capital lines in the amount of US$53.7 million . Based on the preliminary purchase price allocation, we recorded net tangible assets of US$26.9 million , goodwill of US$5.4 million and intangible assets of US$4.4 million in relation to this acquisition. The determination of the fair value of the assets and liabilities acquired is preliminary and subject to the finalization of more detailed analysis. The acquisition is integrated into the Technology Solutions segment and has expanded our existing product and service offerings in Canada.

Results of Operations  
The following table sets forth, for the indicated periods, data as percentages of revenue:  
Statements of Operations Data:
Three Months Ended
 
February 28, 2014
 
February 28, 2013
Revenue
100.00
 %
 
100.00
 %
Cost of revenue
(93.17
)
 
(93.66
)
Gross profit
6.83

 
6.34

Selling, general and administrative expenses
(4.78
)
 
(4.07
)
Income from operations before non-operating items, income taxes and noncontrolling interest
2.05

 
2.27

Interest expense and finance charges, net
(0.15
)
 
(0.22
)
Other income, net
0.10

 
0.05

Income from operations before income taxes and noncontrolling interest
2.00

 
2.10

Provision for income taxes
(0.73
)
 
(0.74
)
Net income
1.27

 
1.36

Net income attributable to noncontrolling interest
0.00

 
0.00

Net income attributable to SYNNEX Corporation
1.27
 %
 
1.36
 %
Segment Information
In the first quarter of fiscal year 2014, we realigned our business segments. Certain operations which were previously reported under the Concentrix segment and which primarily provided inter-segment support and IT services have now been aligned with and report into the Technology Solutions segment. The financial information presented herein reflects the impact of the preceding segment structure change for all periods presented.
Three Months Ended February 28, 2014 and 2013
Revenue  
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent  Change
 
(in thousands)
 
 
Revenue
$
3,026,984

 
$
2,460,839

 
23.0
%
Technology Solutions revenue
2,902,907

 
2,418,916

 
20.0
%
Concentrix revenue
126,965

 
44,350

 
186.3
%
Inter-segment elimination
(2,888
)
 
(2,427
)
 
19.0
%

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In our Technology Solutions segment, we distribute in excess of 30,000 technology products (as measured by active SKUs) from more than 300 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 Concentrix segment relates to global business services process optimization, customer engagement strategy and back office automation. Inter-segment elimination represents services and transactions generated between our reportable segments that are eliminated on consolidation.
Revenue in our Technology Solutions segment during the three months ended February 28, 2014 increased from the prior year period due to strong consumer and commercial sales growth in U.S. and Japan and the April 2013 acquisition of Supercom Canada. In comparison to the prior year period, first quarter 2014 revenue was negatively impacted by 3.8% for the translation impact of foreign exchange rates, primarily from the weakening of the Japanese yen and the Canadian dollar. On a constant currency basis, revenue increased by 23.8% from the prior year period.
Sales in US and Japan benefitted from increased demand for consumer electronics, expansion of our vendor lines and growth in our systems design and integration services. Our revenue from notebook, tablet, networking and software products also increased compared to the prior year period. Consumer and commercial IT demand are expected to continue to be strong in the U.S. and Japan and to continue to improve in Canada.
The increase in revenue in our Concentrix segment from the prior year period is primarily due to the January 31, 2014 acquisition of assets of the IBM customer care business. The acquisition added $74.5 million in revenue to our consolidated results. The revenue from our legacy Concentrix business also increased over the prior year period, benefiting from new customer contracts and increased volumes of business.
The second phase of the acquisition is anticipated to close in the second quarter of fiscal year 2014. The business process outsourcing market is expected to continue to have overall moderate industry growth rates. Revenue from the acquired IBM customer care business is expected to be flat during the integration period and is then expected to grow toward the end of fiscal year 2014. Revenue growth will be offset by the expiration of certain contracts that were expected to not renew at the time of acquisition.
Gross Profit
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent Change
 
(in thousands)
 
 
Gross profit
$
206,646

 
$
156,087

 
32.4
%
Percentage of revenue
6.83
%
 
6.34
%
 

Our gross profit is affected by a variety of factors, including our sources of revenue by segments, competition, average selling prices, mix of products and services we sell, our customers, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, charges for inventory losses, acquisitions and divestitures of business units and fluctuations in revenues.
The increase in our gross margins in the three months ended February 28, 2014 as compared to the prior year period is primarily due to the change in our segment business mix as a result of our acquisition of the IBM customer care business on January 31, 2014 and the increase in our revenue from our legacy Concentrix business. Offsetting this increase was the impact of lower reserve requirements, primarily related to vendor programs in our Technology Solutions segment, benefiting the prior year period.
Selling, General and Administrative Expenses
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent  Change
 
(in thousands)
 
Selling, general and administrative expenses
$
144,696

 
$
100,147

 
44.5
%
Percentage of revenue
4.78
%
 
4.07
%
 
 

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Our selling, general and administrative expenses primarily consists of personnel costs such as salaries, commissions, bonuses, share-based compensation, temporary personnel costs and deferred compensation expense or income. Selling, general and administrative expenses also include costs incurred in relation to the acquisition and integration of businesses, cost of facilities, utility expenses, professional fees, depreciation on our capital equipment, bad debt expense, amortization of our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
The increase in our selling, general and administrative expenses in the three months ended February 28, 2014 compared to the prior year period is primarily the result of our January 31, 2014 acquisition of the IBM customer care business in the Concentrix segment. The acquisition added approximately 34,000 employees and contractors to our personnel resources. We also incurred approximately $8.9 million in acquisition-related expenses and integration expenses in our Concentrix segment related to the IBM customer care business acquisition. The amortization of our intangible assets was approximately $3.7 million higher than the prior year period, which was primarily the result of the acquisition. In addition to the increased costs related to the IBM customer care business acquisition, personnel and general operating expenses were higher than the prior year period due to the acquisition of Supercom Canada in the Technology Solutions segment in April 2013, growth and increased business volumes in both business segments, which was partly offset by $3.6 million favorable impact of foreign currency translation.
Income from Operations before Non-Operating Items, Income Taxes and Noncontrolling Interests
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent  Change
 
(in thousands)
 
 
Income from operations before non-operating items, income taxes and noncontrolling interest
$
61,950

 
$
55,940

 
10.7
 %
Percentage of total revenue
2.05
 %
 
2.27
%
 
 
Technology Solutions income from operations before non-operating items, income taxes and noncontrolling interest
63,531

 
53,536

 
18.7
 %
Percentage of Technology Solutions revenue
2.19
 %
 
2.21
%
 
 
Concentrix income (loss) from operations before non-operating items, income taxes and noncontrolling interest
(1,779
)
 
2,424

 
(173.4
)%
Percentage of Concentrix revenue
(1.40
)%
 
5.47
%
 
 
Inter-segment eliminations
198

 
(20
)
 
(1,090.0
)%
The operating margin in our Technology Solutions segment during the three months ended February 28, 2014 was slightly lower than the prior year period primarily due to prior year results benefiting from lower reserve requirements. Excluding this factor, operating margins improved reflecting the growth in our business and efficient management of our operating expenses.
The operating margin of our Concentrix segment in the three months ended February 28, 2014 was adversely affected by $8.9 million in acquisition and integration expenses incurred in relation to our acquisition of the IBM customer care business. In addition, the amortization expense of our intangible assets was approximately $3.7 million higher than the prior year period as a result of the acquisition. Excluding these factors, the operating margin of the Concentrix segment benefitted from the acquisition of the IBM customer care business.
Interest Expense and Finance Charges, Net
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent  Change
 
(in thousands)
 
 
Interest expense and finance charges, net
$
4,498

 
$
5,493

 
(18.1
)%
Percentage of revenue
0.15
%
 
0.22
%
 
 
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, and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments and financing income

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from our multi-year contracts in our Mexico operation. Interest expense recorded in the three months ended February 28, 2013 also includes non-cash interest expense incurred on our convertible debt.
The reduction in our interest expense during the three months ended February 28, 2014 as compared to the prior year period is primarily the result of the settlement of the convertible debt in August 2013. The prior period interest expense includes approximately $3.0 million in cash and non-cash interest expense components related to the convertible debt. This was partly offset by $2.0 million higher interest expense on our borrowing lines during the three months ended February 28, 2014. The increase in borrowing levels was primarily to fund the acquisition of the IBM customer care business on January 31, 2014 and to infuse working capital into the newly acquired business. Interest expense also included higher flooring fees as a result of our higher business volumes, offset in part by the benefit of foreign currency translation.
Other Income, Net
 
Three Months Ended
 
 
 
February 28, 2014
 
February 28, 2013
 
Percent  Change
 
(in thousands)
 
 
Other income, net
$
2,968

 
$
1,261

 
135.4
%
Percentage of revenue
0.10
%
 
0.05
%
 
 
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 in the three months ended February 28, 2014 was due to $2.9 million received from a class-action legal settlement, offset in part by foreign exchange losses and lower earnings on our deferred compensation investments.
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 28, 2014 was 36.3% , compared to 35.4% for the three months ended February 28, 2013 . The increase in our effective tax rate, compared to the prior year period, was due to increased profitability of our operations in higher tax jurisdictions.
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 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 change in the net income loss attributable to noncontrolling interests in the three months ended February 28, 2014 as compared to the prior year period was not material to our results of operations.

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.

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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.
Net cash used in operating activities was $35.0 million for the three months ended February 28, 2014 , primarily consisting of an increase in inventories of $136.9 million and a decrease in accounts payable of $30.7 million, partly offset by our net income of $38.5 million, adjustments for non-cash items of $16.1 million , a $52.0 million decrease in accounts receivable and a $39.8 million increase in accrued liabilities. The increase in inventories is primarily due to the timing of purchases for the fulfillment of customer orders. The decrease in accounts receivables is the result of collections of prior quarter sales partly offset by high sales volumes in the first quarter of fiscal year 2014 and the receivables from the newly acquired IBM customer care business. The adjustments for non-cash items primarily consist of depreciation and amortization expense.
Net cash provided by operating activities was $40.9 million for the three months ended February 28, 2013, primarily resulting from a $176.3 million reduction in accounts receivable, $33.4 million net income and non-cash adjustments of $11.1 million offset in part by $159.3 million decrease in accounts payables and accrued liabilities and a $9.0 million increase in inventory. The changes in our accounts receivables and our accounts payables are due to the timing of collections and payments following the seasonally high fourth quarter of fiscal year 2012. The adjustments for non-cash items primarily consist of $6.2 million of depreciation and amortization expense.
Net cash used in investing activities for the three months ended February 28, 2014 was $388.7 million , which was primarily comprised of a cash payment of $321.0 million paid at the initial closing for the acquisition of IBM customer care business and $69.0 million toward subsequent closings. Our capital expenditures during the period were $4.3 million to support our growth and higher business volumes. These cash outflows were offset in part by a $4.1 million change in restricted cash due to the timing of our lockbox collections under our borrowing arrangements.
Net cash provided by investing activities for the three months ended February 28, 2013 was $0.9 million, which included $4.2 million received from the fiscal year 2012 sale of our equity-method investee SB Pacific Limited and $0.8 million proceeds from sale of our deferred compensation investments, net of purchases, offset in part by $3.0 million investment in property and equipment and $0.9 million paid for prior acquisitions in our Concentrix segment.
Net cash provided by financing activities for the three months ended February 28, 2014 was $418.6 million, consisting primarily of $443.7 million of net receipts on our securitization arrangement, revolving lines of credit and other credit facility arrangements. The increase in borrowings was primarily to fund the acquisition and working capital requirements of the IBM customer care business.
Net cash provided by financing activities for the three months ended February 28, 2013 was $24.2 million, consisting primarily of $34.1 million net receipts on our revolving lines of credit and term loans. We paid $11.4 million for fiscal year 2012 purchase of shares of our subsidiary Infotec Japan from the noncontrolling interest. The proceeds from the issue of common stock upon the exercise of employee stock awards were $1.2 million and $0.1 million was used for repurchase of treasury stock.
Capital Resources  
Our cash and cash equivalents totaled $148.4 million and $151.6 million as of February 28, 2014 and November 30, 2013 , respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $138.0 million and $142.5 million as of February 28, 2014 and November 30, 2013 , 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, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital requirements.

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Based on our financial strength and performance, existing sources of liquidity, available cash resources and funds available under our various borrowing arrangements, we believe we will have sufficient resources to meet our present and future working capital requirements for the next twelve months.
Our accounts receivable securitization program and our U.S credit facility agreement 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.
On-Balance Sheet Arrangements  
We primarily finance our United States operations with an accounts receivable securitization program, or the U.S. Arrangement. Until September 2013, our subsidiary, which is the borrower under the U.S. Arrangement, could borrow up to a maximum of $400.0 million in U.S. trade accounts receivable, or the U.S. Receivables. In September 2013, we amended the U.S Arrangement to increase the commitment of the lenders to $500.0 million. In addition, the amendment also included an accordion feature to allow requests for an increase in the lenders' commitment by an additional $100.0 million to a maximum commitment of $600.0 million. The maturity date of the U.S. Arrangement is October 2015. The effective borrowing cost under the U.S. Arrangement is a blended rate that includes prevailing dealer commercial paper rates and the daily London Interbank Offered Rate, or LIBOR, rate, plus a program fee of 0.425% per annum based on the used portion of the commitment, and a facility fee of 0.425% per annum payable on the aggregate commitment of the lenders. As of February 28, 2014 and November 30, 2013, the outstanding balances under the U.S. arrangement was $380.0 million and $144.0 million , respectively.
Under the terms of the U.S. Arrangement, we sell, on a revolving basis, 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 acquired by our subsidiary as security. Any borrowings under the U.S. Arrangement are recorded as debt on our 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 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, or if the lender whose commercial paper issuer or liquidity back-up provider is not replaced does not elect to offer us an alternate rate. Loss of such financing capacity could have a material adverse effect on our financial condition and results of operations.
In November 2013, we entered into a senior secured credit agreement, or the U.S. Credit Agreement, which is comprised of $275.0 million in a revolving credit facility and a term loan in an aggregate principal amount not to exceed $225.0 million . We may request incremental commitments to increase the principal amount of revolving loans or term loans available under the U.S. Credit Agreement up to $125.0 million . The U.S. Credit Agreement matures in November 2018. Interest on borrowings under the U.S. Credit Agreement can be based on the LIBOR, or a base rate, at our option. Loans borrowed under the Credit Agreement bear interest, in the case of LIBOR loans, at a per annum rate equal to the applicable LIBOR, plus a margin which may range from 1.75% to 2.25%, based on our consolidated leverage ratio, as determined in accordance with the U.S. Credit Agreement. Loans borrowed under the Credit Agreement that are not LIBOR loans, and are instead base rate loans, bear interest at a per annum rate equal to (i) the greatest of (A) the Federal Funds Rate plus a margin of 1/2 of 1.0%, (B) LIBOR plus 1.0% per annum, and (C) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” plus (ii) a margin which may range from 0.75% to 1.25%, based on our consolidated leverage ratio, as determined in accordance with the U.S. Credit Agreement. When drawn, the outstanding principal amount of the term loan will be repayable in quarterly installments, in an amount equal to (a) for each of the first eight calendar quarters ending after the term loan is made, 1.25% of the initial principal amount of the term loan, (b) for each calendar quarter ending thereafter, 2.50% of the initial principal amount of the term loan and (c) on the November 2018 maturity date of the term loan, the outstanding principal amount of the term loan. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company and its United States domestic subsidiaries’ assets and are guaranteed by certain of our United States domestic subsidiaries. There was a balance of $225.0 million outstanding under the term loan component of the U.S. Credit Agreement as of February 28, 2014 , and there was no borrowing outstanding as of November 30, 2013 . In addition, there was $1.5 million outstanding as of February 28, 2014 in standby letters of credit under the U.S Credit Agreement.
SYNNEX Canada Limited, or SYNNEX Canada, has a revolving line of credit arrangement with a financial institution, or the Canadian Revolving Arrangement, which has a maximum commitment of CAD100.0 million and includes an accordion feature to increase the maximum commitment by an additional CAD25.0 million to CAD125.0 million, at SYNNEX Canada's

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request. The Canadian Revolving Arrangement also provides a sublimit of $5.0 million for the issuance of standby letters of credit. There were no letters of credit outstanding as of February 28, 2014 and November 30, 2013 . 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 interest rate applicable under the Canadian Revolving Arrangement is equal to (i) the Canadian base rate plus a margin of 0.75% for a Base Rate Loan in Canadian Dollars, (ii) the US base rate plus a margin of 0.75% for a Base Rate Loan in U.S. Dollars, and (iii) the Bankers' Acceptance rate, or BA, plus a margin of 2.00% for a BA Rate Loan. The Canadian base rate means the greater of (a) the prime rate determined by a major Canadian financial institution and (b) the one month Canadian Dealer Offered Rate, or CDOR, (the average rate applicable to Canadian dollar bankers' acceptances for the applicable period) plus 1.50%. The US base rate means the greater of (a) a reference rate determined by a major Canadian financial institution for US dollar loans made to Canadian borrowers and (b) the US federal funds rate plus 0.50%. A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. There was no borrowing outstanding under our Canadian Revolving Arrangement as of both February 28, 2014 and November 30, 2013 .
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 balances outstanding on the term loan as of February 28, 2014 and November 30, 2013 were $6.9 million and $7.4 million , respectively.
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY14.0 billion. The credit agreement is comprised of a JPY6.0 billion long-term loan and a JPY8.0 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 that was 1.90% per annum; however, in December 2013, we amended the credit agreement to lower this margin to 1.40% per annum. The unused line fee on the revolving credit facility was 0.5% per annum, however, in December 2013, we amended this credit agreement to lower this fee to 0.1% per annum. As of February 28, 2014 and November 30, 2013 , the balances outstanding under the credit facility were $120.8 million and $136.7 million , respectively. The long-term loan can be repaid at any time prior to expiration date without penalty. We have issued a guarantee to cover up to 110% of the outstanding principal amount obligations of Infotec Japan to the lenders. This credit facility expires in December 2016.
In September 2013, Infotec Japan established a short-term revolving credit facility of JPY2.0 billion with a financial institution. The interest rate for the credit facility is based on TIBOR plus a margin of 0.50% per annum. In addition, there is a facility fee of 0.425% per annum. The credit facility can be renewed annually. As of February 28, 2014 and November 30, 2013 , the balances outstanding under this credit facility were $19.7 million and $19.5 million , respectively.
Infotec Japan has a short-term revolving credit facility of JPY1.0 billion with a financial institution. The credit facility can be renewed annually and bears an interest rate that is based on TIBOR plus a margin of 1.20% per annum. As of both February 28, 2014 and November 30, 2013 , the balances outstanding under these lines were $9.8 million .
As of February 28, 2014 and November 30, 2013 , we also had $0.4 million and $0.5 million , respectively, outstanding in capital lease obligations primarily pertaining to Infotec Japan and 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.
Covenants Compliance  
In relation to the U.S. Arrangement, the U.S. Credit Agreement, the Canadian Revolving Arrangement and the Infotec Japan credit facility, 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 leverage and fixed charge coverage ratios. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of February 28, 2014 , we were in compliance with all material covenants for the above arrangements. 

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Convertible Debt  
In August 2013, we settled our Convertible Senior Notes with an aggregate principal amount of $143.8 million which were issued in May 2008 in a private placement. The Convertible Senior Notes bore a cash coupon interest rate of 4.0% per annum and the conversion rate was 33.9945 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of $29.42 per share of common stock. The Convertible Senior Notes were called in the second quarter of fiscal year 2013. No interest was accrued subsequent to May 2013 in accordance with the Indenture. The final settlement amount of $218.9 million was paid in cash and comprised of $143.8 million in principal payments and $75.1 million in payment of conversion premium. The conversion premium, which represents the difference between the total settlement amount less the principal, was recorded as a reduction of additional paid-in capital. The final settlement amount was calculated in accordance with the Indenture based on the volume weighted-average trading price of our common stock over the 60 consecutive trading-day period beginning on and including the third trading day after the related conversion.
Based on a cash coupon interest rate of 4.0% , we recorded contractual interest expense of $1.6 million during the three months ended February 28, 2013 . Based on an effective rate of 8.0% , we recorded non-cash interest expenses of $1.4 million during the three months ended February 28, 2013 .
Guarantees
We issued guarantees to certain vendors, customers, lenders of our subsidiaries for trade credit lines and loans, and to a certain customer's lessor. In addition, we, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35.0 million in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The total guarantees issued by us as of February 28, 2014 and November 30, 2013 were $366.3 million and $364.7 million , respectively. We are obligated under these guarantees to pay amounts due should our subsidiaries or customer not pay valid amounts owed to their vendors or lenders or not comply with subsidiary sales agreements.
Related Party Transactions  
We had a business relationship with MiTAC International Corporation, or MiTAC International, a publicly-traded company in Taiwan, which began in 1992 when MiTAC International became our primary investor through its affiliates. In September 2013, MiTAC Holdings Corporation, or MiTAC Holdings, was established through a stock swap from MiTAC International and became a publicly traded company on the Taiwan Stock Exchange. MiTAC International is now a wholly-owned subsidiary of MiTAC Holdings. As of February 28, 2014 and 2013, MiTAC Holdings and its affiliates beneficially owned approximately 25% and 26% , respectively, of our common stock. Matthew Miau, our Chairman Emeritus of the Board of Directors and director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates.
The shares owned by MiTAC Holdings are held by the following entities:
 
As of February 28, 2014
 
(in thousands)
MiTAC Holdings (1)
5,552

Synnex Technology International Corp. (2)
4,283

Total
9,835

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 442 thousand shares directly 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 Holdings owns a noncontrolling interest of 8.7% in MiTAC