What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-09 compared with 2020-07-09 · 158 added, 114 removed, 395 unchanged (41% of the section changed)

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When used in this Quarterly Report on Form 10-Q, or this “Report”, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “allows,” “can,” “may,” “could,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements.

and retention of the ownership interest of MiTAC Holdings Corporation (“MiTAC Holdings”), in us and its impact, our revenue, including our products revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers and suppliers, customer and supplier contract terms, customer forecasts and its impact on us, relationships with our suppliers, adequacy of our facilities, productivity, our data center and contact center operations, use of technology at contact centers, ability to manage and communicate with international resources, scalability of customer management solutions, ability to meet demand, managing inventory and our shipping costs, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, expansion of our operations and related effects, including our Concentrix business, our strategic acquisitions and divestitures of businesses and assets, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, dependency on personnel, pricing pressures, impact of economic and industry trends, changes to the markets in which we compete, impact of our accounting policies and recently issued accounting pronouncements, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, our share repurchase and dividend program, our securitization programs, term loans and revolving credit lines, and our investments in working capital and personnel.

These are statements that relate to future periods and include statements about the impact of COVID-19, market trends, our business model and our services, our business and market strategy, our proposed separation of SYNNEX and Concentrix, including the timing and impact thereof, future growth, including expansion of our product and service lines, our employee hiring, retention of the ownership interest of MiTAC Holdings Corporation (“MiTAC Holdings”), in us and its impact, our revenue, including our products revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers and suppliers, customer and supplier contract terms, customer forecasts and its impact on us, relationships with our suppliers, adequacy of our facilities, productivity, our data center and contact center operations, use of technology at contact centers, ability to manage and communicate with international resources, scalability of customer management solutions, ability to meet demand, managing inventory and our shipping costs, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, the withdrawal of the UK from the EU, expansion of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, dependency on personnel, pricing pressures, impact of economic and industry trends, changes to the markets in which we compete, impact of our accounting policies and recently issued accounting pronouncements, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, our share repurchase and dividend program, our securitization programs, term loans and revolving credit lines, and our investments in working capital and personnel.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

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We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003.

As of May 31, 2020, we had over 235,000 full-time and temporary employees worldwide.

As of August 31, 2020, we had over 252,000 full-time and temporary employees worldwide.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”).

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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 impact of the COVID-19 pandemic on our business is discussed below and at other appropriate places in the discussion of the results of our operations for the three and six months ended May 31, 2020:

‒ 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 in our Concentrix segment.

More than half our Concentrix segment work force, which includes associates in India and the Philippines, our largest countries of operations by headcount, reside in areas that are under “shelter-in-place” or similar restrictions by various governments worldwide, limiting their ability to work productively.

We have successfully transitioned most 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.

In the second quarter of 2020, we incurred net incremental costs associated with COVID-19 of approximately $89 million, of which Concentrix incurred net costs of approximately $52 million and Technology Solutions incurred net costs of approximately $37 million.

The impact of the COVID-19 pandemic on our business is discussed below and at other appropriate places in the discussion of the results of our operations for the three and nine months ended August 31, 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 of August 31, 2020, the majority of our workforce across both segments was productive.

During the three months ended August 31, 2020, we incurred net incremental costs associated with COVID-19 of approximately $21 million, of which Concentrix incurred net costs of approximately $13 million and Technology Solutions incurred net costs of approximately $8 million.

During the nine months ended August 31, 2020, we incurred net incremental costs associated with COVID-19 of approximately $110 million, of which Concentrix incurred net costs of approximately $65 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.

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Critical Accounting Policies and Estimates

During the three and six months ended May 31, 2020, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

During the three and nine months ended August 31, 2020, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

See Note 2 to our Consolidated Financial Statements for impact of adoption of Accounting Standards Codification Topic 842, Leases, which revises various aspects of accounting for lease arrangements.

As of May 31, 2020, the impact of COVID-19 on our business continued to unfold.

As of August 31, 2020, the impact of COVID-19 on our business continued to unfold.

As a result, many of our estimates and assumptions carry a higher degree of variability and volatility.

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Three Months Ended

Six Months Ended

Nine Months Ended

Statements of Operations Data:

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

Products revenue

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Additionally, our gross margin and operating margin are expected to decrease due to the discontinuance of the higher margins earned in the Concentrix segment.

In addition, we expect a decrease in our products revenue of approximately $600 million per quarter due to a Technology Solutions segment customer moving to a consignment model where we will provide integration services on an agency basis.

This change is expected to occur in the latter half of the fourth quarter of fiscal year 2020 or in first quarter of fiscal year 2021.

Due to the ongoing impact the COVID-19 pandemic, current results and financial condition discussed herein may not be indicative of future operating results and trends.

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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 for the three and six months ended May 31, 2020 in the billing currency using their comparable prior period currency conversion rate.

Revenue in constant currency is calculated by translating the revenue for the three and nine months ended August 31, 2020 in the billing currency using their comparable prior period 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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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 the 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.

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 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

(in thousands, except per share amounts)

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Acquisition-related and integration expenses

Adjusted EBITDA

Three Months Ended

Six Months Ended

Nine Months Ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

(in thousands, except per share amounts)

Adjusted EBITDA

Foreign currency translation

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The tax effect of taxable and deductible non-GAAP adjustments was calculated using the effective year-to-date tax rate during the respective periods.

Three and Six Months Ended May 31, 2020 and 2019

Three and Nine Months Ended August 31, 2020 and 2019

Three Months Ended

Six Months Ended

Nine Months Ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

(in thousands)

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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 slightly decreased during the three and six months ended May 31, 2020, compared to the prior year periods, due to a decline in project and integration-based server solutions.

Some of this decline was offset by demand for technology equipment as COVID-19 related government mandated shelter-in-place restrictions during the second quarter of fiscal year 2020 led to increased needs for work-at-home, learn-at-home and related solutions.

Revenue in our Concentrix segment during the three and six month periods ended May 31, 2020, decreased compared to prior periods primarily due to the impact of 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 number of our associates being unable to work, despite client demand.

Our revenue was also adversely impacted by lower demand from clients in the media and communications and travel, transportation and tourism industry verticals, partially offset by an increase in the technology and banking and financial services industry verticals.

revenue during the three and six months ended May 31, 2020, decreased compared to prior year periods due to adverse translation effect of foreign currencies .

Revenue in our Technology Solutions segment increased during the three and nine months ended August 31, 2020, compared to the prior year periods, due to a demand for technology equipment as COVID-19 related government mandated shelter-in-place restrictions during the second and third quarters of fiscal year 2020 led to increased needs for work-at-home, learn-at-home and related solutions.

The increase in Technology Solutions revenue during the nine months ended August 31, 2020, compared to the prior year period was partially offset by a decline in integration-based server solutions in the first half of fiscal year 2020.

Revenue in our Concentrix segment during the three months ended August 31, 2020 increased slightly due to growth with technology, retail and e-commerce clients, partially offset by lower demand from media, communications, travel, tourism and automotive clients.

Revenue for the nine months ended August 31, 2020 decreased compared to the prior period primarily due to the impact of 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 number of our associates to work despite client demand.

This impact was most acute in the second quarter of 2020.

Our revenue for the nine months ended August 31, 2020 was also adversely impacted by lower demand from media , communications, travel, tourism and automotive clients, partially offset by an increase in demand from technology, financial services, retail , e - commerce and government clients.

In addition, revenue during the three and nine months ended August 31, 2020 decreased compared to prior periods due to adverse translation effect s of foreign currencies.

Three Months Ended

Six Months Ended

Nine Months Ended

August 31, 2020

August 31, 2019

August 31, 2020

August 31, 2019

(in thousands)

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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 and margin increased, during the three and six months ended May 31, 2020, as compared to the prior year period, driven by strong demand for technology products as COVID-19 related government mandated shelter-in-place restrictions during the second quarter of fiscal year 2020 led to a greater need for work-at-home, learn-at-home and related solutions.

This increase was partially offset by lower revenue and margins in our projects and integration-based solutions business.

Concentrix gross profit and margin decreased during the three and six months ended May 31, 2020, as compared to the prior year periods, primarily due to a decrease in revenue and an incremental impact of approximately $46 million due to COVID-19 related non-productive workforce costs.

In addition, our gross margin was temporarily impacted by decreased productivity as we transitioned our workforce to work-from-home.

Technology Solutions gross profit and margin decreased during the three months ended August 31, 2020, as compared to the prior year period, primarily due to lower margins driven by the product mix from our projects and integration-based server solutions .

Technology Solutions gross profit increased, during the nine months ended August 31, 2020, as compared to the prior year period, driven by strong demand for technology products as COVID-19 related government mandated shelter-in-place restrictions during the second and third quarters of fiscal year 2020 led to a greater need for work-at-home, learn-at-home and related solutions.

This increase was partially offset by lower margins driven by product mix from our projects and integration-based server solutions.

Our Concentrix segment’s gross profit and margin decreased during the three and nine month periods ended August 31, 2020 as compared to the prior periods due to a decrease in revenue and an incremental impact of $9 million and $55 million, respectively, related to COVID-19 related non-productive workforce costs.

In addition, gross margin was temporarily impacted by decreased productivity as we transitioned our workforce to work-from-home.

Selling, General and Administrative Expenses

Three Months Ended

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August 31, 2019

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(in thousands)

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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.

During the three and six months ended May 31, 2020, selling, general and administrative expenses in our Technology Solutions segment increased in absolute dollars and as a percentage of revenue compared to the prior year period, primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to COVID-19, partially offset by a decrease in amortization of intangible assets and acquisition-related and integration expenses.

Incremental costs related to COVID-19 were approximately $37 million for the three and six months ended May 31, 2020.

Concentrix selling, general and administrative expenses during the three and six months ended May 31, 2020, decreased in absolute dollars and as a percentage of revenue, compared to the prior year period, due to lower facilities and employee costs pursuant to Convergys acquisition-related integration and facility rationalization undertaken in fiscal year 2019, partially offset by incremental COVID-19 costs of $6.5 million, a decrease in the amortization of intangible assets by $5.4 million and $10.2 million for the three and six months ended May 31,

2020, compared to the respective prior year per iods , and a de crease in acquisition-related and integration expenses of $ 12 .

4 million and $ 24 .

9 million for the same periods , as the integration and facility rationalization related to the Convergys acquisition in fiscal 2018 near completion .

During the three and nine months ended August 31, 2020, selling, general and administrative expenses in our Technology Solutions segment increased in absolute dollars compared to the prior year period, primarily due to an increase in allowance for doubtful accounts and higher salaries and employee related expenses due to COVID-19, partially offset by a decrease in amortization of intangible assets and

acquisition-related and integration expenses.

Incremental costs related to COVID-19 were approximately $8 million and $45 million for the three and nine months ended August 31, 2020 .

Concentrix segment selling, general and administrative expenses for the three and nine month periods ended August 31, 2020 decreased in absolute dollars and as a percentage of revenue, compared to the prior year periods, due to lower facility and employee costs pursuant to Convergys acquisition-related integration and facility rationalization under taken in fiscal year 2019, a decrease in the amortization of intangible assets of $4.6 million and $14.0 million for the three and nine month periods ended August 31, 2020, compared to the respective prior periods and a decrease in acquisition-related and integration expenses of $5.0 million and $29.2 million for these same periods.

These decreases were offset by incremental COVID-19 cost of $4 million and $10 million for these same periods.

Operating Income

Three Months Ended

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August 31, 2019

August 31, 2020

August 31, 2019

(in thousands)

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Concentrix operating margin

Operating income and margin in our Technology Solutions segment decreased during the three and six months ended May 31, 2020, compared to the prior year periods, due to lower volumes, as well as COVID-19 related incremental costs associated with allowances for doubtful accounts and higher salary and employee related costs.

Operating income and margin in our Concentrix segment decreased during the three and six months ended May 31, 2020, compared to the prior year periods, due to the impact of COVID-19 related revenue decrease and incremental costs.

These decreases were partially offset by lower acquisition-related and integration expenses and the amortization of intangible assets, as compared to the prior year period s.

Operating income and margin in our Technology Solutions segment decreased during the three and nine months ended August 31, 2020, compared to the prior year periods, primarily due to product mix, as well as COVID-19 related incremental costs associated with allowances for doubtful accounts and higher salary and employee related costs.

Operating income and margin in our Concentrix segment increased during the three month period ended August 31, 2020 primarily due to lower acquisition-related and integration expenses and lower amortization of intangible assets partially offset by the impact of COVID-19 related revenue decreases and incremental costs.

Operating income decreased during the nine months ended August 31, 2020 compared to the comparable prior period reflecting the decrease in revenue and COVID-19 related incremental costs as discussed above.

Operating margin was unchanged across the two periods as the decrease in gross profit was offset by a reduction in selling, general and administrative expenses as a percent of revenue as discussed above.

Interest Expense and Finance Charges, Net

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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.

During the three and six months ended May 31, 2020, our interest expense and finance charges, net, decreased compared to the prior year period, due to lower interest expense as a result of reduction of over $500 million in our average borrowings during fiscal year 2020, as compared to the prior year periods, as well as a lower interest rate environment.

Approximately 57% of our outstanding borrowings at May 31, 2020 have been economically converted to fixed-rate debt through interest rate swaps.

During the three and nine months ended August 31, 2020, our interest expense and finance charges, net, decreased compared to the prior year period, 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 periods, as well as a lower interest rate environment.

Approximately 56% of our outstanding borrowings at August 31, 2020 have been economically converted to fixed-rate debt through interest rate swaps.

Other Income (Expense), Net

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(in thousands)

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Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, investment gains and losses, non-service component of pension costs, and other non-operating gains and losses, such as settlements received from class actions lawsuits.

The decrease in other income (expense), net during the three and six months ended May 31, 2020, compared to the prior year periods, was primarily due to a $19.0 million gain recorded in fiscal year 2019 upon the settlement of contingent consideration related to our acquisition of Westcon-Comstor Americas in fiscal year 2017.

This increase was partially offset during the three months ended May 31, 2020, by higher foreign currency exchange gains compared to the prior year period.

During the six months ended May 31, 2020, the decrease compared to the prior year period was partially offset by a $3.5 million gain upon reversal of certain tax indemnification provisions set up at the time of disposition of a subsidiary in a prior year.

Other income (expense), net, which was a net expense during the three months ended August 31, 2020, was consistent with the prior year period.

Other income (expense), net, which was a net income during the nine months ended August 31, 2020, decreased compared to the prior year period, primarily due to a $19.0 million gain recorded in fiscal year 2019 upon the settlement of contingent consideration related to our acquisition of Westcon-Comstor Americas in fiscal year 2017.

This decrease was 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

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Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the basis of an estimated annual effective tax rate.

During the three months ended May 31, 2020, our income tax expense decreased due to a decrease in our income before income taxes due primarily to the economic impact of COVID-19.

The effective tax rate increased compared to the prior year period, as more of our taxable income in our Concentrix segment was generated in higher tax jurisdictions.

In addition, the effective tax rate for the three months ended May 31, 2019 was favorably impacted by the nontaxable contingent consideration gain related to the fiscal year 2017 Westcon-Comstor Americas acquisition.

During the six months ended May 31, 2020, our income tax expense decreased due to a decrease in our income before income taxes due primarily to the economic impact of COVID-19.

The effective tax rate for the six months ended May 31, 2019 was favorably impacted by the nontaxable contingent consideration gain related to the fiscal year 2017 Westcon-Comstor Americas acquisition.

The effective tax rate decreased for the six months ended May 31, 2020, compared to the prior year period, due to the benefit from exercising of employee stock options and reversal of uncertain tax positions.

During the three months ended August 31, 2020, our income tax expense increased due to an increase in our income before income taxes.

The effective tax rate was consistent with the prior year period.

During the nine months ended August 31, 2020, our income tax expense decreased compared to the prior year period primarily due to a decrease in our income before income taxes as a result of the economic impact of COVID-19 during the first half of fiscal year 2020, as well as a lower effective tax rate.

The effective tax rate for the nine months ended August 31, 2020, was lower compared to the prior year period, due to the benefit from exercising of employee stock options and reversal of uncertain tax positions.

The comparative decrease in the effective tax rate for the nine months ended August 31, 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.

Liquidity and Capital Resources

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Three Months Ended

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November 30, 2019

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(Amounts in thousands)

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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 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 generated from operations and financing activities.

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Concentrix working capital is primarily comprised of accounts receivable.

Our cash conversion cycle was 46 days and 53 days as of May 31, 2020 and 2019, respectively.

The decrease was primarily due to working capital efficiencies in the Technology Solutions segment, partially offset by inventory purchases related to larger projects expected to transact in subsequent quarters.

Our cash conversion cycle was 38 days and 49 days as of August 31, 2020 and 2019, respectively.

The decrease was primarily due to faster turnover of our inventories and the timing of payments of accounts payables .

To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions.

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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 $1.226 billion during the six months ended May 31, 2020, primarily due to net income of $179.5 million, adjustments for non-cash items of $214.3 million, decreases in accounts receivable of $621.7 million and receivables from vendors of $59.9 million, an increase in accounts payable of $227.2 million and a net change of $420.9 million in other operating assets and liabilities.

Net cash provided by operating activities was $1.547 billion during the nine months ended August 31, 2020, primarily due to net income of $314.0 million, adjustments for non-cash items of $320.9 million, decreases in accounts receivable of $280.5 million and receivables from vendors of $44.7 million, an increase in accounts payable of $454.3 million and a net change of $415.4 million in other operating assets and liabilities.

These cash inflows were partially offset by an increase in inventories of $282.7 million.

The decrease in accounts receivable and vendor receivables is primarily due to lower revenue in both segments during the three months ended May 31, 2020 compared to a seasonally high fourth quarter of fiscal year 2019.

The decrease in accounts receivable and vendor receivables is primarily due to lower revenue in both segments during the three months ended August 31, 2020 compared to a seasonally high fourth quarter of fiscal year 2019 as well as an improvement in our collections.

Notwithstanding the current economic uncertainties due to the impact of COVID-19, DSO in our Technology Solutions segment also decreased by approximately 3 days from the end of fiscal year 2019.

The increase in accounts payable and cash inflow from changes in other operating assets and liabilities reflects primarily efficient working capital management and prepayments from customers received in our Technology Solutions segment.

The increase in inventories was driven by purchases related to larger projects expected to transact in subsequent quarters.

The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, share-based compensation expense and deferred tax benefit.

Net cash used in operating activities was $47.4 million during the six months ended May 31, 2019, primarily due to a decrease in accounts payable of $290.3 million, an increase in inventories of $214.3 million, and a net change in other operating assets and liabilities of $112.6 million.

These cash outflows were partially offset by net income of $201.6 million, adjustments for non-cash items of $190.3 million, and a decrease in accounts receivable of $176.4 million.

Typically, revenue in both our business segments, and consequently our accounts receivable and payable are highest in our fourth fiscal quarter and lower in interim periods which results in an increase in cash generated from operations.

The increase in inventories was primarily due to growth in our projects and integration-based data center server solutions where we carry higher levels of inventories.

The adjustments for non-cash items consist primarily of amortization and depreciation, stock-based compensation expense, a $19.0 million gain recorded upon the settlement of contingent consideration related to our Westcon-Comstor Americas acquisition in fiscal year 2017, and deferred tax benefit.

Net cash used in investing activities during the six months ended May 31, 2020 was $92.0 million, primarily due to capital expenditures of $84.6 million related to infrastructure investments to support growth in both of our business segments and $2.6 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 during the six months ended May 31, 2019 was $65.9 million, primarily due to capital expenditures of $60.4 million related to infrastructure investments to support growth in both of our business segments and $6.2 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition.

Net cash used in financing activities during the six months ended May 31, 2020 was $237.6 million, representing primarily a pay down of our revolving lines of credit with cash generated from operations and scheduled quarterly repayments of our term loans aggregating $213.4 million.

The increase in inventories was driven by purchases related to larger projects in the second fiscal quarter which were transacted in the third fiscal quarter, with further shipments expected in subsequent quarters.

The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, share-based compensation expense, unrealized foreign exchange losses and a deferred tax benefit.

Net cash provided by operating activities was $202.5 million during the nine months ended August 31, 2019, primarily due to net income of $324.7 million, adjustments for non-cash items of $295.1 million, and a decrease in accounts receivable of $148.1 million.

These cash inflows were partially offset by an increase in inventories of $390.0 million, a decrease in accounts payable of $119.6 million, and a net change in other operating assets and liabilities of $69.1 million.

The decrease in accounts receivable and accounts payable was primarily due to timing of collections and payments, respectively.

Accounts receivable was also lower due to lower days’ sales outstanding compared to the fourth quarter of fiscal year 2018.

The increase in inventories was primarily due to strong demand for our systems design and integration solutions business, where we carry higher levels of inventories, and higher anticipated seasonal demand in the fourth quarter.

The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, stock-based compensation expense, a $19.0 million gain recorded upon the settlement of contingent consideration related to our Westcon-Comstor Americas acquisition in fiscal year 2017, and deferred tax benefit.

Net cash used in investing activities during the nine months ended August 31, 2020 was $137.5 million, primarily due to capital expenditures of $127.3 million related to infrastructure investments to support growth in both of our business segments and $4.9 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 during the nine months ended August 31, 2019 was $102.3 million, primarily due to capital expenditures of $93.4 million related to infrastructure investments to support growth in both of our business segments and $8.6 million of cash paid related to the settlement of employee stock-based awards assumed under the Convergys acquisition.

Net cash used in financing activities during the nine months ended August 31, 2020 was $187.8 million, representing primarily a pay down of our revolving lines of credit with cash generated from operations and scheduled quarterly repayments of our term loans aggregating $168.4 million.

In addition, we paid dividends of $20.8 million in January 2020, prior to suspension of our dividends program due to the COVID-19 related economic uncertainties in March 2020.

Net cash used in financing activities during the six months ended May 31, 2019 was $69.8 million primarily due to a return of cash to stockholders in the form of $38.4 million of dividend payments and $14.3 million of repurchases of our common stock.

In addition, net repayments under our borrowing arrangements were $17.7 million.

During the six months ended May 31, 2019, the Company drew the last tranche of $250.0 million under a term loan facility obtained in fiscal year 2018 for the Convergys acquisition for the settlement of the remaining amount of convertible debentures assumed as part of the acquisition and the remainder was used for working capital.

Net cash used in financing activities during the nine months ended August 31, 2019 was $298.4 million primarily due to net repayments under our borrowing arrangements of $214.1 million.

Cash generated from operations was used to pay down revolving lines of credit.

During the nine months ended August 31, 2019, the Company drew the last tranche of $250.0 million under a term loan facility obtained in fiscal year 2018 for the Convergys acquisition for the settlement of the remaining amount of convertible debentures assumed as part of the acquisition and the remainder was used for working capital.

The Company also returned cash to stockholders in the form of $57.5 million of dividend payments and $15.2 million of repurchases of our common stock, and $14.0 million of cash was used to pay the contingent consideration related to our Westcon-Comstor Americas acquisition.

Capital Resources

Our cash and cash equivalents totaled $1.113 billion and $225.5 million as of May 31, 2020 and November 30, 2019, respectively.

Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $326.2 million and $219.7 million as of May 31, 2020 and November 30, 2019, respectively.

Our cash and cash equivalents totaled $1.452 billion and $225.5 million as of August 31, 2020 and November 30, 2019, respectively.

Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $397.5 million and $219.7 million as of August 31, 2020 and November 30, 2019, respectively.

Our cash and cash equivalents held by foreign subsidiaries are no longer subject to U.S.

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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 to the 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.

planned timing and manner of such repatriation.

Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements .

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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 our U.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.

Historically, we have renewed our accounts receivable securitization programs and our credit facility agreements 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.

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The effective borrowing cost under the U.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 LIBOR, provided that LIBOR would not be less than zero.

In addition, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum was payable on the adjusted commitment of the lenders.

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 LIBOR.

In addition, prior to the May 2020 amendment, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum was payable on the adjusted commitment of the lenders.

In May 2020 , the U.S.

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AR Arrangement are recorded as debt on our Consolidated Balance Sheets.

As of May 31, 2020, there were no borrowings outstanding under this facility.

As of August 31, 2020, there were no borrowings outstanding under this facility.

As of November 30, 2019, $108.0 million was outstanding under the U.S.

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SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up to CAD60.0 million, or $46.0 million, and when the unused portion exceeds CAD60.0 million, or $46.0 million, a fee of 0.55% per annum on the remaining unused commitment.

As of both May 31, 2020 and November 30, 2019, there was no outstanding balance under this arrangement.

As of both August 31, 2020 and November 30, 2019, there was no outstanding balance under this arrangement.

SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or $141.6 million.

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We have guaranteed the obligations of SYNNEX Japan under this facility.

As of May 31, 2020 and November 30, 2019, the balances outstanding under the term loan component of these facilities were $64.9 million and $63.9 million, respectively.

As of May 31, 2020, there were no borrowings outstanding under the revolving credit facility.

As of November 30, 2019, $5.9 million was outstanding under the revolving credit facility.

As of August 31, 2020 and November 30, 2019, the balances outstanding under the term loan component of these facilities were $66.1 million and $63.9 million, respectively.

As of August 31, 2020 and November 30, 2019, $72.7 million and $5.9 million, respectively, was outstanding under the revolving credit facility.

Indian subsidiaries of our Concentrix segment have credit facilities with a financial institution to borrow up to an aggregate amount of $22.0 million.

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These credit facilities can be terminated at any time by our Indian subsidiaries or the financial institution.

There were no borrowings outstanding under these credit facilities as of either May 31, 2020 or November 30, 2019.

There were no borrowings outstanding under these credit facilities as of either August 31, 2020 or November 30, 2019.

In the United States, we have a senior secured credit agreement (as amended, the "U.S.

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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 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.

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Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of our United States domestic subsidiaries.

As of both May 31, 2020 and November 30, 2019 , the balance outstanding under the term loan component of the U.S.

Credit Agreement was $ 1.1 billion .

As of August 31, 2020 and November 30, 2019 , the balance outstanding under the term loan component of the U.S.

Credit Agreement was $1.0 billion and $1.1 billion, respectively.

There were no borrowings outstanding under the revolving line of credit under the U.S.

Credit Agreement as of May 31, 2020 .

Credit Agreement as of August 31, 2020 .

As of November 30, 2019 , the balance outstanding under the revolving line of credit component of the U.S.

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Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries.

As of both May 31, 2020 and November 30, 2019, the balance outstanding under the U.S.

As of both August 31, 2020 and November 30, 2019, the balance outstanding under the U.S.

Term Loan Credit Agreement was $1.7 billion.

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The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S.

As of both May 31, 2020 and November 30, 2019, there were no borrowings outstanding under this credit facility.

As of both August 31, 2020 and November 30, 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 outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts.

As of May 31, 2020, commitments for these revolving credit facilities aggregated $82.4 million.

As of August 31, 2020 , commitments for these revolving credit facilities aggregated $83.3 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 generally guaranteed by us or secured by eligible accounts receivable.

As of May 31, 2020 and November 30, 2019, the balances outstanding under these revolving credit facilities were $8.8 million and $6.0 million, respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at May 31, 2020 exchange rates.

As of August 31, 2020 and November 30, 2019 , the balances outstanding under these revolving credit facilities were $ 19.2 million and $ 6 .

0 million, respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at August 31, 2020 exchange rates.

Off-Balance Sheet Arrangements

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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.

At May 31, 2020 and November 30, 2019, we had a total of $30.3 million and $35.3 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.

At August 31, 2020 and November 30, 2019, we had a total of $23.7 million and $35.3 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.

Covenant Compliance

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They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate.

As of May 31, 2020, we were in compliance with all material covenants for the above arrangements, and we do not believe we are at material risk of not meeting such covenants.

As of August 31, 2020, we were in compliance with all material covenants for the above arrangements, and we do not believe we are at material risk of not meeting such covenants.

Contractual Obligations

Our contractual obligations consist of future payments due under our loans, payments for our operating lease commitments and repatriation tax under the TCJA which are already recorded on our Consolidated Balance Sheet.

In addition, our contractual obligations include interest on our debt and operating lease arrangements.

As of May 31, 2020, there have been no material changes from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

For more information on our future minimum rental obligations under non-cancellable lease agreements as of May 31, 2020, see Note 14 to the Consolidated Financial Statements .

In addition, our contractual obligations include interest on our debt.

As of August 31, 2020, there have been no material changes from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

For more information on our future minimum rental obligations under non-cancellable lease agreements as of August 31, 2020, see Note 14 to the Consolidated Financial Statements .

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 through May 31, 2020 under these agreements and we are not aware of any pending customer defaults or repossession obligations.

There have been no repurchases through August 31, 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 of May 31, 2020 and November 30, 2019, accounts receivable subject to flooring arrangements was $53.3 million and $69.6 million, respectively.

As of August 31, 2020 and November 30, 2019, accounts receivable subject to flooring arrangements was $58.6 million and $69.6 million, respectively.

For more information on our third-party revolving short-term financing arrangements, see Note 7 to the Consolidated Financial Statements.

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We have a business relationship with MiTAC Holdings, a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became our primary investor through its affiliates.

As of both May 31, 2020 and November 30, 2019, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock.

As of both August 31, 2020 and November 30, 2019, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock.

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 May 31, 2020

As of August 31, 2020

(in thousands)

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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 $55.3 million and $98.6 million during the three and six months ended May 31, 2020, respectively, and totaling $42.0 million and $78.1 million, respectively, during the three and six months ended May 31, 2019.

Our sales to MiTAC Holdings and its affiliates totaled $0.3 million and $0.6 million during the three and six months ended May 31, 2020, respectively, and totaled $0.2 million and $0.4 million, respectively, during the three and six months ended May 31, 2019.

In addition, we paid reimbursements for rent and overhead costs for the use of facilities of MiTAC Holdings and its affiliates amounting to $34 thousand and $64 thousand during the three and six months ended May 31, 2020.

There were no reimbursements during the three and six months ended May 31, 2019.

As of May 31, 2020 and November 30, 2019, our payables to MiTAC Holdings and its affiliates were $28.5 million and $23.2 million, respectively.

As of May 31, 2020 and November 30, 2019, our receivables from MiTAC Holdings and its affiliates were $9.5 million and $4.4 million, respectively.

We purchased inventories and services from MiTAC Holdings and its affiliates totaling $53.4 million and $151.9 million during the three and nine months ended August 31, 2020, respectively, and totaling $42.0 million and $120.1 million, respectively, during the three and nine months ended August 31, 2019.

Our sales to MiTAC Holdings and its affiliates totaled $0.3 million and $0.9 million during the three and nine months ended August 31, 2020, respectively, and totaled $0.1 million and $0.5 million, respectively, during the three and nine months ended August 31, 2019.

In addition, we paid rent and overhead costs for the use of the facilities of MiTAC Holdings and its affiliates amounting to $27.0 thousand and $91.0 thousand during the three and nine months ended August 31, 2020.

There were no rent and overhead costs during the three and nine months ended August 31, 2019.

As of August 31, 2020 and November 30, 2019, our payables to MiTAC Holdings and its affiliates were $28.8 million and $23.2 million, respectively.

As of August 31, 2020 and November 30, 2019, our receivables from MiTAC Holdings and its affiliates were $15.8 million and $4.4 million, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis