TD SYNNEX CORP 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. Amounts in certain tables may not add or compute due to rounding. 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. 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. These risks and uncertainties include, but are not limited to, those risks discussed herein and risks related to the impact of COVID-19 or coronavirus, or other pandemics, and the impact of related governmental, individual and business responses, including the ability of our staff to travel to work, our ability to maintain adequate inventories, delivery capabilities, the impact on our customers and supply chain, and the impact on demand in general, the proposed separation, 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 (“CE”), industries, fluctuations in general economic and market conditions, change in the market for our customers' products, employee turnover, changes in value of foreign currencies and interest rates and other risk factors contained below under Part I, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We do not intend 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, except as may be required by law. In the sections of this Report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all references to “SYNNEX,” “we,” “us,” “our” or the “Company” mean SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments. SYNNEX, the SYNNEX Logo, CONCENTRIX, and all other SYNNEX company, product and services names and slogans are trademarks or registered trademarks of SYNNEX Corporation. SYNNEX, the SYNNEX Logo, and CONCENTRIX Reg. U.S. Pat. & Tm. Off. Other names and marks are the property of their respective owners . Overview We are a Fortune 200 corporation and a leading business process services company, providing a comprehensive range of distribution, logistics and integration services for the technology industry and providing outsourced services focused on customer experience to a broad range of enterprises. We are organized to provide our products and services through two reportable business segments: Technology Solutions and Concentrix. Our Technology Solutions segment sells peripherals, information technology (“IT”) systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics (“CE”) and complementary products. Our Concentrix segment offers a portfolio of technology-infused strategic solutions and end-to-end business services focused on customer experience, process optimization, technology innovation, front and back-office automation and business transformation to clients in five primary industry verticals. In our Technology Solutions segment, we distribute more than 40,000 technology products (as measured by active SKUs) from more than 400 IT, CE and OEM, suppliers, to more than 25,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan, Mexico and Central and South America. We purchase peripherals, IT systems, system components, software, networking, communications and, security equipment, CE and complementary products from our suppliers and sell them to our reseller and retail customers. We perform a similar function for our distribution of licensed software products. Our reseller customers include value-added resellers (“VARs”), corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. We combine our core strengths in distribution with demand generation, supply chain management and design and integration solutions to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and aftermarket product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare, and we provide specialized service 26 Table of Contents offerings that increase efficiencies in the areas of print management, renewals, logistics services and supply chain management. Additionally, we provide our customers with systems design and integration solutions for data center servers and networking solutions built specific to our customers' workloads and data center environments. Our Technology Solutions business 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. The market for IT and CE products is generally characterized by declining unit prices and short product life cycles. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide. In our Technology Solutions segment, we are highly dependent on the end-market demand for IT and CE products, and on our partners’ strategic initiatives and business models. 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, trends toward cloud computing, 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 industries and increased price-based competition. In our Concentrix segment, we provide a comprehensive range of strategic services and solutions to enhance our clients' customer life cycles to acquire, support and renew customer relationships, to automate and optimize processes, to maximize the value of every customer experience and to improve business outcomes. Our portfolio of services includes end-to-end process outsourcing to customers in various industry vertical markets delivered through omni-channels that include both voice and non-voice media and in more than 70 languages. Our portfolio of solutions and services support our clients and their customers globally. Our Concentrix segment generates revenue from performing services that are generally tied to our clients’ products and services and how they are received in the marketplace. Any shift in business or size of the market for our clients’ products, any failure of technology or failure of acceptance of our clients’ products in the market may impact our business. The employee turnover rate in this business and the risk of losing experienced employees is high. Higher turnover rates can increase costs and decrease operating efficiencies and productivity. We have been in business since 1980 and are headquartered in Fremont, California. We have significant operations in North and South America, Asia-Pacific, Europe and Africa. We were originally incorporated in the State of California as COMPAC Microelectronics, Inc. in November 1980, and we changed our name to SYNNEX Information Technologies, Inc. in February 1994. We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003. 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”). In March 2020, the World 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 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: ‒ 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, 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 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. As a result, many of the estimates and assumptions involved in the preparation of the financial statements included in this report on Form 10-Q, 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. ‒ In March 2020, we announced the suspension of share repurchases and our quarterly dividends. In June 2020, our board of directors approved a new three-year $400 million share repurchase program effective July 1st, 2020. We view this as the “first step” in the return to the capital allocation program we had in place pre-pandemic. The focus of this new repurchase program will be anti-dilutive, similar to our historical approach, albeit at a more measured pace to start given the current environment and opportunistic buying when available. ‒ On January 9, 2020, we announced a plan to separate our Concentrix segment into an independent publicly-traded company. The transaction, which was delayed due to the economic impact of the COVID-19 pandemic, is now expected to be completed in the fourth quarter of calendar year 2020, subject to market conditions. The separation is intended to qualify as a tax-free transaction for federal income tax purposes. Immediately following the separation, it is expected that our stockholders will own shares of both SYNNEX and Concentrix, at the same percentage ownership that they held prior to the transaction. Completion of the separation will not require a stockholder vote but will be subject to customary closing conditions, including, among others, obtaining final approval from our Board of 27 Table of Contents Directors, receipt of a favorable opinion with respect to the tax-free nature of the transaction for federal income tax purposes, and the effectiveness of a Form 10 registration statement with the Securities and Exchange Commission. Critical Accounting Policies and Estimates 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 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. As events continue to evolve and additional information becomes available, our estimates may change in future periods. 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, we seek to enhance our capabilities and domain expertise in our key verticals, expand our geographic footprint and further expand into higher value service offerings. We are also strategically focused on further increasing our scale to support our customers. Results of Operations The following table sets forth, for the indicated periods, data as percentages of total revenue: Three Months Ended Nine Months Ended Statements of Operations Data: August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019 Products revenue 82.08 % 81.37 % 80.28 % 79.74 % Services revenue 17.92 18.63 19.72 20.26 Total revenue 100.00 100.00 100.00 100.00 Cost of products revenue (77.48 ) (76.51 ) (75.49 ) (74.97 ) Cost of services revenue (11.57 ) (11.79 ) (12.78 ) (12.79 ) Gross profit 10.95 11.70 11.73 12.25 Selling, general and administrative expenses (7.72 ) (8.34 ) (8.78 ) (9.07 ) Operating income 3.24 3.37 2.95 3.18 Interest expense and finance charges, net (0.44 ) (0.69 ) (0.57 ) (0.74 ) Other income (expense), net (0.01 ) (0.02 ) 0.02 0.12 Income before income taxes 2.78 2.66 2.40 2.55 Provision for income taxes (0.70 ) (0.67 ) (0.58 ) (0.66 ) Net income 2.08 % 1.98 % 1.82 % 1.89 % With the announcement of a plan to separate the Concentrix segment into a separate publicly-traded company in a transaction expected to be completed in the fourth calendar quarter of 2020, subject to market conditions, our services revenue and cost of services revenue which represent revenue and cost of revenue of our Concentrix segment are expected to be discontinued following the separation. Further, selling, general and administrative expenses, interest expense and finance charges, net, other income (expense), net and provision for income-taxes are expected to decrease by amounts related to the Concentrix segment or impacted by the proposed separation, with related reductions in gross profit, operating income and net income. Additionally, our gross margin and operating margin are expected to decrease due to the discontinuance of the higher margins earned in the Concentrix segment. 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. 28 Table of Contents 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 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. • Non-GAAP operating income, which is operating income adjusted to exclude acquisition-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 excludes other income (expense), net and acquisition-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) acquisition-related and integration expenses, (ii) amortization of intangible assets and (iii) a gain recorded in fiscal year 2019 upon the settlement of contingent consideration related to the acquisition of Westcon-Comstor Americas in fiscal year 2017 . 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. These non-GAAP financial measures also exclude amortization of intangible assets. 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 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. 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. 29 Table of Contents Non-GAAP Financial Information: The following table provides the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented: Three Months Ended Nine Months Ended August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019 (in thousands, except per share amounts) Consolidated Revenue $ 6,464,782 $ 6,203,659 $ 17,261,619 $ 17,176,000 Foreign currency translation 35,239 111,756 Revenue in constant currency $ 6,500,021 $ 6,203,659 $ 17,373,375 $ 17,176,000 Operating income $ 209,136 $ 208,855 $ 509,515 $ 545,473 Acquisition-related and integration expenses 4,163 9,200 22,701 53,582 Amortization of intangibles 46,828 52,428 140,320 158,149 Non-GAAP operating income $ 260,127 $ 270,483 $ 672,536 $ 757,204 Operating margin 3.24 % 3.37 % 2.95 % 3.18 % Non-GAAP operating margin 4.02 % 4.36 % 3.90 % 4.41 % Net income $ 134,464 $ 123,132 $ 314,008 $ 324,711 Interest expense and finance charges, net 28,749 42,945 99,046 127,695 Provision for income taxes 45,356 41,691 99,740 112,831 Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses below) 37,446 38,597 110,981 119,004 Amortization of intangibles 46,828 52,428 140,320 158,149 EBITDA $ 292,843 $ 298,793 $ 764,095 $ 842,390 Other (income) expense, net (excluding amounts included in acquisition-related and integration expenses below) 567 1,087 (3,798 ) (19,593 ) Acquisition-related and integration expenses 4,163 9,200 23,219 53,411 Adjusted EBITDA $ 297,573 $ 309,080 $ 783,516 $ 876,208 Diluted EPS $ 2.60 $ 2.40 $ 6.07 $ 6.32 Acquisition-related and integration expenses 0.08 0.18 0.45 1.04 Amortization of intangibles 0.90 1.02 2.71 3.08 Contingent consideration — — — (0.37 ) Income taxes related to the above (1) (0.25 ) (0.30 ) (0.80 ) (1.08 ) Non-GAAP diluted EPS $ 3.33 $ 3.30 $ 8.43 $ 8.99 Technology Solutions Revenue $ 5,306,361 $ 5,047,970 $ 13,858,313 $ 13,695,729 Foreign currency translation 32,798 79,488 Revenue in constant currency $ 5,339,159 $ 5,047,970 $ 13,937,801 $ 13,695,729 Operating income $ 132,373 $ 138,830 $ 320,962 $ 352,594 Acquisition-related and integration expenses — — — 981 Amortization of intangibles 9,995 10,999 30,130 32,968 Non-GAAP operating income $ 142,368 $ 149,829 $ 351,092 $ 386,543 Operating margin 2.49 % 2.75 % 2.32 % 2.57 % Non-GAAP operating margin 2.68 % 2.97 % 2.53 % 2.82 % Net income $ 85,531 $ 87,778 $ 204,237 $ 236,080 Interest expense and finance charges, net 19,747 17,775 59,531 55,725 Provision for income taxes 27,119 29,739 56,189 77,873 Depreciation 5,937 5,875 17,650 16,719 Amortization of intangibles 9,995 10,999 30,130 32,968 EBITDA $ 148,329 $ 152,166 $ 367,737 $ 419,365 Other (income) expense, net (25 ) 3,538 1,004 (17,083 ) Acquisition-related and integration expenses — — — 981 Adjusted EBITDA $ 148,304 $ 155,704 $ 368,741 $ 403,263 30 Table of Contents Three Months Ended Nine Months Ended August 31, 2020 August 31, 2019 August 31, 2020 August 31, 2019 (in thousands, except per share amounts) Concentrix Revenue $ 1,163,694 $ 1,160,928 $ 3,418,676 $ 3,495,076 Foreign currency translation 2,441 32,268 Revenue in constant currency $ 1,166,135 $ 1,160,928 $ 3,450,944 $ 3,495,076 Operating income $ 76,763 $ 70,025 $ 188,554 $ 192,879 Acquisition-related and integration expenses 4,163 9,200 22,701 52,601 Amortization of intangibles 36,833 41,429 110,190 125,181 Non-GAAP operating income $ 117,759 $ 120,654 $ 321,445 $ 370,661 Operating margin 6.60 % 6.03 % 5.52 % 5.52 % Non-GAAP operating margin 10.12 % 10.39 % 9.40 % 10.61 % Net income $ 48,933 $ 35,354 $ 109,771 $ 88,631 Interest expense and finance charges, net 9,002 25,170 39,515 71,970 Provision for income taxes 18,236 11,952 43,551 34,958 Depreciation (excluding accelerated depreciation included in acquisition-related and integration expenses below) 31,509 32,722 93,331 102,285 Amortization of intangibles 36,833 41,429 110,190 125,181 EBITDA $ 144,513 $ 146,627 $ 396,358 $ 423,025 Other (income) expense, net (excluding amounts included in acquisition-related and integration expenses below) 592 (2,450 ) (4,802 ) (2,510 ) Acquisition-related and integration expenses 4,163 9,200 23,219 52,430 Adjusted EBITDA $ 149,268 $ 153,377 $ 414,775 $ 472,945 (1) 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 Nine Months Ended August 31, 2020 and 2019 Revenue Three Months Ended Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Revenue $ 6,464,782 $ 6,203,659 4.2 % $ 17,261,619 $ 17,176,000 0.5 % Technology Solutions revenue 5,306,361 5,047,970 5.1 % 13,858,313 13,695,729 1.2 % Concentrix revenue 1,163,694 1,160,928 0.2 % 3,418,676 3,495,076 (2.2 )% Inter-segment elimination (5,273 ) (5,240 ) (15,371 ) (14,805 ) 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 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. 31 Table of Contents 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. Gross Profit Three Months Ended Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Gross profit $ 708,092 $ 725,990 (2.5 )% $ 2,024,249 $ 2,103,379 (3.8 )% Gross margin 10.95 % 11.70 % 11.73 % 12.25 % Technology Solutions gross profit $ 297,480 $ 301,774 (1.4 )% $ 827,201 $ 819,319 1.0 % Technology Solutions gross margin 5.61 % 5.98 % 5.97 % 5.98 % Concentrix gross profit $ 412,533 $ 426,181 (3.2 )% $ 1,202,893 $ 1,290,017 (6.8 )% Concentrix gross margin 35.45 % 36.71 % 35.19 % 36.91 % Inter-segment elimination $ (1,922 ) $ (1,964 ) $ (5,845 ) $ (5,957 ) 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 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 Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Selling, general and administrative expenses $ 498,956 $ 517,135 (3.5 )% $ 1,514,734 $ 1,557,906 (2.8 )% Percentage of revenue 7.72 % 8.34 % 8.78 % 9.07 % Technology Solutions selling, general and administrative expenses $ 165,107 $ 162,944 1.3 % $ 506,239 $ 466,725 8.5 % Percentage of Technology Solutions revenue 3.11 % 3.23 % 3.65 % 3.41 % Concentrix selling, general and administrative expenses $ 335,770 $ 356,155 (5.7 )% $ 1,014,339 $ 1,097,139 (7.5 )% Percentage of Concentrix revenue 28.85 % 30.68 % 29.67 % 31.39 % Inter-segment elimination $ (1,922 ) $ (1,964 ) $ (5,845 ) $ (5,957 ) 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. 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 32 Table of Contents 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 Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Operating income $ 209,136 $ 208,855 0.1 % $ 509,515 $ 545,473 (6.6 )% Operating margin 3.24 % 3.37 % 2.95 % 3.18 % Technology Solutions operating income $ 132,373 $ 138,830 (4.7 )% $ 320,962 $ 352,594 (9.0 )% Technology Solutions operating margin 2.49 % 2.75 % 2.32 % 2.57 % Concentrix operating income $ 76,763 $ 70,025 9.6 % $ 188,554 $ 192,879 (2.2 )% Concentrix operating margin 6.60 % 6.03 % 5.52 % 5.52 % 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 Three Months Ended Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Interest expense and finance charges, net $ 28,749 $ 42,945 (33.1 )% $ 99,046 $ 127,695 (22.4 )% Percentage of revenue 0.44 % 0.69 % 0.57 % 0.74 % 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 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 Three Months Ended Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Other income (expense), net $ (567 ) $ (1,087 ) 47.8 % $ 3,280 $ 19,764 83.4 % Percentage of revenue (0.01 )% (0.02 )% 0.02 % 0.12 % 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. Other income (expense), net, which was a net expense during the three months ended August 31, 2020, was consistent with the prior year period. 33 Table of Contents 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 Three Months Ended Percent Nine Months Ended Percent August 31, 2020 August 31, 2019 Change August 31, 2020 August 31, 2019 Change (in thousands) (in thousands) Provision for income taxes $ 45,356 $ 41,691 8.8 % $ 99,740 $ 112,831 (11.6 )% Percentage of income before income taxes 25.22 % 25.29 % 24.11 % 25.79 % Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. 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 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 Cash Conversion Cycle Three Months Ended August 31, 2020 November 30, 2019 August 31, 2019 (Amounts in thousands) Days sales outstanding ("DSO") Revenue (products and services) (a) $ 6,464,782 $ 6,581,293 $ 6,203,659 Accounts receivable (b) 3,580,970 3,926,709 3,452,976 Days sales outstanding (c) = (b)/((a)/the number of days during the period) 51 54 51 Days inventory outstanding ("DIO") Cost of revenue (products and services) (d) $ 5,756,690 $ 5,786,754 $ 5,477,669 Inventories (e) 2,832,607 2,547,224 2,787,159 Days inventory outstanding (f) = (e)/((d)/the number of days during the period) 45 40 47 Days payable outstanding ("DPO") Cost of revenue (products and services) (g) $ 5,756,690 $ 5,786,754 $ 5,477,669 Accounts payable (h) 3,655,215 3,149,443 2,932,046 Days payable outstanding (i) = (h)/((g)/the number of days during the period) 58 50 49 Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 38 44 49 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 34 Table of Contents our working capital needs. We have financed our growth and cash needs to date primarily through cash 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. Concentrix working capital is primarily comprised of accounts receivable. 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. 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 $1.547 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 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 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 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 $1.452 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. federal tax on repatriation into the 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 to the United States, we will report in our Consolidated Financial Statements the impact of state and withholding taxes depending upon the 35 Table of Contents 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 . We believe that our available cash and cash equivalents balances, cash flows from operations and our existing sources of liquidity will be sufficient to satisfy our current and planned working capital and investment needs 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 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. On-Balance Sheet Arrangements In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the “U.S. AR Arrangement”). Prior to the amendment in May 2020 described in this paragraph, u nder the terms of the U.S. AR Arrangement, which had a maturity date of May 2020, our subsidiary, which is the borrower under this facility, could borrow up to a maximum of $850.0 million based upon eligible trade accounts receivable. 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. 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. AR Arrangement was amended to revise the maximum borrowing amount to $650,000 and to extend the maturity date of the U.S. AR Arrangement to May 2022. The program fee payable on the used portion of the lenders’ commitment, was modified to accrue 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 amendment also modified the facility fee payable on the adjusted commitment of the lenders, to accrue 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, the U.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 the U.S. AR Arrangement, we and two of our U.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 receivables acquired by our bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. 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. AR Arrangement. In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, as renewed in March 2020, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to CAD100.0 million, or $76.6 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 2023. The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additional CAD50.0 million, or $38.3 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. We guarantee the performance obligations of SYNNEX Canada under this arrangement. 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, prior to an event of termination, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. After an event of termination, the program fee shall be the sum of the base rate and 2.50% 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 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 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. The credit agreement is comprised of a JPY7.0 billion, or $66.1 million, term loan and a JPY8.0 billion, or $75.5 million, revolving credit facility and expires in November 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 of SYNNEX Japan under this 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. The interest rate under these facilities is the higher of the bank's minimum lending rate or LIBOR, plus a margin of 0.9% per annum. We guarantee the obligations under these credit facilities. 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 August 31, 2020 or November 30, 2019. 36 Table of Contents In the United States, we have a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.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 the U.S. Credit Agreement. The U.S. Credit Agreement matures in September 2022. The outstanding principal amount of the term loan is repayable in quarterly installments of $15.0 million , with the unpaid balance due in full on the September 2022 maturity date. The term loan can be repaid at any time prior to the maturity date without penalty. Interest on borrowings under the U.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 the U.S. Credit Agreement. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of our United States domestic subsidiaries. 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 August 31, 2020 . As of November 30, 2019 , the balance outstanding under the revolving line of credit component of the U.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. The U.S. Term Loan Credit Agreement matures in October 2023.The outstanding principal amount of the term loans is payable in quarterly installments of $22.5 million, with the unpaid balance due in full on the maturity date. The term loan can be repaid at any time prior to the maturity date without penalty. Interest on borrowings under the U.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 the U.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 the U.S. Term Loan Credit Agreement. Our obligations under the U.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 existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. 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. SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50.0 million, or $38.3 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 or U.S. Base Rate. As of both August 31, 2020 and November 30, 2019, there were no borrowings outstanding under this credit facility. 37 Table of Contents 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 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 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 We have financing programs in the United States and Japan 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. 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 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 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. 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 . Guarantees 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 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 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. Related Party Transactions 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 August 31, 2020 and November 30, 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 August 31, 2020 (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-owned subsidiary of MiTAC Holdings. Excludes 190 thousand shares held directly by Mr. Miau, 217 thousand shares indirectly held by Mr. Miau through a charitable remainder trust, and 190 thousand shares held by his spouse. (2) Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7 % in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 14.9% in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated. 38 Table of Contents MiTAC Holdings generally has significant 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 $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. 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 the Nominating and Corporate Governance Committee, which is also composed solely of independent directors. Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also our potential competitor. MiTAC Holdings and its affiliates are not restricted from competing with us. 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.