TD SYNNEX CORPORATION For an understanding of SYNNEX and the significant factors that influenced our performance during the past two fiscal years, the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the description of the business appearing in Item 1 of this Report, Selected Consolidated Financial Data and Item 8 Financial Statements and Supplementary Data included elsewhere in this Report. You should carefully review and consider the information regarding our financial condition and results of operations set forth under Part I-Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) in our Annual Report on Form 10-K for the fiscal year endedNovember 30, 2019 , filed with theSecurities and Exchange Commission onJanuary 29, 2020 , for an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2019 to fiscal year 2018. Amounts in certain tables appearing in this Report may not add or compute due to rounding. When used in this Annual Report on Form 10-K, or this Report, the words "believes," "estimates," "expects," "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, the separation of SYNNEX and Concentrix, including as to the effect on our results of operations going forward, our infrastructure, our investment in information technology, or IT, systems, our employee hiring, retention and turnover, the ownership interest of MiTAC Holdings Corporation, or MiTAC Holdings, in us and its impact, our revenue, our gross margins, our operating costs and results, the value of our inventory, competition with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, market acceptance of our customers' products, concentration of customers, our international operations, foreign currency exchange rates and expected trends related thereto, expansion and scaling of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, our goodwill, seasonality of sales, adequacy of our capital resources to meet our capital needs, cash held by our international subsidiaries and repatriation, changes in fair value of derivative instruments, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of economic and industry trends, impact of our accounting policies and recently issued accounting pronouncements, our belief regarding the impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, our share repurchase and dividend program, our securitization programs and revolving credit lines, our succession planning, our investments in working capital, personnel, facilities and operations. 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 IT, and consumer electronics, or CE, industries, fluctuations in general economic conditions and other risk factors set forth under Part I, 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. Revenue and Cost of Revenue We derive our Technology Solutions revenue primarily through the distribution of peripherals, IT systems, system components, software, networking, communications and security equipment and CE and complementary products, and the delivery of servers and networking solutions for our design and integration solutions customers' data centers. In our Concentrix segment, we provided high value business outsourcing services and solutions to improve customer experience of our clients. Our Concentrix customer contracts typically consisted of a master services agreement or statement of work, which contained the terms and conditions of each program or service we offered. Our agreements could range from less than one year to over five years and were subject to early termination by our customers or us for any reason, typically with 30 to 90 days' notice. In fiscal years 2020 and 2019, approximately 34% of our consolidated revenue and approximately 24% of our Technology Solutions revenue, was generated from our international operations. As a result, our revenue growth has been impacted by fluctuations in foreign currency exchange rates. The market for IT products and services is generally characterized by declining unit prices and short product life cycles. Our overall business is also highly competitive on the basis of price. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide. From time to time, we also participate in the incentive and rebate programs of our OEM suppliers. These programs are important determinants of the final sales price we charge to our reseller customers. To mitigate the risk of declining prices and obsolescence of our distribution inventory, our OEM suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them. We carefully manage our inventory to maximize the benefit to us of these supplier provided protections. A significant portion of our Technology Solutions cost of revenue is the purchase price we pay our OEM suppliers for the products we sell, net of any incentives, rebates, price protection and purchase discounts received from our OEM suppliers. Cost of products revenue also consists of provisions for inventory losses and write-downs, freight expenses associated with the receipt in and shipment out of our inventory, and royalties due to OEM vendors. In addition, cost of revenue includes the cost of material, labor and overhead for our systems design and integration solutions. In our Concentrix segment, cost of revenue consists primarily of personnel costs related to contract services delivery. 26
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Revenue and cost of revenue in our Technology Solutions segment relate to products, and revenue and cost of revenue in our Concentrix segment relate to services.
Margins The Technology Solutions industry in which we operate is characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. Our Technology Solutions gross margin has fluctuated annually due to changes in the mix of products we offer, customers we sell to, incentives and rebates received from our OEM suppliers, competition, seasonality, replacement of lower margin business, inventory obsolescence, and lower costs associated with increased efficiencies. Generally, when our revenue becomes more concentrated on limited products or customers, our Technology Solutions gross margin tends to decrease due to increased pricing pressure from OEM suppliers or reseller customers. Concentrix gross margins, which are higher than those in our Technology Solutions segment, can be impacted by the mix of customer contracts, additional lead time for programs to be fully scalable and transition and initial set-up costs. Our operating margin has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, changes in the relative mix of our Technology Solutions and Concentrix revenue, and the timing of our acquisitions and investments.
Economic and Industry Trends
Our Technology Solutions revenue is highly dependent on the end-market demand for IT and CE products. This end-market demand is influenced by many factors including the introduction of new IT and CE products and software by OEMs, replacement cycles for existing IT and CE products, seasonality and overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT and CE distribution industry and increased price-based competition. Business in our system design and solutions is highly dependent on the demand for cloud infrastructure, and the number of key customers and suppliers in the market. Our Technology Solutions business includes operations inthe United States ,Canada ,Japan andLatin America , so we are affected by demand for our products in those regions and the strengthening or weakening of local currencies relative to theU.S. Dollar. The customer experience services industry in which our Concentrix segment operated is competitive. Customers' performance measures were based on competitive pricing terms and quality of services. Our Concentrix business was largely concentrated inthe United States , theUnited Kingdom ,the Philippines ,India ,Canada ,China andJapan . Accordingly, we were impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to theU.S. Dollar. InDecember 2019 , there was an outbreak of a new strain of coronavirus ("COVID-19"). InMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets. The disruptions due to COVID-19 have impacted our business including logistics operations in our Technology Solutions segment and limited the productive ability of many of our associates who were in our Concentrix segment, particularly during the second quarter of fiscal year 2020. We have successfully transitioned a significant portion of our workforce in both segments to a remote working environment and implemented a number of safety and social distancing measures within our premises to protect the health and safety of associates who are required to be on-premise to support our business. As ofNovember 30, 2020 , the majority of our workforce across both segments was productive. During the fiscal year endedNovember 30, 2020 , we incurred net incremental costs associated with COVID-19 of approximately$131 million , of which Concentrix incurred net costs of approximately$86 million and Technology Solutions incurred net costs of approximately$45 million . We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, vendors or customers and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in the preparation of the financial statements included in this report on Form 10-K, required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.
Critical Accounting Policies and Estimates
The discussions and analysis of our consolidated financial condition and results
of operations are based on our Consolidated Financial Statements, which have
been prepared in conformity with GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of any contingent assets
and liabilities at the financial statement date, and reported amounts of revenue
and expenses during the reporting period. On an ongoing basis, we review and
evaluate our estimates and assumptions. Our estimates are based on our
historical experience and a variety of other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making our judgment about the carrying values of assets and liabilities that are
not readily available from other sources. Actual results could differ from these
estimates under different assumptions or conditions.
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We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our Consolidated Financial Statements.
Revenue Recognition.
We generate revenue primarily from (i) the sale of various IT products through our Technology Solutions business unit and (ii) the provision of business outsourcing services focused on customer experience through our Concentrix business unit.
Revenue from our Technology Solutions segment is categorized as products revenue
in our Consolidated Statements of Operations. Revenue from our Concentrix
segment is categorized as services revenue in the Consolidated Statements of
Operations.
We recognize revenue from the sale of IT hardware and software as control is
transferred to customers, which is at the time when the product is shipped or
delivered. Products sold by us are delivered via shipment from our facilities,
drop-shipment directly from the vendor, or by electronic delivery of software
products. We account for a contract with a customer when it has written
approval, the contract is committed, the rights of the parties, including
payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Binding purchase orders from customers
together with agreement to our terms and conditions of sale by way of an
executed agreement or other signed documents are considered to be the contract
with a customer. In situations where arrangements include customer acceptance
provisions, revenue is recognized when we can objectively verify the products
comply with specifications underlying acceptance and the customer has control of
the products. Revenue is presented net of taxes collected from customers and
remitted to government authorities. We generally invoice a customer upon
shipment, or in accordance with specific contractual provisions. Payments are
due as per contract terms and do not contain a significant financing component.
Provisions for sales returns and allowances are estimated based on historical
data and are recorded concurrently with the recognition of revenue. A liability
is recorded at the time of sale for estimated product returns based upon
historical experience and an asset is recognized for the amount expected to be
recorded in inventory upon product return. These provisions are reviewed and
adjusted periodically. Revenue is reduced for early payment discounts and volume
incentive rebates offered to customers, which are considered variable
consideration, at the time of sale based on an evaluation of the contract terms
and historical experience.
We recognize revenue on a net basis on certain contracts, where our performance
obligation is to arrange for the products or services to be provided by another
party or the rendering of logistics services for the delivery of inventory for
which we do not assume the risks and rewards of ownership, by recognizing the
margins earned in revenue with no associated cost of revenue. Such arrangements,
which are not material to our consolidated revenue or our "Products" or
"Services" revenue, include supplier service contracts, post-contract software
support services and extended warranty contracts.
We consider shipping and handling activities as costs to fulfill the sale of
products. Shipping revenue is included in revenue when control of the product is
transferred to the customer, and the related shipping and handling costs are
included in cost of products sold.
For the Concentrix segment, we recognize revenue from services contracts over
time as the promised services are delivered to clients for an amount that
reflects the consideration to which we are entitled in exchange for those
services. We account for a contract with a customer when it has written
approval, the contract is committed, the rights of the parties, including
payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Revenue is presented net of taxes
collected from customers and remitted to government authorities. We generally
invoice a customer after performance of services, or in accordance with specific
contractual provisions. Payments are due as per contract terms and do not
contain a significant financing component. Service contracts may be based on a
fixed price or on a fixed unit-price per transaction or other objective measure
of output. We determine whether the services performed during the initial phases
of an arrangement, such as setup activities, are distinct. In most cases, the
arrangement is a single performance obligation comprised of a series of distinct
services that are substantially the same and that have the same pattern of
transfer (i.e., distinct days of service). We record deferred revenue
attributable to certain process transition, setup activities where such
activities do not represent separate performance obligations. Billings related
to such transition activities are classified under contract liabilities and
subsequently recognized ratably over the period in which the related services
are performed. We apply a measure of progress (typically time-based) to any
fixed consideration and allocate variable consideration to the distinct periods
of service based on usage. As a result, revenue is generally recognized over the
period the services are provided on a usage basis. This results in revenue
recognition that corresponds with the benefit to the client of the services
transferred to date relative to the remaining services promised. 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 can
range from less than one year to more than five years.
Certain client contracts include incentive payments from the client upon
achieving certain agreed-upon service levels and performance metrics or service
level agreements that could result in credits or refunds to the client. Revenue
relating to such arrangements is accounted for as variable consideration when
the likely amount of revenue to be recognized can be estimated to the extent
that it is probable that a significant reversal of any incremental revenue will
not occur.
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Business Combinations. We allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and noncontrolling interests in the acquiree generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and noncontrolling interests in the acquiree is recorded as goodwill and may involve engaging independent third-parties to perform an appraisal. When determining the fair values of assets acquired, liabilities assumed, and noncontrolling interests in the acquiree, we make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, and discount rates. Fair value estimates are based on the assumptions we believe a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Acquisitions
We continually seek to augment organic growth in both our business segments with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. In our Technology Solutions business we seek to acquire new OEM relationships, enhance our supply chain and integration capabilities, the services we provide to our customers and OEM suppliers, and expand our geographic footprint. In our Concentrix segment, prior to the Separation, we sought to enhance our capabilities and domain expertise in key industry verticals, expand our geographic footprint and further expand into higher value service offerings and increase scale.
Results of Operations
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
Fiscal Years Ended November 30,
Statements of Operations Data: 2020 2019
Products revenue 80.96 % 80.27 %
Services revenue 19.04 19.73
Total revenue 100.00 100.00
Cost of products revenue (76.12 ) (75.40 )
Cost of services revenue (12.34 ) (12.40 )
Gross profit 11.54 12.20
Selling, general and administrative expenses (8.18 ) (8.77 )
Operating income 3.36 3.43
Interest expense and finance charges, net (0.52 ) (0.70 ) Other income (expense), net 0.01 0.13 Income before income taxes 2.85 2.86 Provision for income taxes (0.71 ) (0.74 ) Net income 2.14 % 2.11 % With the completion of the Separation onDecember 1, 2020 , our services revenue and cost of services revenue which represent revenue and cost of revenue of our Concentrix segment will be discontinued. Further, selling, general and administrative expenses, interest expense and finance charges, net, other income (expense), net and provision for income-taxes will decrease by amounts related to the Concentrix segment or impacted by the Separation, with related reductions in gross profit, operating income and net income. Additionally, our gross margin and operating margin will decrease due to the discontinuance of the higher margins earned in the Concentrix segment. In addition, in the second half of 2021, we expect a decrease in our products revenue of approximately$1.2 billion due to a customer moving to a consignment model where we will provide integration services on an agency basis.
Certain non-GAAP financial information
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
• Revenue in constant currency, which is revenue adjusted for the translation
effect of foreign currencies so that certain financial results can be
viewed without the impact of fluctuations in foreign currency exchange
rates, thereby facilitating period-to-period comparisons of our business
performance. Revenue in constant currency is calculated by translating the
revenue of fiscal year 2020 in the billing currency using the prior year's
currency conversion rate. Generally, when the dollar either strengthens or
weakens against other currencies, the growth at constant currency rates or
adjusting for currency will be higher or lower than growth reported at
actual exchange rates.
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• Non-GAAP operating income, which is operating income, adjusted to exclude
transaction-related and integration expenses, restructuring costs and
amortization of intangible assets.
• Non-GAAP operating margin, which is non-GAAP operating income, as defined
above, divided by revenue.
• Adjusted earnings before interest, taxes, depreciation and amortization
("Adjusted EBITDA") which is net income before interest, taxes,
depreciation and amortization, adjusted to exclude other income (expense),
net and transaction-related and integration expenses.
• Non-GAAP diluted earnings per common share ("EPS"), which is diluted EPS
excluding the per share, tax effected impact of (i) transaction-related and
integration expenses, (ii) amortization of intangible assets, (iii) a gain
upon the settlement of contingent consideration related to the acquisition
of Westcon-Comstor Americas in fiscal year 2017, and (iv) a gain recorded
upon realization of a contingent asset related to the Westcon-Comstor
Transaction-related expenses typically consist of acquisition, integration, and
divestiture related costs and are expensed as incurred. These expenses primarily
represent costs for legal, banking, consulting and advisory services, and debt
extinguishment fees. From time to time, this category may also include
transaction-related gains/losses on divestitures/spin-off of businesses.
Our acquisition activities have resulted in the recognition of intangible assets
which consist primarily of customer relationships, vendor lists and technology.
Definite-lived intangible assets are amortized over their estimated useful lives
and are tested for impairment when events indicate that the carrying value may
not be recoverable. The amortization of intangible assets is reflected in our
statements of operations within each segment. Although intangible assets
contribute to our revenue generation, the amortization of intangible assets does
not directly relate to the sale of our products and the services performed for
our clients. Additionally, intangible asset amortization expense typically
fluctuates based on the size and timing of our acquisition activity.
Accordingly, we believe excluding the amortization of intangible assets, along
with the other non-GAAP adjustments which neither relate to the ordinary course
of our business nor reflect our underlying business performance, enhances our
and our investors' ability to compare our past financial performance with its
current performance and to analyze underlying business performance and trends.
Intangible asset amortization excluded from the related non-GAAP financial
measure represents the entire amount recorded within our GAAP financial
statements, and the revenue generated by the associated intangible assets has
not been excluded from the related non-GAAP financial measure. Intangible asset
amortization is excluded from the related non-GAAP financial measure because the
amortization, unlike the related revenue, is not affected by operations of any
particular period unless an intangible asset becomes impaired or the estimated
useful life of an intangible asset is revised.
We believe that providing this additional information is useful to the reader to
better assess and understand our base operating performance, especially when
comparing results with previous periods and for planning and forecasting in
future periods, primarily because management typically monitors the business
adjusted for these items in addition to GAAP results. Management also uses these
non-GAAP measures to establish operational goals and, in some cases, for
measuring performance for compensation purposes. As these non-GAAP financial
measures are not calculated in accordance with GAAP, they may not necessarily be
comparable to similarly titled measures employed by other companies. These
non-GAAP financial measures should not be considered in isolation or as a
substitute for the comparable GAAP measures and should be used as a complement
to, and in conjunction with, data presented in accordance with GAAP.
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Non-GAAP Financial Information:
Fiscal Years Ended November 30,
2020 2019
(in thousands, except per share amounts)
Consolidated
Revenue $ 24,675,563 $ 23,757,293
Foreign currency translation 108,546
Revenue in constant currency $ 24,784,109 $ 23,757,293
Operating income $ 830,103 $ 813,761
Transaction-related and integration expenses 44,879 71,454
Amortization of intangibles 187,431 210,481
Non-GAAP operating income $ 1,062,413 $ 1,095,696
Operating margin 3.36 % 3.43 %
Non-GAAP operating margin 4.31 % 4.61 %
Net Income $ 529,160 $ 500,712
Interest expense and finance charges, net 127,336 166,421
Provision for income taxes 174,882 176,991
Depreciation (excluding accelerated depreciation
included in transaction-related and integration
expenses below) 154,048 157,277
Amortization of intangibles 187,431 210,481
EBITDA $ 1,172,857 $ 1,211,882
Other (income) expense, net (excluding amounts
included in transaction-related and integration
expenses below) (1,964 ) (30,192 )
Transaction-related and integration expenses 47,820 71,283
Adjusted EBITDA $ 1,218,713 $ 1,252,973
Diluted EPS $ 10.21 $ 9.74
Transaction-related and integration expenses 0.92 1.39
Amortization of intangibles 3.62 4.09
Contingent consideration - (0.37 )
Acquisition-related contingent gain - (0.22 )
Income taxes related to the above (1) (1.08 ) (1.38 )
Non-GAAP diluted EPS $ 13.68 $ 13.26
Technology Solutions
Revenue $ 19,977,150 $ 19,069,970
Foreign currency translation 87,806
Revenue in constant currency $ 20,064,956 $ 19,069,970
Operating income $ 521,341 $ 519,429
Transaction-related and integration expenses 7,414 981
Amortization of intangibles 40,148 43,875
Non-GAAP operating income $ 568,903 $ 564,285
Operating margin 2.61 % 2.72 %
Non-GAAP operating margin 2.85 % 2.96 %
Net Income $ 337,526 $ 366,888
Interest expense and finance charges, net 79,023 74,225
Provision for income taxes 98,621 106,399
Depreciation 24,923 22,454
Amortization of intangibles 40,148 43,875
EBITDA $ 580,241 $ 613,841
Other (income) expense, net 6,172 (28,083 )
Transaction-related and integration expenses 9,667 981
Adjusted EBITDA $ 596,080 $ 586,739
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Fiscal Years Ended November 30,
2020 2019
(in thousands, except per share amounts)
Concentrix
Revenue $ 4,719,534 $ 4,707,912
Foreign currency translation 20,740
Revenue in constant currency $ 4,740,274 $ 4,707,912
Operating income $ 308,761 $ 294,332
Transaction-related and integration expenses 37,465 70,473
Amortization of intangibles 147,283 166,606
Non-GAAP operating income $ 493,509 $ 531,411
Operating margin 6.54 % 6.25 %
Non-GAAP operating margin 10.46 % 11.29 %
Net Income $ 191,634 $ 133,824
Interest expense and finance charges, net 48,313 92,196
Provision for income taxes 76,261 70,592
Depreciation (excluding accelerated depreciation
included in transaction-related and integration
expenses below) 129,125 134,823
Amortization of intangibles 147,283 166,606
EBITDA $ 592,616 $ 598,041
Other (income) expense, net (excluding amounts
included in transaction-related and integration
expenses below) (8,135 ) (2,109 )
Transaction-related and integration expenses 38,153 70,302
Adjusted EBITDA $ 622,634 $ 666,234
(1) The tax effect of taxable and deductible non-GAAP adjustments was
calculated using the effective tax rate during the respective fiscal years.
Fiscal Years Ended
Revenue
Fiscal Years Ended November 30,
2020 2019 Percent Change
(in thousands)
Revenue $ 24,675,563 $ 23,757,293 3.9 %
Technology Solutions revenue 19,977,150 19,069,970 4.8 %
Concentrix revenue 4,719,534 4,707,912 0.2 %
Inter-segment elimination (21,121 ) (20,589 )
Our revenue includes sales of products and services. In our Technology Solutions
segment, we distribute a comprehensive range of products for the technology
industry and design and integrate data center equipment. The prices of our
products are highly dependent on the volumes purchased within a product
category. The products we sell from one period to the next are often not
comparable due to changes in product models, features and customer demand
requirements. The revenue generated by our Concentrix segment relates to
business outsourcing services focused on customer experience, process
optimization and back office automation. Inter-segment elimination represents
services generated between our reportable segments that are eliminated on
consolidation. Substantially all of the inter-segment revenue represents
services provided by the Concentrix segment to the Technology Solutions segment.
Revenue in our Technology Solutions segment increased in fiscal year 2020
compared to fiscal year 2019 primarily due to a demand for technology equipment
as COVID-19 related government mandated shelter-in-place restrictions during the
second, third and fourth quarters of fiscal year 2020 led to increased needs for
remote work, learn and consume related solutions. On a constant currency basis,
revenue in our Technology Solutions segment increased by 5.2% during fiscal year
2020, compared to fiscal year 2019.
Concentrix segment revenue increased slightly in fiscal year 2020, compared to
fiscal year 2019, due to growth with technology, retail and ecommerce clients
partially offset by lower demand from media, communications, travel, tourism and
automotive clients. During fiscal year 2020, Concentrix revenue was impacted by
the COVID-19 related government mandated shelter-in-place restrictions in
several countries in the world. These restrictions adversely impacted our
revenue due to the inability of a significant
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number of our associates to work despite client demand. This impact was most
acute in the second quarter of 2020. Our revenue was also unfavorably impacted
by the translation effect of foreign currencies.
Gross Profit
Fiscal Years Ended November 30,
2020 2019 Percent Change
(in thousands)
Gross profit $ 2,847,604 $ 2,897,917 -1.7 %
Gross margin 11.54 %
12.20 %
Technology Solutions gross profit
3.2 %
Technology Solutions gross margin 5.98 % 6.07 %
Concentrix gross profit $ 1,661,525 $ 1,748,448 -5.0 %
Concentrix gross margin 35.21 % 37.14 %
Inter-segment elimination (7,779 ) (7,789 )
Our Technology Solutions gross margin is affected by a variety of factors,
including competition, selling prices, mix of products and services, product
costs along with rebate and discount programs from our suppliers, reserves or
settlement adjustments, freight costs, inventory losses, acquisition of business
units and fluctuations in revenue. Concentrix margins, which are higher than
those in our Technology Solutions segment, can be impacted by resource location,
client mix and pricing, additional lead time for programs to be fully scalable,
and transition and initial set-up costs.
Technology Solutions gross profit increased in fiscal year 2020, as compared to
the prior fiscal year, primarily driven by strong demand for technology products
as COVID-19 related government mandated shelter-in-place restrictions during the
second, third and fourth quarters of fiscal year 2020 led to a greater need for
remote work, learn and consume related solutions. This increase was partially
offset by lower margins due to product mix from our projects and
integration-based server solutions and incremental COVID-19 related costs of
approximately $10.4 million .
Our Concentrix segment's gross profit and margin decreased during fiscal year
2020 as compared to the prior fiscal year, due to the incremental impact of
$76.0 million in COVID-19 related non-productive workforce and other costs,
which was most acute during the second and third quarters of fiscal year 2020,
as we transitioned our workforce to work remotely.
Selling, General and Administrative Expenses
Fiscal Years Ended November 30,
2020 2019 Percent Change
(in thousands)Selling, general and administrative
expenses$ 2,017,502 $ 2,084,156 -3.2 % Percentage of revenue 8.18 % 8.77 % Technology Solutions selling, general and administrative expenses$ 672,516 $ 637,829 5.4 % Percentage of Technology Solutions revenue 3.37 % 3.34 % Concentrix selling, general and administrative expenses$ 1,352,764 $ 1,454,116 -7.0 % Percentage of Concentrix revenue 28.66 % 30.89 % Inter-segment elimination $ (7,779 ) $ (7,789 ) Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our non-technology related intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers. Selling, general and administrative expenses in our Technology Solutions segment increased in fiscal year 2020, compared to fiscal year 2019, primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to COVID-19. Incremental costs related to COVID-19 were approximately$33 million for fiscal year 2020. In addition, we incurred$7.4 million in transaction costs related to the Separation of Concentrix. These increases were partially offset by a$3.7 million decrease in amortization of intangible assets. Technology Solutions selling, general and administrative expenses as a percentage of revenue in fiscal year 2020, was consistent with the prior fiscal year. Concentrix selling, general and administrative expenses decreased, in both absolute dollars and as a percentage of revenue, in fiscal year 2020, compared to the prior fiscal year, primarily due to lower facility and employee costs as a result of integration and 33
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facility rationalization undertaken in fiscal year 2019 in connection with the acquisition ofConvergys Corporation as well as the impact of reduction in variable operating expenses and discretionary spend due to COVID-19 related remote work. The decrease in the current fiscal year was also caused by an$18.9 million reduction in the amortization of intangible assets and a decrease in transaction-related and integration expenses by$33.0 million as compared to the prior year. These decreases were partially offset by incremental technology and health and safety costs of approximately$10.0 million due to COVID-19 related remote work. Operating Income Fiscal Years Ended November 30, 2020 2019 Percent Change (in thousands) Operating income$ 830,103 $ 813,761 2.0 % Operating margin 3.36 %
3.43 %
Technology Solutions operating income
0.4 %
Technology Solutions operating margin 2.61 % 2.72 %
Concentrix operating income $ 308,761 $ 294,332 4.9 %
Concentrix operating margin 6.54 % 6.25 %
Operating income in our Technology Solutions segment increased during fiscal
year 2020, compared to the prior year, primarily due to broad based growth,
decreases in the amortization of intangible assets and transaction-related
expenses. These increases were partially offset by the impact of COVID-19
related incremental costs associated with allowances for doubtful accounts and
higher salary and employee related costs. Operating margin in our Technology
Solutions segment decreased due to product mix.
Operating income and margin in our Concentrix segment increased during fiscal
year 2020, compared to the prior year, primarily due to lower
transaction-related and integration expenses and lower amortization of
intangible assets partially offset by the impact of COVID-19 related incremental
costs.
Interest Expense and Finance Charges, Net
Fiscal Years Ended November 30,
2020 2019 Percent Change
(in thousands)
Interest expense and finance charges, net $ 127,336 $ 166,421 -23.5 %
Percentage of revenue 0.52 % 0.70 %
Amounts recorded in interest expense and finance charges, net, consist primarily
of interest expense paid on our lines of credit and term loans, fees associated
with third party accounts receivable flooring arrangements and the sale or
pledge of accounts receivable through our securitization facilities, offset by
income earned on our cash investments.
The decrease in our interest expense and finance charges, net, compared to the
prior year, was due to due to lower interest expense as a result of reduction of
approximately $700 million in our average borrowings during fiscal year 2020, as
compared to the prior year, as well as a lower interest rate environment. $1.6
billion of our outstanding borrowings at November 30, 2020 , representing
substantially all of our borrowings post the Separation of Concentrix, have been
economically converted to fixed-rate debt through interest rate swaps.
Other Income (Expense), Net
Fiscal Years Ended November 30,
2020 2019 Percent Change
(in thousands)
Other income (expense), net $ 1,276 $ 30,363 -96 %
Percentage of revenue 0.01 % 0.13 %
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Table of Content Amounts recorded as other income (expense), net include foreign currency transaction gains and losses other than on cash flow hedges, investment gains and losses, non-service component of pension costs, debt extinguishment gains and losses and other non-operating gains and losses, such as settlements received from class actions lawsuits and realization of contingent assets. Other income (expense), net decreased during the fiscal year endedNovember 30, 2020 , compared to the prior year, primarily due to a gain of$19.0 million upon the settlement of contingent consideration related to our acquisition of Westcon-Comstor Americas in an earlier year and a gain of$11.1 million recorded upon realization of contingent sales-tax assets related to the Westcon-ComstorAmericas acquisition recorded in fiscal year 2019. In addition, other income (expense), net in fiscal year 2020 decreased compared to the prior year due to the write-off of$2.2 million of deferred financing costs associated with the$1.2 billion partial prepayment of our term loans onNovember 30, 2020 in preparation of the Separation onDecember 1, 2020 . These decreases were partially offset by a$3.5 million gain recorded in fiscal year 2020 upon reversal of certain tax indemnification provisions set up at the time of disposition of a subsidiary in a prior year. Provision for Income Taxes Fiscal Years Ended November 30, 2020 2019 Percent Change (in thousands) Provision for income taxes$ 174,882 $ 176,991 -1.2 % Percentage of income before income taxes 24.84 % 26.05 %
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
Our income tax expense decreased during the fiscal year endedNovember 30, 2020 , as compared to the prior year, due to the decrease in our effective tax rate. The effective tax rate for fiscal year 2020 was lower compared to the prior year, due to the benefit from the exercise of employee stock options and reversal of uncertain tax positions. The comparative decrease in the effective tax rate for fiscal year 2020 was partially offset by the favorable impact of a nontaxable contingent consideration gain recorded in the prior year period related to the fiscal year 2017 Westcon-Comstor Americas acquisition.
See Note 15 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further details.
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Liquidity and Capital Resources
Cash Conversion Cycle
Three Months Ended
November 30, November 30,
2020 2019
(Amounts in thousands)
Days sales outstanding ("DSO")
Revenue (products and services) (a) $ 7,413,944 $ 6,581,293
Accounts receivable, including
receivable
from related parties (b) 3,870,789 3,926,709
(c) =
(b)/((a)/the
number of days
during the
Days sales outstanding period) 48 54
Days inventory outstanding ("DIO")
Cost of revenue (products and
services) (d) $ 6,590,589 $ 5,786,754
Inventories (e) 2,684,530 2,547,224
(f) =
(e)/((d)/the
number of days
during the
Days inventory outstanding period) 37 40
Days payable outstanding ("DPO")
Cost of revenue (products and
services) (g) $ 6,590,589 $ 5,786,754
Accounts payable, including
payable to
related parties (h) 3,891,815 3,149,443
(i) =
(h)/((g)/the
number of days
during the
Days payable outstanding period) 54 50
Cash conversion cycle ("CCC") (j) =
(c)+(f)-(i) 31 44
Technology Solutions
Days sales outstanding
Segment revenue (a) $ 6,118,836 $ 5,374,241
Accounts receivable, net (b) 2,808,125 2,995,610
Days sales outstanding (c) =
(b)/((a)/the
number of days
during the
period) 42 51
Days inventory outstanding
Segment cost of revenue (d) $ 5,752,179 $ 5,036,301
Inventories (e) 2,684,076 2,546,115
Days inventory outstanding (f) =
(e)/((d)/the
number of days
during the
period) 42 46
Days payable outstanding
Segment cost of revenue (g) $ 5,752,179 $ 5,036,301
Accounts payable (h) 3,753,634 3,104,886
Days payable outstanding (i) =
(h)/((g)/the
number of days
during the
period) 59 56
Cash conversion cycle (j) =
(c)+(f)-(i) 25 41
Cash Flows
Our Technology Solutions business is working capital intensive. Our working
capital needs are primarily to finance accounts receivable and inventory. We
rely heavily on term loans, accounts receivable arrangements, our securitization
programs and our revolver programs for our working capital needs. We have
financed our growth and cash needs to date primarily through cash
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generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volume decreases, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. We calculate CCC as days of the last fiscal quarter's sales outstanding in accounts receivable plus days of supply on hand in inventory, less days of the last fiscal quarter's direct cost outstanding in accounts payable. Our CCC was 31 days and 44 days at the end of fiscal years 2020 and 2019, respectively. CCC of our Technology Solutions segment was 25 days compared to 41 days at the end of fiscal years 2020 and 2019, respectively. The decrease in fiscal year 2020, compared to fiscal year 2019, was primarily due to efficient collections of accounts receivable and faster turnover of our inventories in our Technology Solutions segment. In addition, our DPO was favorably impacted by the timing of payments of accounts payable in both our Technology Solutions and Concentrix reportable segments. To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that such expansion would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities. Net cash provided by operating activities was$1.834 billion during fiscal year 2020, primarily due to net income of$529.2 million , adjustments for non-cash items of$393.7 million , decreases in accounts receivable of$12.7 million and receivables from vendors of$79.8 million , an increase in accounts payable of$685.0 million and a net change of$262.8 million in other operating assets and liabilities. These cash inflows were partially offset by an increase in inventories of$128.8 million . The decrease in accounts receivable and vendor receivables is primarily due to an improvement in our collections in our Technology Solutions segment. Notwithstanding the current economic uncertainties due to the impact of COVID-19, DSO in our Technology Solutions segment decreased by approximately 9 days from the end of fiscal year 2019. This decrease in accounts receivable was partially offset by longer collection cycles in our Concentrix segment largely due to the impact of COVID-19. The increase in accounts payable and cash inflow from changes in other operating assets and liabilities reflects primarily efficient working capital management in our Technology Solutions segment. Operating liabilities also increased as the payment date for a higher number of days of salary of certain of our associates in the Concentrix segment became due after year end, as compared to the prior fiscal year, favorably impacting our operating cash flows for the year. The increase in inventories was driven by growth in our larger projects and integration-based server solutions. The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, share-based compensation expense, unrealized foreign exchange losses, amortization of deferred financing costs and a deferred tax benefit. Excluding the impact of intercompany transactions,$1.346 billion of our cash provided by operating activities was generated in our Technology Solutions segment and$488.3 million was generated by our Concentrix segment. Net cash provided by operating activities was$549.9 million during fiscal year 2019, primarily due to net income of$500.7 million , adjustments for non-cash items of$410.6 million , an increase in accounts payable of$98.4 million , and a net change in other operating assets and liabilities of$46.5 million . These cash inflows were partially offset by an increase in accounts receivable and receivables from vendors of$353.1 million and an increase in inventories of$153.1 million . The increase in accounts receivable, including receivables from vendors, inventories and accounts payable was driven by growth in our Technology Solutions segment. The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, stock-based compensation expense, a gain recorded upon the settlement of contingent consideration related to our Westcon-Comstor Americas acquisition in fiscal year 2017 and a deferred tax benefit. Excluding the impact of intercompany transactions,$93.1 million of our cash provided by operating activities was generated in our Technology Solutions segment and$456.8 million was generated by our Concentrix segment. Net cash used in investing activities in fiscal year 2020 was$209.5 million , primarily due to capital expenditures of$198.0 million related to infrastructure investments to support growth in both of our business segments and$5.6 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition, being paid in accordance with the original vesting schedule. Net cash used in investing activities in fiscal year 2019 was$146.8 million , primarily due to capital expenditures of$137.4 million , principally related to infrastructure investments to support the anticipated growth in our Concentrix segment and from$9.4 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition. 37
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Net cash used in financing activities in fiscal year 2020 was$291.7 million , primarily due to net repayments of$262.6 million under our borrowing arrangements. Cash generated from our operations was used to pay down revolving lines of credit and scheduled quarterly repayments of our term loans. In addition, atNovember 30, 2020 , in order to complete the Separation, our Concentrix subsidiary borrowed approximately$1.2 billion under credit facilities it had previously entered into and used substantially all of those funds to eliminate non-trade intercompany balances and other indebtedness owed by the Concentrix subsidiary to us. These funds were used by our parent company to pay down$1.2 billion in a partial repayment of its outstanding term loans. Accordingly, Concentrix' borrowings and our term loan repayments had no impact on our net debt atNovember 30, 2020 . Upon completion of the Separation onDecember 1, 2020 , the approximately$1.2 billion borrowed by the Concentrix subsidiary is now debt of the independent Concentrix company. Consequently, our borrowings are lower by that amount post Separation. In addition, we returned cash to stockholders in the form of dividends of$20.8 million and$3.4 million of repurchases of our common stock during the year, prior to suspension of our dividends program and share repurchases due to the COVID-19 related economic uncertainties inMarch 2020 . EffectiveJanuary 2021 , our board of directors has reinstated our quarterly dividends. Net cash used in financing activities in fiscal year 2019 was$631.7 million , primarily due to net repayments of$521.4 million under our borrowing arrangements. Cash generated from our operations was used to pay down revolving lines of credit. During fiscal year 2019, we drew the last tranche of$250.0 million under a term loan facility obtained in fiscal year 2018 for the Convergys acquisition, which was used for the settlement of the remaining amount of convertible debentures assumed as part of this acquisition, and the remainder used for working capital purposes. We also returned cash to stockholders through$76.6 million of dividend payments and$15.2 million of repurchases of our common stock.$14.0 million in cash was used to pay contingent consideration related to our Westcon-Comstor Americas acquisition.
We believe our current cash balances and credit availability are sufficient to support the operating activities for at least the next twelve months.
Capital Resources
Our cash and cash equivalents totaled$1.565 billion and$225.5 million as ofNovember 30, 2020 and 2019, respectively. Of our total cash and cash equivalents, the cash held by our international subsidiaries was$570.8 million and$219.7 million as ofNovember 30, 2020 and 2019, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject toU.S. federal tax on repatriation intothe United States . Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back tothe United States , we will report in our consolidated financial statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity withinthe United States to fund current and expected future working capital, investment and other general corporate funding requirements, including the impact of the separation of our Concentrix segment. We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations and our existing sources of liquidity, will be sufficient to satisfy our current and planned working capital and investment needs, including the impact of the separation of our Concentrix segment, for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. Historically, we have renewed our accounts receivable securitization program and ourU.S. credit facility agreement described below on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed or replaced as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.
On-Balance Sheet Arrangements
Inthe United States , we have an accounts receivable securitization program to provide additional capital for our operations (the "U.S. AR Arrangement"). Under the terms of theU.S. AR Arrangement, which has a maturity date ofMay 2022 , our subsidiary, which is the borrower under this facility, can borrow up to a maximum of$650.0 million based upon eligible trade accounts receivable. The effective borrowing cost under theU.S. AR Arrangement is a blended rate based upon the composition of the lenders that included prevailing dealer commercial paper rates and a rate based upon London Interbank Offered Rate ("LIBOR"). In addition, a program fee is payable on the used portion of the lenders' commitment at 1.25% per annum in the case of lender groups who fund their advances based on prevailing commercial paper rates and 1.30% per annum in the case of lender groups who fund their advances based on LIBOR (subject to a 0.50% per annum floor). The facility fee payable on the adjusted commitment of the lenders accrues at different tiers ranging between 0.35% per annum and 0.45% per annum depending on the amount of outstanding advances from time to time. In addition, theU.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional$150.0 million . Under the terms of theU.S. AR Arrangement, we and two of ourU.S. subsidiaries sell, on a revolving basis, our receivables to a wholly-owned bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the 38
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receivables acquired by our bankruptcy-remote subsidiary as security. Any amounts received under theU.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. As ofNovember 30, 2020 , there were no borrowings outstanding under this facility. As ofNovember 30, 2019 ,$108.0 million was outstanding under theU.S. AR Arrangement. InCanada , we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, as renewed inMarch 2020 ,SYNNEX Canada Limited ("SYNNEX Canada") can borrow up toCAD100.0 million , or$76.9 million , in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis throughMay 2023 . The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additionalCAD50.0 million , or$38.4 million . Any amounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables, to the bank. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of 1.00% per annum and the prevailing lender commercial paper rates. In addition,SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment.SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up toCAD60.0 million , or$46.1 million , and when the unused portion exceedsCAD60.0 million , or$46.1 million , a fee of 0.55% on the firstCAD25.0 million , or$19.2 million , of the unused portion and a fee of 0.55% per annum on the remaining unused commitment. As of bothNovember 30, 2020 and 2019, there was no outstanding balance under this arrangement.SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment ofJPY15.0 billion or$143.8 million . The credit agreement is comprised of aJPY7.0 billion , or$67.1 million , term loan and aJPY8.0 billion , or$76.7 million , revolving credit facility and expires inNovember 2021 . The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on our consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on our consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations ofSYNNEX Japan under this facility. As ofNovember 30, 2020 and 2019, the balance outstanding under the term loan component of this facility was$67.1 million and$63.9 million , respectively. Balance outstanding under the revolving credit facility was$31.6 million and$5.9 million as ofNovember 30, 2020 and 2019, respectively. Inthe United States , we have a senior secured credit agreement (as amended, theU.S. Credit Agreement) with a group of financial institutions. TheU.S. Credit Agreement includes a$600.0 million commitment for a revolving credit facility and a term loan in the original principal amount of$1.2 billion . We can request incremental commitments to increase the principal amount of the revolving line of credit or term loan by$500.0 million , plus an additional amount which is dependent upon our pro forma first lien leverage ratio, as calculated under theU.S. Credit Agreement. TheU.S. Credit Agreement matures inSeptember 2022 . The term loan can be repaid at any time prior to the maturity date without penalty. OnNovember 30, 2020 , we partially repaid the term loan with a portion of the funds drawn from the Concentrix borrowing arrangements inthe United States described below. The remaining outstanding principal of the term loan is payable on maturity. Interest on borrowings under theU.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.50%, (b) the rate of interest announced, from time to time, by the agent,Bank of America, N.A ., as its "prime rate," and (c) the Eurodollar Rate, plus 1.00%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio, as calculated under theU.S. Credit Agreement. Our obligations under theU.S. Credit Agreement are secured by substantially all of the parent company's and itsUnited States domestic subsidiaries' assets on a pari passu basis with the interests of the lenders under theU.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of ourUnited States domestic subsidiaries. As ofNovember 30, 2020 and 2019, the balance outstanding under the term loan component of theU.S. Credit Agreement was$0.5 billion and$1.1 billion , respectively. There were no borrowings outstanding under the revolving line of credit under theU.S. Credit Agreement as ofNovember 30, 2020 . As ofNovember 30, 2019 , the balance outstanding under the revolving line of credit component of theU.S. Credit Agreement was$25.8 million . We have a secured term loan credit agreement (the "U.S. Term Loan Credit Agreement") with a group of financial institutions, in the original principal amount of$1.8 billion . TheU.S. Term Loan Credit Agreement matures inOctober 2023 . The term loan can be repaid at any time prior to the maturity date without penalty. OnNovember 30, 2020 , we partially repaid the term loan with a portion of the funds drawn from the Concentrix borrowing arrangements inthe United States described below. Interest on borrowings under theU.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loan ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate" in theU.S. During the period in which the term loans were available to be drawn, we paid term loan commitment fees. The margins above our applicable interest rates are, and the term loan commitment fee were, based on our consolidated leverage ratio as calculated under theU.S. Term Loan Credit Agreement. Our obligations under theU.S. Term Loan Credit Agreement are secured by substantially all of the parent company and certain of its domestic subsidiaries' assets on a pari passu basis with the interests of the lenders under the existingU.S. Credit Agreement pursuant 39
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to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. As ofNovember 30, 2020 and 2019, the balance outstanding under theU.S. Term Loan Credit Agreement was$1.0 billion and$1.7 billion , respectively.SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up toCAD50.0 million , or$38.4 million . Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR orU.S. Base Rate. As of bothNovember 30, 2020 and 2019, there were no borrowings outstanding under this credit facility. Other borrowings and term debt include lines of credit with financial institutions at certain locations outsidethe United States , factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As ofNovember 30, 2020 , commitments for these revolving credit facilities aggregated$84.6 million . Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are guaranteed by us or secured by eligible accounts receivable. As ofNovember 30, 2020 and 2019, the balances outstanding under these revolving credit facilities were$25.8 million and$6.0 million , respectively. As ofNovember 30, 2020 , Concentrix and its subsidiaries had borrowing arrangements with financial institutions credit facility that includes a revolving loan commitment of up to$600.0 million and a fully drawn term loan of$900.0 million , an accounts receivable securitization facility to borrow up to$350.0 million inthe United States and revolving credit facilities aggregating$22.0 million with a financial institution inIndia . Subsequent toNovember 30, 2020 , upon completion of the Separation, these facilities are no longer part of our borrowing arrangements. Refer to Note 9 of Item 8 of this Report for further details about Concentrix' borrowings arrangements.
The maximum commitment amounts for local currency credit facilities have been
translated into United States Dollars at
Off-Balance Sheet Arrangements
We have financing programs inthe United States andJapan under which trade accounts receivable of certain customers may be sold to financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions' willingness to purchase such receivables. AtNovember 30, 2020 and 2019, we had a total of$22.5 million and$35.3 million , respectively, of trade accounts receivable sold to and held by the financial institutions under these programs. Covenant Compliance Our credit facilities have a number of covenants and restrictions that, among other things, require us to maintain specified financial ratios and satisfy certain financial condition tests. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As ofNovember 30, 2020 , we were in compliance with all material covenants for the above arrangements.
Contractual Obligations
Our contractual obligations consist of future payments due under our loans,
payments for our operating lease arrangements and repatriation tax under the Tax
Cuts and Jobs Act of 2017 ("TCJA"), which are already recorded on our
Consolidated Balance Sheet. In addition, our contractual obligations include
interest on our debt and guarantees. The following table summarizes our
contractual obligations at November 30, 2020 :
Payments Due by Period
Less than 1 - 3 3 - 5 > 5
Total 1 Year Years Years Years
(in thousands)
Contractual Obligations:
Principal debt payments under
SYNNEX borrowing arrangements $ 1,625,049 $ 124,964 $ 1,500,085 $ - $ -
Principal debt payments under
Concentrix borrowing arrangements 1,150,000 33,750 340,000 776,250 -
Principal debt payments -
Consolidated 2,775,049 158,714 1,840,085 776,250 -
Interest on debt 168,237 67,784 100,453 - -
Repatriation tax under the TCJA 40,461 - 2,475 37,987 -
Non-cancellable operating leases 694,703 216,224 299,579 138,972 39,928
Total $ 3,678,450 $ 442,722 $ 2,242,592 $ 953,209 $ 39,928
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Table of Content Principal debt payments assumes the repayment of our revolving lines of credit within a year. Upon completion of Separation, the Concentrix borrowing arrangements are no longer part of our contractual obligations. Interest on debt, in the table above, includes estimated interest on our term loans and revolving credit facilities at rates of interest applicable at the end of our fiscal year, but excludes interest on outstanding balances under the Concentrix borrowing arrangements. We are contingently liable under agreements, without expiration dates, to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by our customers. There have been no repurchases throughNovember 30, 2020 under these agreements and we are not aware of any pending customer defaults or repossession obligations. As we do not have access to information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated. As ofNovember 30, 2020 and 2019, accounts receivable subject to flooring arrangements were$49.5 million and$69.6 million , respectively. For more information on our third-party revolving short-term financing arrangements, see Note 8 -- Accounts Receivable Arrangements to the Consolidated Financial Statements included in Part II, Item 8 of this Report.
As of
As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities.
Related Party Transactions
We have a business relationship with MiTAC Holdings, a publicly-traded company inTaiwan , which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of bothNovember 30, 2020 and 2019, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock. Mr.Matthew Miau , the Chairman Emeritus of our Board of Directors and a director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates.
The shares owned by MiTAC Holdings are held by the following entities:
As of November 30, 2020
(shares in thousands)
MiTAC Holdings(1) 5,300
Synnex Technology International Corp.(2) 3,860
Total 9,160
(1) Shares are held via Silver Star Developments Ltd. , a wholly-ownedsubsidiary of MiTAC Holdings. Excludes 190 shares held directly by Mr.
Miau, 217 thousand shares indirectly held by
remainder trust, and 190 shares held by his spouse.
(2) Synnex Technology International Corp. ("
is a separate entity from us and is a publicly-traded corporation in
subsidiary of Synnex Technology International. MiTAC Holdings owns a
noncontrolling interest of 8.7% in
Taiwanese company, which in turn holds a noncontrolling interest of 15.2%
in Synnex Technology International. Neither MiTAC Holdings nor
affiliated with any person(s), entity, or entities that hold a majority
interest in
MiTAC Holdings generally has influence over us regarding matters submitted to stockholders for consideration, including any merger or acquisition of ours. Among other things, this could have the effect of delaying, deterring or preventing a change of control over us. We purchased inventories and services from MiTAC Holdings and its affiliates totaling$211.9 million and$173.4 million during fiscal years 2020 and 2019, respectively. Our sales to MiTAC Holdings and its affiliates during fiscal years 2020 and 2019 totaled$1.1 million and$0.8 million , respectively. In addition, we made payments of$0.1 million and$41 thousand to MiTAC Holdings and its affiliates for reimbursement of rent and overhead costs for facilities used by us during fiscal year endedNovember 30, 2020 and 2019, respectively. Our business relationship with MiTAC Holdings and its affiliates has been informal and is generally not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate pricing and other material terms on a case-by-case basis with MiTAC Holdings. We have adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition,Mr. Miau's compensation is approved by theNominating and Corporate Governance Committee , which is also composed solely of independent directors. Synnex Technology International is a publicly-traded corporation inTaiwan that currently provides distribution and fulfillment services to various markets inAsia andAustralia , and is also our potential competitor. MiTAC Holdings and its affiliates are not restricted from competing with us. 41
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Table of Content
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see Note 2 -- Summary of Significant Accounting Policies to the Consolidated Financial Statements, which can be found under Item 8 of this Report.
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