SYNNEX Corporation
SYNNEX CORP (Form: 10-Q, Received: 07/08/2014 16:48:08)
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 May 31, 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 June 30, 2014
Common Stock, $0.001 par value
 
39,187,844


 



Table of Contents

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

2

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SYNNEX CORPORATION  
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)
(unaudited)
 
May 31,
2014
 
November 30,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
204,595

 
$
151,622

Short-term investments
10,503

 
15,134

Accounts receivable, net
1,812,568

 
1,593,191

Receivable from related parties
631

 
146

Inventories
1,424,227

 
1,095,107

Current deferred tax assets
19,384

 
22,031

Other current assets
113,175

 
54,502

Total current assets
3,585,083

 
2,931,733

Property and equipment, net
187,488

 
133,249

Goodwill
376,460

 
188,535

Intangible assets, net
271,382

 
23,772

Deferred tax assets
377

 
7,867

Other assets
54,176

 
40,733

Total assets
$
4,474,966

 
$
3,325,889

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under securitization, term loans and lines of credit
$
697,417

 
$
252,523

Accounts payable
1,481,805

 
1,350,040

Payable to related parties
15,993

 
3,861

Accrued liabilities
343,762

 
181,325

Income taxes payable
10,246

 
1,629

Total current liabilities
2,549,223

 
1,789,378

Long-term borrowings
278,932

 
65,405

Long-term liabilities
56,161

 
56,418

Deferred tax liabilities
9,224

 
3,047

Total liabilities
2,893,540

 
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, 39,572 and 38,052 shares issued as of May 31, 2014 and November 30, 2013, respectively
40

 
38

Additional paid-in capital
370,469

 
286,329

Treasury stock, 868 and 842 shares as of May 31, 2014 and November 30, 2013, respectively
(29,160
)
 
(27,450
)
Accumulated other comprehensive income
28,482

 
19,168

Retained earnings
1,211,105

 
1,133,137

Total SYNNEX Corporation stockholders’ equity
1,580,936

 
1,411,222

Noncontrolling interest
490

 
419

Total equity
1,581,426

 
1,411,641

Total liabilities and equity
$
4,474,966

 
$
3,325,889


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

3

Table of Contents

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Revenue
$
3,453,535

 
$
2,591,361

 
$
6,480,519

 
$
5,052,200

Cost of revenue
(3,174,521
)
 
(2,436,571
)
 
(5,994,859
)
 
(4,741,323
)
Gross profit
279,014

 
154,790

 
485,660

 
310,877

Selling, general and administrative expenses
(210,931
)
 
(102,826
)
 
(355,627
)
 
(202,973
)
Income before non-operating items, income taxes and noncontrolling interest
68,083

 
51,964

 
130,033

 
107,904

Interest expense and finance charges, net
(6,160
)
 
(4,863
)
 
(10,658
)
 
(10,356
)
Other income (expense), net
(197
)
 
528

 
2,771

 
1,789

Income before income taxes and noncontrolling interest
61,726

 
47,629

 
122,146

 
99,337

Provision for income taxes
(22,147
)
 
(16,837
)
 
(44,109
)
 
(35,154
)
Net income
39,579

 
30,792

 
78,037

 
64,183

Net income attributable to noncontrolling interest
(28
)
 
(23
)
 
(69
)
 
(45
)
Net income attributable to SYNNEX Corporation
$
39,551

 
$
30,769

 
$
77,968

 
$
64,138

Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
1.02

 
$
0.84

 
$
2.04

 
$
1.75

Diluted
$
1.01

 
$
0.81

 
$
2.01

 
$
1.69

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
38,663

 
36,783

 
38,165

 
36,724

Diluted
39,203

 
37,869

 
38,720

 
37,950

 

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
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Net income
$
39,579

 
$
30,792

 
$
78,037

 
$
64,183

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of tax expense of $0 for both the three and six months ended May 31, 2014 and 2013
230

 
(51
)
 
262

 
188

 
 
 
 
 
 
 
 
Change in unrealized gain of defined benefit plan, net of tax expense of $60 for both the three and six months ended May 31, 2014, and $0 for both the three and six months ended May 31, 2013
114

 

 
114

 

 
 
 
 
 
 
 
 
Cash flow hedging instrument:
 
 
 
 
 
 
 
Change in unrecognized loss, net of tax benefit of $21 and $26 for the three and six months ended May 31, 2014, respectively, and $0 tax for both the three and six months ended May 31, 2013
(157
)
 

 
(191
)
 

Amount reclassified into earnings
7

 

 
34

 

 
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax benefit (expense) of ($287) and $235 for the three and six months ended May 31, 2014, respectively, and $0 and $448 tax for the three and six months ended May 31, 2013, respectively
11,199

 
(2,999
)
 
9,097

 
(13,961
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
11,393

 
(3,050
)
 
9,316

 
(13,773
)
Comprehensive income:
50,972

 
27,742

 
87,353

 
50,410

Comprehensive income attributable to noncontrolling interest
(31
)
 
(19
)
 
(71
)
 
(33
)
Comprehensive income attributable to SYNNEX Corporation
$
50,941

 
$
27,723

 
$
87,282

 
$
50,377

 

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)
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
Cash flows from operating activities:
 
 
 
Net income
$
78,037

 
$
64,183

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation expense
14,856

 
8,269

Amortization of intangible assets
20,863

 
3,924

Accretion of convertible notes discount

 
2,314

Share-based compensation
5,632

 
4,698

Provision for doubtful accounts
2,974

 
4,255

Tax benefits from employee stock plans
2,806

 
1,555

Excess tax benefit from share-based compensation
(2,758
)
 
(1,765
)
Gain on investments
(96
)
 
(832
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable
(200,060
)
 
194,417

Receivable from related parties
(486
)
 
26

Inventories
(332,143
)
 
(1,036
)
Other assets
(27,894
)
 
(11,186
)
Accounts payable
111,058

 
(147,715
)
Payable to related parties
12,133

 
431

Accrued liabilities
103,911

 
(22,467
)
Deferred liabilities
11,425

 
(7,599
)
Net cash provided by (used in) operating activities
(199,742
)
 
91,472

Cash flows from investing activities:
 
 
 
Purchase of trading investments
(528
)
 
(261
)
Proceeds from sale of trading investments
3,453

 
3,149

Investment in held-to-maturity term deposits
(134
)
 
(129
)
Acquisition of businesses, net of cash acquired
(390,433
)
 
(21,578
)
Purchase of property and equipment
(20,269
)
 
(8,127
)
Repayments received from loans and deposits to third parties
1,509

 
762

Proceeds from sale of equity-method investee

 
4,153

Purchase of cost investment

 
(1,705
)
Proceeds from sale of cost investment
1,877

 

Changes in restricted cash
2,208

 
(441
)
Net cash used in investing activities
(402,317
)
 
(24,177
)
Cash flows from financing activities:
 
 
 
Proceeds from securitization and revolving line of credit
2,085,743

 
256,038

Payment of securitization and revolving line of credit
(1,652,964
)
 
(266,825
)
Proceeds from long-term credit facility and term loans
225,000

 

Payment of long-term bank loans, capital leases and other borrowings
(519
)
 
(941
)
Excess tax benefit from share-based compensation
2,758

 
1,765

Decrease in book overdraft
(1,567
)
 

Payment of acquisition-related contingent consideration
(5,136
)
 

Cash paid for repurchase of treasury stock

 
(1,882
)
Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
2,888

 
3,646

Payment for purchase of shares of subsidiary from noncontrolling interest

 
(11,400
)
Net cash provided by (used in) financing activities
656,203

 
(19,599
)
Effect of exchange rate changes on cash and cash equivalents
(1,171
)
 
4,991

Net increase in cash and cash equivalents
52,973

 
52,687

Cash and cash equivalents at beginning of period
151,622

 
163,699

Cash and cash equivalents at end of period
$
204,595

 
$
216,386

 
 
 
 
Supplemental disclosure of non-cash investing activities
 
 
 
Fair value of common stock issued for acquisition of business
$
71,106

 
$

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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended May 31, 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, optimizing supply chains and providing customer care solutions for its clients. SYNNEX is headquartered in Fremont, California and has operations in North America, South 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 a broad range of information technology (“IT”) systems and products, and also provides systems design and integration services. The Concentrix segment offers a portfolio of end-to-end outsourced services around process optimization, customer engagement strategy and back-office automation to clients in ten identified industry verticals.
The accompanying interim unaudited Consolidated Financial Statements as of May 31, 2014 and for the three and six months ended May 31, 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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2013 .
The results of operations for the three months ended May 31, 2014 are 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. 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 May 31, 2014 and November 30, 2013 and the location where these amounts are recorded on the Consolidated Balance Sheets:
 
As of 
 
May 31, 2014
 
November 30, 2013
Related to borrowing arrangements and others:
 
 
 
        Other current assets
$
20,129

 
$
22,349

Related to long-term projects:
 
 
 
        Other assets
1,927

 
1,865

Total restricted cash
$
22,056

 
$
24,214

 

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 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 May 31, 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 May 31, 2014 , such losses have been within management’s expectations.  
In both the three and six months ended May 31, 2014 , no customer accounted for 10% or more of the Company's total revenue. In both the three and six months ended May 31, 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 25% and 26% for the three and six months ended May 31, 2014 , respectively, and for approximately 32% of the total revenue for both the three and six months ended May 31, 2013 .
As of both May 31, 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, these amounts are deferred and 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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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 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 4.0% 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. 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 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.
In May 2014, the FASB issued a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. This guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early application is prohibited. The standard permits the use of either the retrospective or cumulative effect transition method. This guidance will be applicable to the Company at the beginning of its first quarter of fiscal year 2018. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this new standard.
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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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.

NOTE 3—ACQUISITIONS:
Fiscal year 2014 acquisitions
IBM customer care business acquisition
On September 10, 2013, the Company announced a definitive agreement to acquire the assets of the customer care business of International Business Machines Corporation, a New York corporation (“IBM”) for a preliminary aggregate purchase price of $503,335 , subject to certain post-closing adjustments. The transaction is being completed in phases with the initial closing completed on January 31, 2014 and the second phase closing completed on April 30, 2014. The countries acquired through April 30, 2014 comprise approximately 99.5% of the preliminary valuation of the customer care business. The subsequent closings are expected to occur in the second half of 2014, but contractually no later than June 30, 2015, and are subject to customary closing conditions. As of May 31, 2014, the Company is obligated to pay an additional amount of $40,000 in cash at the final closing including $2,386 towards the subsequent closing countries. This amount may also be adjusted based upon final agreement between the Company and IBM on the value of actual net tangible assets acquired
The acquisition has been included into the Concentrix segment. It expands the Company's service portfolio, delivery capabilities and geographic reach, and brings deep process expertise and managerial talent.
The acquisition has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their preliminary fair values as of the respective closing dates. The total preliminary purchase price consideration for the initial and second phase closings is as follows:
Preliminary purchase consideration for the initial and second phase closings:
Fair Value         
Cash payment
$
390,000

Stock consideration
71,106

Cash consideration payable
37,614

Preliminary fair value of stock awards assumed
2,229

 
$
500,949

The Company issued 1,266 shares of its common stock, at a fair value of $71,106 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 issuance. Additionally, the Company assumed unvested restricted IBM stock-based awards with a preliminary estimated fair value of $11,003 on the respective closing dates. 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 respective closing dates of the initial and second phase closings. 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 $16,321 prepaid amount, $13,232 was recorded in "Other current assets" and $3,089 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 and April 30, 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 comprehensive service portfolio delivery capabilities and geographic reach resulting from 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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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, fair value of operating lease assumed, 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.
The total preliminary purchase price allocation is as follows:
Preliminary purchase price allocation:
Fair Value
Accounts receivable
$
25,742

Other current assets
24,947

Property, plant and equipment
46,582

Goodwill
180,957

Intangible assets
263,532

Other assets
17,122

Accounts payable
(25,524
)
Accrued liabilities
(15,154
)
Other long-term liabilities
(2,528
)
Deferred tax liabilities, non-current
(14,727
)
 
$
500,949

The identifiable intangible assets acquired and their estimated useful lives are summarized as follows:
 
 
Fair Value
 
Weighted Average Useful Life
Customer relationships
 
$
251,332

 
10 years
Technology
 
7,500

 
3-10 years
Trade names
 
4,700

 
5-10 years
Total intangibles acquired
 
$
263,532

 
 
Amortization of customer relationships and trade names is recorded in selling, general and administrative expenses. Amortization of technology is recorded in cost of revenue.
During the three and six months ended May 31, 2014, the IBM customer care business contributed $244,095 and $318,587 , respectively, 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 were $15,876 and $24,783 during the three and six months ended May 31, 2014, respectively, and consist of costs incurred to complete the acquisition and retention payments to integrate the business. Substantially all of the acquisition and integration expenses were recorded in "Selling, general and administrative expenses".
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.

11

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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
 
Six Months Ended
 
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Revenue
 
$
3,484,773

 
$
2,901,361

 
$
6,723,452

 
$
5,692,700

Net income attributable to SYNNEX Corporation
 
39,959

 
33,002

 
81,174

 
63,978

Net income from continuing operations per share - basic
 
$
1.03

 
$
0.87

 
$
2.10

 
$
1.68

Net income from continuing operations per share - diluted
 
$
1.02

 
$
0.84

 
$
2.07

 
$
1.63

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 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. The Company has paid CAD1,800 of the deferred amount as of May 31, 2014. Subsequent to the acquisition, the Company repaid debt and working capital lines in the amount of US$53,721 . Based on the 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 and six months ended May 31, 2014 and the Company's Amended and Restated 2003 Stock Incentive Plan, as amended, during the three and six months ended May 31, 2013 and the grant-date fair value of the awards:
 
Three Months Ended
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
 
Shares awarded
 
Fair value of grants
 
Shares awarded
 
Fair value of grants
 
Units awarded
 
Fair value of grants
 
Units awarded
 
Fair value of grants
Restricted stock awards
18

 
$
1,158

 
36

 
$
1,275

 
98


$
5,702


38
 
$
1,329

Restricted stock units
7

 
500

 
8

 
268

 
53

 
3,204

 
106
 
3,736

 
25

 
$
1,658

 
44

 
$
1,543

 
151

 
$
8,906

 
144
 
$
5,065

The Company recorded share-based compensation expenses of $3,048 and $5,632 in "Selling, general and administrative expenses" for the three and six months ended May 31, 2014 , respectively, and $2,215 and $4,698 for the three and six months ended May 31, 2013 , respectively.

12

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)


NOTE 5—BALANCE SHEET COMPONENTS:
 
As of
 
May 31, 2014
 
November 30, 2013
Short-term investments:
 
 
 
Trading securities
$
1,828

 
$
4,728

Held-to-maturity securities
8,665

 
8,753

Cost method investments
10

 
1,653

 
$
10,503

 
$
15,134

 
As of
 
May 31, 2014
 
November 30, 2013
Accounts receivable, net:
 
 
 
Accounts receivable
$
1,883,603

 
$
1,681,917

Less: Allowance for doubtful accounts
(15,138
)
 
(14,010
)
Less: Allowance for sales returns
(55,897
)
 
(74,716
)
 
$
1,812,568

 
$
1,593,191

 
As of
 
May 31, 2014
 
November 30, 2013
Property and equipment, net:
 
 
 
Land
$
22,736

 
$
22,665

Equipment and computers
135,979

 
107,528

Furniture and fixtures
40,019

 
21,480

Buildings, building improvements and leasehold improvements
131,742

 
113,777

Construction in progress
5,062

 
1,621

Total property and equipment, gross
335,538

 
267,071

Less: Accumulated depreciation
(148,050
)
 
(133,822
)
 
$
187,488

 
$
133,249

Goodwill:
 
 
 
 
 
 
Technology Solutions
 
Concentrix
 
Total
Balance as of November 30, 2013
$
108,218

 
$
80,317

 
$
188,535

Additions from acquisitions, net of adjustments
(28
)
 
180,957

 
180,929

Foreign exchange translation
(1,000
)
 
7,996

 
6,996

Balance as of May 31, 2014
$
107,190

 
$
269,270

 
$
376,460

 
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 six months ended May 31, 2014 relate 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 and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Intangible assets, net
As of May 31, 2014
 
As of November 30, 2013
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Vendor lists
$
36,815

 
$
(30,948
)
 
$
5,867

 
$
36,815

 
$
(30,180
)
 
$
6,635

Customer relationships
308,329

 
(54,306
)
 
254,023

 
52,179

 
(35,379
)
 
16,800

Technology
4,886

 
(618
)
 
4,268

 

 

 

Other intangible assets
11,890

 
(4,666
)
 
7,224

 
4,857

 
(4,520
)
 
337

 
$
361,920

 
$
(90,538
)
 
$
271,382

 
$
93,851

 
$
(70,079
)
 
$
23,772

 
Amortization expenses were $15,166 and $20,863 for the three and six months ended May 31, 2014 , respectively, and $1,971 and $3,924 for the three and six months ended May 31, 2013 , respectively. The increase in intangible assets, net from November 30, 2013 to May 31, 2013 , 2014 is due to the acquisition of the IBM customer care business in the Concentrix segment.
Amortization is based on the pattern in which the economic benefits of the intangible assets will be consumed or on a straight line basis when the consumption pattern is not apparent. Estimated future amortization expense of the Company's intangible assets, which includes the preliminary estimates of amortization for the assets acquired through the initial and second closing of the IBM customer care acquisition, is as follows:
Fiscal Years Ending November 30,
 
2014
$
35,264

2015
54,687

2016
51,612

2017
39,453

2018
30,001

thereafter
60,365

Total
$
271,382

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 as of November 30, 2013
 
$

 
$
543

 
$
(365
)
 
$
18,990

 
$
19,168

Other comprehensive income (loss) before reclassifications
 
(191
)
 
261

 
114

 
9,096

 
9,280

Net loss reclassified into earnings
 
34

 

 

 

 
34

Ending as of May 31, 2014
 
$
(157
)
 
$
804

 
$
(251
)
 
$
28,086

 
$
28,482



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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 6—INVESTMENTS:  
The carrying amount of the Company’s investments is shown in the table below:  
 
As of
 
May 31, 2014
 
November 30, 2013
 
Cost Basis
 
Unrealized Gains
 
Carrying
Value
 
Cost Basis
 
Unrealized Gains
 
Carrying
Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Trading securities
$
1,531

 
$
297

 
$
1,828

 
$
3,857

 
$
871

 
$
4,728

Held-to-maturity investments
8,665

 

 
8,665

 
8,753

 

 
8,753

Cost method securities
10

 

 
10

 
1,653

 

 
1,653

 
$
10,206

 
$
297

 
$
10,503

 
$
14,263

 
$
871

 
$
15,134

Long-term investments in other assets:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
974

 
$
628

 
$
1,602

 
$
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 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 recorded in “Other income (expense), net” in the Consolidated Statements of Operations for changes in the fair value of the Company's trading investments:
 
Three Months Ended
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Gains on trading investments
$
255

 
$
671

 
$
314

 
$
1,240


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 most of its foreign operations are denominated in local currency. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity's 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 also enters into forward contracts to protect against the foreign currency risk relating to its forecasted revenue and expenses denominated in currencies other than the functional currency of the legal 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 and selling, general and administrative expense in the period during which the underlying sale is recognized.

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 May 31, 2014 and November 30, 2013 :
   
 
 
Fair Value as of
 
Balance Sheet Line Item
 
May 31, 2014
 
November 30, 2013
Derivative instruments designated as hedging instruments:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other current liabilities
 
$
183

 
$

Derivative instruments not designated as hedging instruments:
 
 
 
 
 
Foreign exchange contracts
Other current assets
 
$
247

 
$
2,386

Foreign exchange contracts
Other current liabilities
 
1,899

 
80

The notional amounts of the foreign exchange forward contracts that were outstanding as of May 31, 2014 and November 30, 2013 were $386,313 and $158,950 , respectively. The notional amounts represent the gross amounts of foreign currency that will be bought or sold at maturity. In relation to its forward contracts not designated as hedging instruments, the Company recorded gains (losses) of $(2,807) and $1,162 in “Other income (expense), net” during the three and six months ended May 31, 2014 , respectively, and $3,052 and $6,480 during the three and six months ended May 31, 2013 , respectively. In relation to its forward contracts designated as cash flow hedging instruments, the Company recorded a loss of $178 and $217 in "Accumulated other comprehensive income" during the three and six months ended May 31, 2014 , respectively, and reclassified a loss of $7 and $34 into revenue during the three and six months ended May 31, 2014 , respectively.

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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:  
 
As of May 31, 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
$
34,975

 
$
34,975

 
$

 
$

 
$
28,779

 
$
28,779

 
$

 
$

Trading securities
1,828

 
1,828

 

 

 
4,728

 
4,728

 

 

Available-for-sale securities in other assets
1,602

 
1,602

 

 

 
1,275

 
1,275

 

 

Forward foreign currency exchange contracts
247

 

 
247

 

 
2,386

 

 
2,386

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
2,082

 
$

 
$
2,082

 
$

 
$
80

 
$

 
$
80

 
$

Acquisition-related contingent consideration
867

 

 

 
867

 
6,077

 

 

 
6,077

 
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 $4,736 and $5,136 , respectively, paid to the sellers, during the three and six months ended May 31, 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.
During the three and six months ended May 31, 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 May 31, 2014 and November 30, 2013 , there were $438,400 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
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Net sales financed
$
351,439

 
$
219,602

 
$
633,429

 
$
405,937

Flooring fees (1)
1,922

 
1,217

 
3,492

 
2,444

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of May 31, 2014 and November 30, 2013 , accounts receivable subject to flooring agreements were $80,471 and $89,589 , respectively.
SYNNEX Infotec, the Company's Japan technology solutions subsidiary, 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 May 31, 2014 and November 30, 2013 were $14,592 and $13,862 , respectively.

NOTE 10—BORROWINGS:  
Borrowings consist of the following:  
 
As of
 
May 31, 2014
 
November 30, 2013
SYNNEX U.S. securitization
$
438,400

 
$
144,000

SYNNEX U.S. credit agreement
395,500

 

SYNNEX Canada term loan and revolver
7,467

 
7,419

SYNNEX Infotec credit facility
105,129

 
136,679

Other borrowings and capital leases
29,853

 
29,830

Total borrowings
976,349

 
317,928

Less: Current portion
(697,417
)
 
(252,523
)
Non-current portion
$
278,932

 
$
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

17

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

of May 31, 2014 and November 30, 2013 , the outstanding balances under the U.S. arrangement were $438,400 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 and $170,500 borrowings outstanding under the secured revolver as of May 31, 2014 . In addition, there was $1,500 outstanding as of May 31, 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 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 May 31, 2014 and November 30, 2013 , there was no of 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 CAD600 or $553 borrowing outstanding under the Canadian Revolving Arrangement as of May 31, 2014 , and there were no borrowings outstanding as of 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 May 31, 2014 and November 30, 2013 were $6,914 and $7,419 , respectively.

18

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

SYNNEX Infotec credit facility
SYNNEX Infotec 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 May 31, 2014 and November 30, 2013 , the balance outstanding under the credit facility was $105,129 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 SYNNEX Infotec to the lenders.
Other borrowings and capital leases
In September 2013, SYNNEX Infotec 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 May 31, 2014 and November 30, 2013, the balances outstanding under this credit facility were $19,650 and $19,526 , respectively.
SYNNEX Infotec 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 May 31, 2014 and November 30, 2013 , the balances outstanding under this credit facility were $9,825 and $9,763 , respectively.
As of May 31, 2014 and November 30, 2013 , the Company also had $378 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 SYNNEX Infotec.
Future principal payments
Future principal payments under the above loans and capital leases as of May 31, 2014 are as follows:  
Fiscal Years Ending November 30,
 
2014
$
691,337

2015
12,103

2016
17,672

2017
82,275

2018
169,619

Thereafter
3,343

 
$
976,349

Interest expense and finance charges 
For the three and six months ended May 31, 2014 , the total interest expense and finance charges for the Company's borrowings were $6,708 and $12,301 , respectively, and for the three and six months ended May 31, 2013 , they were $5,757 and $12,313 , respectively. Interest expense for the three and six months ended May 31, 2013 includes non-cash interest expense of $926 and $2,314 for the 4.0% Convertible Senior Notes due May 2018 (the "Convertible Senior Notes"). The variable interest rates ranged between 0.61% and 4.25% during both the three and six months ended May 31, 2014 , respectively, and between 0.67% and 3.43% and 0.67% and 3.53% during the three and six months ended May 31, 2013 , respectively.
Covenants compliance  
In relation to the U.S. Arrangement, the U.S. Credit Agreement, the Revolver, the Canadian Revolving Arrangement and the SYNNEX Infotec 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. The

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

covenants 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 May 31, 2014 and November 30, 2013 were $365,845 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 in August 2013 and was 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.
Based on a cash coupon interest rate of 4.0% , the Company recorded contractual interest expense of $1,387 and $3,011 during the three and six months ended May 31, 2013 , respectively. Based on an effective rate of 8.0% , the Company recorded non-cash interest expenses of $926 and $2,314 for the three and six months ended May 31, 2013 , respectively.


20

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Numerator:
 
 
 
 
 
 
 
Net income attributable to SYNNEX Corporation
$
39,551

 
$
30,769

 
$
77,968

 
$
64,138

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares - basic
38,663

 
36,783

 
38,165

 
36,724

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock awards and restricted stock units
540

 
529

 
555

 
524

Conversion spread of convertible debt

 
557

 

 
702

Weighted-average common shares - diluted
39,203

 
37,869

 
38,720

 
37,950

 
 
 
 
 
 
 
 
Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
1.02

 
$
0.84

 
$
2.04

 
$
1.75

Diluted
$
1.01

 
$
0.81

 
$
2.01

 
$
1.69

During the three and six months ended May 31, 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 9 and 10 shares during the three and six months ended May 31, 2014 , respectively, and options to purchase 14 and 16 shares during the three and six months ended May 31, 2013 , respectively, 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: Technology Solutions and 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 back-office automation to clients in various industry verticals. The portfolio of services offered are comprised of end-to-end process outsourcing services that are delivered through omni-channels including both voice and non-voice. Clients include corporations in various industry verticals.
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

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Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

segment includes the legacy Concentrix business and the newly acquired 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 May 31, 2014 and 2013 is shown below:
 
Technology Solutions
 
Concentrix
 
Inter-Segment
Elimination
 
Consolidated
Three months ended May 31, 2014
 
 
 
 
 
 
 
Revenue
$
3,162,998

 
$
293,482

 
$
(2,945
)
 
$
3,453,535

Income (loss) from operations before non-operating items, income taxes and noncontrolling interest
70,134

 
(2,169
)
 
118

 
68,083

Three months ended May 31, 2013
 
 
 
 
 
 
 
Revenue
2,547,216

 
46,748

 
(2,603
)
 
2,591,361

Income from operations before non-operating items, income taxes and noncontrolling interest
48,686

 
3,266

 
12

 
51,964

 
 
 
 
 
 
 
 
Six months ended May 31, 2014
 
 
 
 
 
 
 
Revenue
$
6,065,905

 
$
420,447

 
$
(5,833
)
 
$
6,480,519

Income (loss) from operations before non-operating items, income taxes and noncontrolling interest
133,665

 
(3,948
)
 
316

 
130,033

Six months ended May 31, 2013
 
 
 
 
 
 
 
Revenue
4,966,132

 
91,098

 
(5,030
)
 
5,052,200

Income from operations before non-operating items, income taxes and noncontrolling interest
102,222

 
5,690

 
(8
)
 
107,904

 
 
 
 
 
 
 
 
Total assets as of May 31, 2014
$
4,138,786

 
$
1,082,659

 
$
(746,479
)
 
$
4,474,966

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 the Company's reportable segments that are eliminated on consolidation.

22

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Segment by geography
Shown below is summarized financial information related to the geographic areas in which the Company operated during the three months ended May 31, 2014 and 2013:
 
Three Months Ended
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Revenue:
 
 
 
 
 
 
 
North America
$
2,838,053

 
$
2,269,339

 
$
5,418,306

 
$
4,398,852

Asia-Pacific
472,482

 
301,049

 
864,306

 
612,673

Other
143,000

 
20,973

 
197,907

 
40,675

 
$
3,453,535

 
$
2,591,361

 
$
6,480,519

 
$
5,052,200

 
As of
 
May 31, 2014
 
November 30, 2013
Property and equipment, net:
 
 
 
North America
$
106,313

 
$
95,344

Asia-Pacific
58,017

 
19,853

Other
23,158

 
18,052

 
$
187,488

 
$
133,249

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. Revenue in the United States was approximately 71% of total Company revenue for both the three and six months ended May 31, 2014 , respectively and approximately 74% of the total revenue for both the three and six months ended May 31, 2013 . Revenue in Canada was approximately 12% of total revenue for both the three and six months ended May 31, 2014 , respectively, and 14% and 13% of total revenue for the three and six months ended May 31, 2013, respectively. Revenue in Japan was approximately 11% of the total revenue for both the three and six months ended May 31, 2014 , respectively, and approximately 11% of the total revenue for both the three and six months ended May 31, 2013 , respectively.
Net property and equipment in the United States was approximately 47% and 59% of the Company's total as of May 31, 2014 and November 30, 2013 , respectively. Net property and equipment in the Philippines represented 15% and 6% of the total as of May 31, 2014 and November 30, 2013 , respectively. Net property and equipment in Canada was approximately 10% and 13% of the total as of May 31, 2014 and November 30, 2013 , respectively. As of both May 31, 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 May 31, 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.

23

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 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 May 31, 2014 . These shares are owned by the following entities:  
 
As of May 31, 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 372 shares directly held by Matthew Miau and 224 shares indirectly held by Mathew Miau through a charitable remainder trust.
(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 $32,615 and $51,500 during the three and six months ended May 31, 2014 , respectively, and totaling $6,447 and $11,772 during the three and six months ended May 31, 2013 , respectively. The Company’s sales to MiTAC Holdings and its affiliates during the three and six months ended May 31, 2014 totaled $1,058 and $1,920 , respectively, and during the three and six months ended May 31, 2013 totaled $1,270 and $2,633 , respectively. In addition, the Company received reimbursements of rent and overhead costs for facilities used by MiTAC Holdings amounting to $16 during the six months ended May 31, 2014 , and $793 and $1,724 during the three and six months ended May 31, 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 pricing and other material terms on a case-by-case basis with MiTAC Holdings. 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 SYNNEX Infotec 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.

24

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

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 components of net periodic pension costs pertaining to the Company's single employer benefit plans during the three months ended May 31, 2014 and 2013 were as follows:
 
Three Months Ended
 
Six Months Ended
 
May 31, 2014
 
May 31, 2013
 
May 31, 2014
 
May 31, 2013
Service cost
$
345

 
$
146

 
$
552

 
$
308

Interest cost
159

 
37

 
227

 
77

Expected return on plan assets
(17
)
 
(15
)
 
(34
)
 
(31
)
Amortization of net loss
140

 

 
176

 

Net periodic pension costs
$
627

 
$
168

 
$
921

 
$
354

During the three and six months ended May 31, 2014 , the Company contributed $312 and $461 , respectively, to the single-employer benefit plans. During the three and six months ended May 31, 2013 , the Company contributed $164 and $337 , respectively, to the single-employer benefit plans.
NOTE 16—EQUITY:
Share repurchase program 
In June 2011, the Board of Directors authorized a three -year $65,000 share repurchase program. As of May 31, 2014 the Company had purchased 361 shares for a total cost of $11,340 . The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes. No purchases were made during the three and six months ended May 31, 2014 . This program expired in June 2014.
In June 2014, the Board of Directors authorized a three -year $100,000 share repurchase program pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions.

25

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 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 six months ended May 31, 2014 and May 31, 2013 is presented below:
 
 
Six Months Ended May 31, 2014
 
Six Months Ended May 31, 2013
 
 
  Attributable to  
SYNNEX
Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
 
Attributable
  to SYNNEX  
    Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
Beginning balance:
 
$
1,411,222

 
$
419

 
$
1,411,641

 
$
1,319,023

 
$
332

 
$
1,319,355

Issuance of common stock on exercise of options
 
3,809

 

 
3,809

 
3,088

 

 
3,088

Issuance of common stock for employee stock purchase plan
 
789

 

 
789

 
710

 

 
710

Tax benefit from employee stock plans
 
2,806

 

 
2,806

 
1,555

 

 
1,555

Taxes paid for the settlement of equity awards
 
(1,710
)
 

 
(1,710
)
 
(153
)
 

 
(153
)
Shares and employee stock awards issued for acquisition of IBM customer care business
 
71,106

 

 
71,106

 

 

 

Share-based compensation
 
5,632

 

 
5,632

 
4,698

 

 
4,698

Repurchase of treasury stock
 

 

 

 
(1,882
)
 

 
(1,882
)
Conversion premium of convertible debt, net of tax
 

 

 

 
(21,745
)
 

 
(21,745
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
77,968

 
69

 
78,037

 
64,138

 
45

 
64,183

Other comprehensive income:
 

 

 

 

 

 

Change in unrealized gains on available-for-sale securities
 
261

 
1

 
262

 
188

 

 
188

Change in unrealized gain in defined benefit plans, net of tax
 
114

 

 
114

 

 

 

Net change in unrealized loss on cash flow hedges
 
(157
)
 

 
(157
)
 

 

 

Foreign currency translation adjustments
 
9,096

 
1

 
9,097

 
(13,949
)
 
(12
)
 
(13,961
)
Total other comprehensive income
 
9,314

 
2

 
9,316

 
(13,761
)
 
(12
)
 
(13,773
)
Total comprehensive income
 
87,282

 
71

 
87,353

 
50,377

 
33

 
50,410

Ending balance:
 
$
1,580,936

 
$
490

 
$
1,581,426

 
$
1,355,671

 
$
365

 
$
1,356,036



26

Table of Contents
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and six months ended May 31, 2014 and 2013
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of May 31, 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 repossession cost and the resale value of the inventory. There have been no repurchases through May 31, 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 (the "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.
The Company is in the process of responding to the Civil Investigative Demand. The Civil Investigative Demand merely seeks information, and no proceedings have been instituted against any person. The Company has conducted a preliminary review, and does not have any reason to believe that there has been any conduct by the Company or its employees that would be actionable under the antitrust laws in connection with its participation in the database program. As this matter is at a preliminary stage, it is not possible to predict the potential impact, if any, of the Civil Investigative Demand or whether any actions may be instituted by the FTC against any person.
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.


27

Table of Contents

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, information technology demand, 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 and Canada, 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 herein, 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, our ability to successfully integrate the acquired IBM customer care business 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.

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