What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-07 compared with 2021-04-08 · 147 added, 144 removed, 313 unchanged (48% 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.

These are statements that relate to future periods and include statements about market trends, our business model and our services, our business and market strategy, our separation of SYNNEX and Concentrix, future growth, including expansion of our product and service lines, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring;

and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, our 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, ability to obtain comparable leases, ability to manage and communicate with international resources, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, expansion of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, including our proposed acquisition of Tech Data and the timing and impact thereof, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, including the impact of any change to our credit rating, cash held by our international 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, cybersecurity and compliance with related rules and regulations, impact of rules and regulations affecting public companies, impact of our pricing policies, 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, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, our securitization programs, term loans, revolving credit lines and the Commitment letter, our investments in working capital and personnel and our succession planning.

These are statements that relate to future periods and include statements about market trends, our business model and our services, our business and market strategy, future growth, including expansion of our product and service lines, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring;

and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, our 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, ability to obtain comparable leases, ability to manage and communicate with international resources, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, expansion of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, including our proposed acquisition of Tech Data and the timing and impact thereof, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, including the impact of any change to our credit rating, cash held by our international 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, cybersecurity and compliance with related rules and regulations, impact of rules and regulations affecting public companies, impact of our pricing policies, 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, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, our securitization programs and credit facilities, our investments in working capital and personnel and our succession planning.

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 are a Fortune 200 corporation and a leading provider of a comprehensive range of distribution, systems design and integration solutions for the technology industry.

On March 22, 2021, we announced that we had entered into an agreement and plan of merger (the “Merger Agreement”) to acquire 100% of the parent company of Tech Data Corporation, a Delaware Corporation ("Tech Data") in a cash and stock transaction (the "Merger").

The consideration payable to the stockholder that owns Tech Data consists of $1.61 billion in cash and 44 million shares of our common stock (the “Merger Consideration”).

Following the proposed transaction, the sole stockholder of Tech Data will own approximately 45.9% of our stock on a fully diluted basis as of May 31, 2021.

If the Merger is not consummated, then under certain circumstances we would be obligated to pay Tech Data a termination fee ranging from $40.9 million to $131.7 million.

The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities.

For the twelve months ended January 31, 2021, Tech Data generated approximately $36 billion in revenue and approximately $21 million of net income.

Tech Data and we filed their respective notification and report forms under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 with respect to the Merger with the Federal Trade Commission and Department of Justice.

The waiting period for filings made by both Tech Data and us expired on June 4, 2021.

On June 30, 2021, we received stockholder approval for the issuance of shares of SYNNEX common stock in connection with the initial merger contemplated by the Merger Agreement.

Certain foreign regulatory approvals are pending.

We expect the transaction to close in the second half of the calendar year 2021.

As discussed in Note 9 – Borrowings to the Consolidated Financial Statements, we have secured financing arrangements to finance the Merger.

On December 1, 2020, we completed the previously announced separation of our customer experience services business (the “Separation”), which was accomplished by the distribution of one hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”) to our stockholders as of the close of business on November 17, 2020, the record date for the distribution.

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We distributed a total of approximately 51.6 million shares of Concentrix common stock to our stockholders.

In connection with the Separation, we have entered into a separation and distribution agreement, as well as various other agreements with Concentrix that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide services to us following the Separation.

The historical results of operations and financial positions of Concentrix are reported as discontinued operations in our Consolidated Financial Statements.

For further information on discontinued operations, see Note 3 - Discontinued Operations, to the Consolidated Condensed Financial Statements in Item 1 of Part I.

For further information on discontinued operations, see Note 3 - Discontinued Operations, to the Consolidated Financial Statements in Item 1 of Part I.

Pursuant to the Separation of the Concentrix segment, we operate in a single reportable segment, which represents an aggregation of our four geographic operating segments of United States, Canada, Japan and Latin America.

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

As of February 28, 2021, we had over 8,700 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.

As of May 31, 2021, we had over 8,800 full-time and temporary employees worldwide.

In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”), which was characterized as a pandemic by the World Health Organization in March 2020.

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 at the appropriate places in the discussion of the results of our operations for the three months ended February 28, 2021.

The impact of the COVID-19 pandemic on our business is discussed at the appropriate places in the discussion of the results of our operations for the three and

six months ended May 31 , 202 1 .

The disruptions due to COVID-19 have impacted our business including logistics operations .

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.

W e are unable to predict how long these conditions will persist, what additional measures may be introduced by governments , vendors or customer s 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 r eport 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.

Critical Accounting Policies and Estimates

During the three months ended February 28, 2021, 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, 2020, except as such policies relate to the Concentrix business.

During the three months ended February 28, 2021, we adopted certain other new accounting pronouncements.

During the six months ended May 31, 2021, 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, 2020, except as such policies relate to the Concentrix business.

During the six months ended May 31, 2021, we adopted certain other new accounting pronouncements.

The impact of adoption of these pronouncements was not material to our consolidated financial statements.

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We are also strategically focused on further increasing our scale to support our customers.

Pending Merger

On March 22, 2021, we announced that we had entered into a merger agreement to acquire 100% of the parent company of Tech Data Corporation, a Delaware Corporation ("Tech Data") in a cash and stock transaction (the "Merger").

The consideration payable to the stockholder that owns Tech Data consists of $1.61 billion of cash and 44 million shares of our common stock, plus cash in lieu of any fractional

shares of our stock, without interest (the “Merger Consideration”) .

Following the proposed transaction, the sole stockholder of Tech Data will own approximately 45% of our stock on a fully diluted basis as of February 28, 2021 .

If the Merger is not consummated, then under certain circumstances we would be obligated to pay Tech Data a termination fee ranging from $40 .9 million to $131 .7 million .

Either party can terminate the Merger agreement if certain matters are not approved by our stockholders , in which case, we may be obligated to pay Tech Data a fee equal to the reasonable fees, costs and other expenses directly related to the Merger , or in certain circumstances, the termination fee .

The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities.

For the twelve months ended January 31, 2020, Tech Data generated approximately $37 billion in revenue and approximately $375 million of net income.

In connection with the Merger, we also entered into a commitment letter that includes a commitment for a 364-day $4.0 billion senior unsecured term bridge loan and a 364-day $3.5 billion senior unsecured revolving credit facility, subject to customary conditions, in order to finance a portion of the proposed acquisition, if necessary.

Completion of the Merger is subject to the approval by our stockholders of the stock to be issued as consideration and related amendments to our certificate of incorporation, approval by the New York Stock Exchange of the listing of our stock to be issued as consideration, and other customary closing conditions, including expiration of the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 waiting period and certain foreign regulatory approvals.

The transaction is expected to close in the second half of the calendar year 2021.

Results of Operations

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Three Months Ended

Six Months Ended

Statements of Operations Data:

February 28, 2021

February 29, 2020

Cost of Revenue

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Interest expense and finance charges, net

Other income (expense), net

Other expense, net

Income from continuing operations before income taxes

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The financial results of the former Concentrix business are presented as income from discontinued operations, net of taxes in the Statements of Operations data.

In addition, in the second half of 2021, we expect a decrease in our revenue by up to approximately $600 million a quarter due to a customer moving to a consignment model where we will provide integration services on an agency basis.

Due to the ongoing impact of 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 months ended February 28, 2021 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 six months ended May 31, 2021 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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Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is net income before interest, taxes, depreciation and amortization, adjusted to exclude other income (expense), net, transaction-related and integration expenses and share-based compensation expense.

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is net income before interest, taxes, depreciation and amortization, adjusted to exclude other expense, net, transaction-related and integration expenses, share-based compensation expense and income from discontinued operations, net of taxes.

Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of (i) transaction-related and integration expenses, (ii) amortization of intangible assets, (iii) share-based compensation.

Transaction-related expenses typically consist of acquisition, integration, and divestiture related costs and are expensed as incurred.

These expenses primarily represent costs for legal, banking, consulting and advisory services, and debt extinguishment fees.

These expenses primarily represent costs for legal, regulatory, consulting and advisory services.

From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses.

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Three Months Ended

February 28, 2021

February 29, 2020

Six Months Ended

(in thousands, except per share amounts)

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Amortization of intangibles

Other (income) expense, net

Other expense, net

Transaction-related and integration expenses

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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 Months Ended February 28, 2021 and February 29, 2020

Three and six Months Ended May 31, 2021 and May 31, 2020

The three months ended May 31, 2020 were the first full fiscal quarter impacted by the COVID-19 pandemic.

Given the significant adverse impact of the pandemic on our fiscal 2020 second quarter results, the period over period comparisons that we discuss below are greater in magnitude than normal trends in our business.

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Our revenue includes sales of products.

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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.

Revenue increased during the three months ended February 28, 2021, as compared to the prior year period, due to broad-based demand for our products and solutions as the impact of COVID-19 related shelter-in-place restrictions continued to buoy remote work, learn and consumer needs.

Revenue increased during the three and six months ended May 31, 2021, as compared to the prior year period, due to continued demand for remote capability and digital transformation investments, as well as return-to-office and data center buying as businesses began to open as a

result of shelter in place restrictions lifting.

Consequently, we experience d strong growth in n otebook s , C hromebook s, cloud and collaboration solutions as well as increased demand for our projects and integration-based services .

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Our 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.

Our gross profit increased, during the three months ended February 28, 2021, as compared to the prior year period, due to higher revenue.

The decrease in gross margin, as compared to the prior year period, is primarily due to product mix.

Our gross profit increased, during the three and six months ended May 31, 2021, as compared to the prior year period, due to higher revenue.

The decrease in gross margin during the three and six months ended May 31, 2021, as compared to the prior year period, is primarily due to product mix, driven mainly by higher volumes of notebooks and Chromebooks sold during the current fiscal quarter.

Selling, General and Administrative Expenses

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Selling, general and administrative

(in thousands)

Selling, general and administrative expenses

Percentage of revenue

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Selling, general and administrative expenses also include cost of warehouses and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.

During the three months ended February 28, 2021, selling, general and administrative expenses increased, compared to the prior year period, primarily due to higher employee related expenses due to COVID-19, partially offset by a decrease in amortization of intangible assets and a decrease in allowance for doubtful accounts.

During the three months ended May 31, 2021, selling, general and administrative expenses decreased, compared to the prior year period, primarily due to lower incremental COVID-19 related expenses and amortization of intangible assets, partially offset by higher transaction-related and integration expenses and an increase in employee related expenses.

Selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period, primarily due to scale.

During the six months ended May 31, 2021, selling, general and administrative expenses increased, compared to the prior year period, primarily due to higher employee related expenses and higher transaction-related and integration expenses, partially offset by lower incremental COVID-19 related expenses and amortization of intangible assets.

Selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period, primarily due to scale.

Operating Income

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Operating income

Operating margin

Operating income and margin increased during the three months ended February 28, 2021, compared to the prior year period, primarily due to broad-based growth across our product portfolio and related scale efficiencies.

Operating income and margin increased during the three and six months ended May 31, 2021, compared to the prior year period, primarily due to broad-based growth across our product portfolio and reduction of expenses incurred due to the COVID-19 pandemic.

Interest Expense and Finance Charges, Net

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

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 months ended February 28, 2021, our interest expense and finance charges, net, increased compared to the prior year period, primarily due to an increase in the average outstanding borrowings primarily due to the distribution to our stockholders by way of funding Concentrix in connection with the Separation.

During the three and six months ended May 31, 2021, our interest expense and finance charges, net, increased compared to the prior year period, primarily due to an increase in the average outstanding borrowings primarily due to the distribution to our stockholders by way of funding Concentrix in connection with the Separation.

Interest expense and finance charges, net, decreased as a percentage of revenue, compared to the prior year period, primarily due to efficient working capital management.

Other Expense, Net

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Other expense, net

Percentage of revenue

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

The increase in other expense, net during the three months ended February 28, 2021, as compared to the prior year period, was primarily due to higher foreign currency exchange losses.

Amounts recorded as other expense, net include foreign currency transaction gains and losses, investment gains and losses, and other non-operating gains and losses, such as settlements received from class actions lawsuits.

The increase in other expense, net during the three and six months ended May 31, 2021, as compared to the prior year period, was primarily due to higher foreign currency exchange losses.

Provision for Income Taxes

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

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 February 28, 2021, our income tax expense increased compared to the prior year period, due to higher income during the three months ended February 28, 2021 and lower taxes in the prior year period due to tax benefits received from the exercising of stock options by employees and the reversal of uncertain tax positions.

During the three and six months ended May 31, 2021, our income tax expense increased compared to the prior year period, due to higher income during the three and six months ended May 31, 2021.

The effective tax rate was consistent during the three months ended May 31, 2021 as compared with the prior year period.

The effective tax rate is lower during the six months ended May 31, 2020, due to tax benefits received from the exercising of stock options by employees and the reversal of uncertain tax positions.

Discontinued Operations

Three Months Ended

February 28, 2021

February 29, 2020

Percent Change

Six Months Ended

(in thousands)

Income from discontinued operations, net of taxes

Percentage of revenue

Income from discontinued operation includes net income from Concentrix during the three months ended February 29, 2020.

Concentrix was separated on December 1, 2020, consequently, there was no revenue earned or cost incurred during the three months ended February 28, 2021 related to the discontinued operations.

Income from discontinued operation includes net income from Concentrix during the three and six months ended May 31, 2020.

Concentrix was separated on December 1, 2020, consequently, there was no revenue earned or cost incurred during the three and six months ended May 31, 2021 related to the discontinued operations.

Liquidity and Capital Resources

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Three Months Ended

February 28, 2021

November 30, 2020

February 29, 2020

(Amounts in thousands)

Days sales outstanding ("DSO")

Accounts receivable

Accounts receivable, net ( 1)

Days sales outstanding

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Cost of revenue

Inventories ( 1)

Days inventory outstanding

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(j) = (c)+(f)-(i)

(1) Accounts receivable, inventories and accounts payable as of November 30, 2020 and May 31, 2020 are based on pro forma presentation to reflect the separation of the Company’s erstwhile Concentrix reportable segment into an independent public company on December 1, 2020.

Our business is working capital intensive.

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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.

Our cash conversion cycle was 32 days and 57 days as of February 28, 2021 and February 29, 2020, respectively.

The decrease was primarily due to faster turnover of our inventories and the timing of collections of accounts receivables related to our projects and integration-based server solutions business .

Our cash conversion cycle was 26 days and 43 days as of May 31, 2021, and 2020, respectively.

The decrease in CCC as of May 31, 2021, as compared to the prior year period, was primarily due to faster turnover of our inventories and the improved collections of accounts receivables .

This decrease was partially offset by the timing of payments of accounts payable.

To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions, such as the pending acquisition of Tech Data.

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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 $25.0 million during the three months ended February 28, 2021, primarily due to decreases in accounts receivable of $427.1 million, receivables from vendors of $17.1 million and inventories of $126.9 million.

In addition, our net income of $87.8 million together with adjustments to net income for non-cash items of $25.3 million resulted in an increase in our cash balances.

These cash inflows were largely offset by a decrease in accounts payable of $636.0 million and a net change of $23.3 million in other operating assets and liabilities.

The decreases in accounts receivable, vendor receivables and inventories are primarily due to lower revenue during the three months ended February 28, 2021 compared to a seasonally high fourth quarter of fiscal year 2020.

The decrease in accounts payable and cash outflow from changes in other operating assets and liabilities is primarily due to timing of payments .

Net cash provided by operating activities was $304.3 million during the six months ended May 31, 2021, primarily due to a decrease in accounts receivable of $376.5 million, our net income of $180.9 million and adjustments to net income for non-cash items of $50.6 million.

These cash inflows were partially offset by a decrease in accounts payable of $268.5 million, receivables from vendors of $5.5 million and a net change of $38.0 million in other operating assets and liabilities.

The decrease in accounts receivable is due to efficient collections during the three months ended May 31, 2021 as well as lower revenue compared to a seasonally high fourth quarter of fiscal year 2020.

The decrease in accounts payable is primarily due to timing of payments .

The adjustments for non-cash items consist primarily of amortization and depreciation and share-based compensation expense.

Net cash provided by operating activities was $58.1 million during the three months ended February 29, 2020, primarily due to decreases in accounts receivable of $619.3 million and receivables from vendors of $67.6 million .

Our net income of $122.6 million and adjustments to net income for non-cash items of $91.0 million also led to an increase in our cash balances.

These cash inflows were substantially offset by an increase in inventories of $162.8 million, a decrease in accounts payable of $613.8 million, and a net change in other operating assets and liabilities of $65.7 million.

The decrease in accounts receivable and payable was primarily due to lower revenue in our business during the three months ended February 29, 2020 following a seasonally high fourth quarter of fiscal year 2019.

The decrease in accounts payable was also impacted by timing of payments.

The increase in inventories was primarily due to timing of shipments in our systems design and integration solutions business.

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 $419.4 million in other operating assets and liabilities.

These cash inflows were substantially offset by an increase in inventories of $495.6 million.

The decrease in accounts receivable and vendor receivables is primarily due to lower revenue in our business including discontinuing operations during the three months ended May 31, 2020 following a seasonally high fourth quarter of fiscal year 2019.

Notwithstanding the current economic uncertainties due to the impact of COVID-19, DSO in our business 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 business .

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, share-based compensation expense, provision for doubtful accounts and deferred tax benefit related to both our continuing operations as well as discontinued operations .

Net cash used in investing activities during the three months ended February 28, 2021 was $4.0 million, primarily due to capital expenditures related to infrastructure investments to support growth in our business.

Net cash used in investing activities during the three months ended February 29, 2020 was $54.3 million, primarily due to capital expenditures of $51.9 million related to infrastructure investments to support growth of our business including discontinued operations.

Net cash used in financing activities during the three months ended February 28, 2021 was $147.2 million, representing primarily net transfer of cash and cash equivalents of $149.9 million to Concentrix in connection with the Separation and a return of cash to stockholders in the form of dividends of $10.3 million.

This was partially offset by net proceeds of $13.0 million from our borrowing arrangements in certain international locations to fund working capital requirements.

Net cash provided by financing activities during the three months ended February 29, 2020 was $67.6 million, consisting primarily of net proceeds from our borrowing arrangements of $88.1 million to finance working capital, partially offset by $20.7 million of dividend payments.

Net cash used in investing activities during the six months ended May 31, 2021 was $7.5 million, primarily due to capital expenditures related to infrastructure investments to support growth in our business.

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 including discontinued operations 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 financing activities during the six months ended May 31, 2021 was $222.0 million, representing primarily net transfer of cash and cash equivalents of $149.9 million to Concentrix in connection with the Separation and $54.0 million representing a pay down of our revolving lines of credit with cash generated from operations.

In addition, we paid stockholders dividends of $20.7 million.

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.

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.

Capital Resources

Our cash and cash equivalents totaled $1,443.7 million and $1,412.0 million as of February 28, 2021 and November 30, 2020, respectively.

Of our total cash and cash equivalents, the cash held by our international subsidiaries was $469.7 million and $434.8 million as of February 28, 2021 and November 30, 2020, respectively.

Our cash and cash equivalents totaled $1.7 billion and $1.4 billion as of May 31, 2021 and November 30, 2020, respectively.

Of our total cash and cash equivalents, the cash held by our international subsidiaries was $415.9 million and $434.8 million as of May 31, 2021 and November 30, 2020, respectively.

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

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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, 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.

In May 2020 , the U.S.

AR Arrangement was amended to revise the maximum borrowing amount to $650.0 million 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.

U nder the terms of the U.S.

AR Arrangement, which has a maturity date of May 2022, our subsidiary, which is the borrower under this facility, can borrow up to a maximum of $650.0 million based upon eligible trade accounts receivable.

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.

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, a program fee of 1.25% per annum is payable on the used portion of the lenders’ commitment, 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).

A facility fee is 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.

Under the terms of the U.S.

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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.

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 both February 28, 2021 and November 30, 2020 , there were no borrowings outstanding under this facility.

As of both May 31, 2021 and November 30, 2020, there were no borrowings outstanding under this facility.

In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations.

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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 $49.7 million, and when the unused portion exceeds CAD60.0 million, or $49.7 million, a fee of 0.55% per annum on the remaining unused commitment.

As of both February 28, 2021 and November 30, 2020, there was no outstanding balance under this arrangement.

As of both May 31, 2021 and November 30, 2020, 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 $136.9 million.

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

As of February 28, 2021 and November 30, 2020, the balances outstanding under the term loan component of these facilities were $65.7 million and $67.1 million respectively.

As of February 28, 2021 and November 30, 2020, $45.0 million and $31.6 million, respectively, was outstanding under the revolving credit facility.

As of May 31, 2021 and November 30, 2020, the balances outstanding under the term loan component of these facilities were $63.9 million and $67.1 million respectively.

There was no outstanding under the revolving credit facility as of May 31, 2021, and $31.6 million as of November 30, 2020

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

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Credit Agreement matures in September 2022.

At November 30, 2020, in connection with the Separation, we partially repaid $535.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements.

The remaining outstanding principal of the term loan is payable on maturity.

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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 February 28, 2021 and November 30, 2020, the balance outstanding under the term loan component of the U.S.

As of both May 31, 2021 and November 30, 2020, the balance outstanding under the term loan component of the U.S.

Credit Agreement was $500.0 million.

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

Credit Agreement as of both February 28, 2021 and November 30, 2020.

Credit Agreement as of both May 31, 2021 and November 30, 2020.

We have a senior secured term loan credit agreement (the “U.S.

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Term Loan Credit Agreement matures in October 2023.

At November 30, 2020, in connection with the Separation, we partially repaid $665.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements.

The remaining outstanding principal amount of the term loan is payable on maturity.

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

As of both February 28, 2021 and November 30, 2020, the balance outstanding under the U.S.

As of both May 31, 2021 and November 30, 2020, the balance outstanding under the U.S.

Term Loan Credit Agreement was $1.0 billion.

In connection with the Merger, we have entered into a credit agreement, dated as of April 16, 2021 (the “New Credit Agreement”) with the lenders party thereto and Citibank, N.A., as agent, pursuant to which we have received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, including a $200 million letter of credit sub-facility, which revolving credit facility (the “new revolving credit facility”) may, subject to the lenders’ discretion, potentially be increased by up to an aggregate amount of $500 million and for the extension of a senior unsecured term loan (the “new term loan” and, together with the new revolving credit facility, the “new credit facilities”) in an aggregate principal amount not to exceed $1.5 billion.

The commitments under the new credit facilities are subject to customary conditions.

The borrower under the new credit facilities is the Company.

There are no guarantors of the new credit facilities.

The commitments under the new credit facilities terminate upon the earliest to occur of (i) with respect to the revolving commitments, the fifth anniversary of the closing date (subject to two one-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date), (ii) in the event SYNNEX voluntarily elects to reduce such commitments to zero, on such date, or subject to certain conditions, following an event of default, (iii) if the closing does not occur prior to such date, five business days after the

termination date of the Merger Agreement, and (iv) the date that the Merger Agreement is terminated by SYNNEX in a signed writing in accordance with the terms of the Merger Agreement.

The funding under the new credit facilities is subject to customary closing conditions.

The proceeds of the loans under the new term loan will be used to provide a portion of the debt financing required to refinance certain indebtedness of the Company and Tech Data, which is required to consummate the proposed transactions related to the Merger, together with the payment of related fees and expenses, and the borrowings (if any) under the new revolving credit facility on the closing date of the proposed transactions will be used to pay fees and expenses related to the Merger and related transactions.

After the closing date, the revolving credit facility will, subject to customary conditions, be available for general corporate purposes or any other purpose not prohibited by the New Credit Agreement.

The outstanding principal amount of the term loan will be, once advanced, payable in quarterly installments in an amount equal to 1.25% of the original principal balance commencing on the last day of the first full fiscal quarter after the closing date of the new credit facilities, with the outstanding principal amount of the term loans due in full on the maturity date.

Loans borrowed under the New Credit Agreement bear interest, in the case of LIBOR (or successor) rate loans, at a per annum rate equal to the applicable LIBOR (or successor) rate, plus the applicable margin, which may range from 1.125% to 1.75%, based on the Company’s public debt rating (as defined in the New Credit Agreement).

The applicable margin on base rate loans is 1.00% less than the corresponding margin on LIBOR (or successor rate) based loans.

In addition to these borrowing rates, there is a commitment fee which ranges from 0.125% to 0.300% on any unused commitment under the new revolving credit facility based on the Company’s public debt rating.

The New Credit Agreement contains various loan covenants that will restrict the ability of the Company and its subsidiaries to take certain actions that are customary for similar facilities for similarly rated borrowers.

The New Credit Agreement also contains financial covenants which will require compliance with a maximum debt to EBITDA ratio and a minimum interest coverage ratio, in each case tested on the last day of any fiscal quarter commencing with the first full fiscal quarter to occur after the closing date of the new credit facilities.

The New Credit Agreement also contains various customary events of default, including with respect to a change of control of the Company.

On March 22, 2021, we had entered into a debt commitment letter (the “Commitment Letter”), under which Citigroup Global Markets Inc.

and certain other financing institutions joining thereto pursuant to the terms thereof committed to provide (i) a $1.5 billion senior unsecured term bridge facility (the "Term Loan A Bridge Facility"), (ii) a $2.5 billion senior unsecured term bridge facility (the “Bridge Facility”) and (iii) a $3.5 billion senior unsecured revolving bridge facility (the "Bridge Revolving Facility"), subject to the satisfaction of certain customary closing conditions.

On April 16, 2021, (i) the $1.5 billion commitment with respect to Term Loan A Bridge Facility under the Commitment Letter and (ii) the $3.5 billion commitment with respect to Bridge Revolving Facility under the Commitment Letter were reduced to zero, in each case, as a result of us entering into the New Credit Agreement.

SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50.0 million, or $41.4 million.

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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 February 28, 2021 and November 30, 2020, there were no borrowings outstanding under this credit facility.

As of both May 31, 2021 and November 30, 2020, 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 February 28, 2021 , commitments for these revolving credit facilities aggregated $46.9 million .

As of May 31 , 2021 , commitments for these revolving credit facilities aggregated $4 5.6 million .

Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions.

Borrowings under these facilities are generally guaranteed by us or secured by eligible accounts receivable.

As of February 28, 2021 and November 30, 2020 , the balances outstanding under these revolving credit facilities were $24.0 million and $ 25 .8 million , respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at February 28, 2021 exchange rates.

In connection with the Merger, we entered into a debt commitment letter (the “Commitment Letter”), dated as of March 22, 2021, with Citigroup Global Markets Inc.

(“Citi”), pursuant to which Citi has committed to provide (i) a $4.0 billion 364-day senior unsecured term bridge facility and (ii) a $3.5 billion 364-day senior unsecured revolving credit facility, each subject to the satisfaction of certain customary closing conditions including the consummation of the proposed Mergers (the “Bridge Facility”).

The Bridge Facility is available to (i) pay for a portion of the Merger Consideration, (ii) directly or indirectly pay, repay, repurchase, or settle, as applicable, certain existing indebtedness of the Company and its subsidiaries and Tech Data and its subsidiaries, and (iii) to pay the costs and expenses related to the Merger, the Bridge Facility and the transactions being entered into or otherwise contemplated in connection therewith.

If the Company utilizes the Bridge Facility, amounts drawn thereunder will bear interest at an annual rate equal to LIBOR plus a margin which may initially range from 1.125% to 1.750%, depending on SYNNEX’ debt rating, which margin will be increased by 0.25% for each 90 days that elapse after the closing of the Bridge Facility.

The Company will pay commitment fees on the undrawn amount of this commitment ranging from 0.125% to 0.300% based upon SYNNEX’ debt rating.

As of May 31 , 2021 and November 30, 2020 , the balances outstanding under these revolving credit facilities were $0.6 million and $ 25 .8 million , respectively.

The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at May 31, 2021 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 February 28, 2021 and November 30, 2020, we had a total of $80.9 million and $22.5 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs.

At May 31, 2021 and November 30, 2020, we had a total of $72.1 million and $21.4 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 February 28, 2021, 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 May 31, 2021, 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

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

The following table summarizes our contractual obligations as at February 28, 2021:

The following table summarizes our contractual obligations as at May 31, 2021 (prepared on a fiscal year basis with the remaining six months of fiscal 2021 representing the less than 1 year obligations):

Payments Due by Period

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Non-cancellable operating leases

On December 1, 2020, upon completion of Separation, Concentrix’ borrowing arrangements with outstanding balances aggregating $1.2 billion were no longer part of our contractual obligations.

Principal debt payments at February 28, 2021 disclosed above, assume the repayment of our revolving lines of credit within a year.

Interest on debt, in the table above, includes estimated interest on our term loans and revolving credit facilities at rates of interest applicable at the end of our fiscal period.

Interest on debt, in the table above, includes estimated interest on our term loans at rates of interest applicable at the end of our fiscal period.

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 November 30, 2020 under these agreements and we are not aware of any pending customer defaults or repossession obligations.

As we do not have access to

information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated.

As of February 28, 2021, and November 30, 2020, accounts receivable subject to flooring arrangements were $4 2.4 million and $ 49 .

5 million, respectively.

There have been no repurchases through May 31, 2021 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, 2021, and November 30, 2020, accounts receivable subject to flooring arrangements were $38.9 million and $49.5 million, respectively.

For more information on our third-party revolving short-term financing arrangements, see Note 8 - Accounts Receivable Arrangements to the Consolidated Financial Statements included in Item 1 of Part I of this Report.

As of November 30, 2020, we have established a reserve of $12.4 million for unrecognized tax benefits.

As of May 31, 2021, we have established a reserve of $12.0 million for unrecognized tax benefits.

As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities.

In addition, refer to Note 17 - Subsequent Events for contractual obligations under the Merger Agreement entered into subsequent to February 28, 2021.

In addition, refer to Note 17 – Pending Merger to the Consolidated Financial Statements for contractual obligations under the Merger Agreement and Credit Agreement entered in relation to our proposed acquisition of Tech Data.

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 February 28, 2021 and November 30, 2020, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock.

As of both May 31, 2021 and November 30, 2020, 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 February 28, 2021

As of May 31, 2021

(in thousands)

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Among other things, this could have the effect of delaying, deterring or preventing a change of control over the Company.

We purchased inventories and services from MiTAC Holdings and its affiliates totaling $41.2 million and $43.2 million during the three months ended February 28, 2021 and February 29, 2020, respectively.

Our sales to MiTAC Holdings and its affiliates totaled $0.2 million and $0.3 million during the three months ended February 28, 2021, and February 29, 2020, respectively.

In addition, we paid for reimbursement of rent and overhead costs for the use of facilities of MiTAC Holdings and its affiliates amounting to $32 thousand and $30 thousand during the three months ended February 28, 2021 and February 29, 2020, respectively.

As of February 28, 2021 and November 30, 2020, our payables to MiTAC Holdings and its affiliates were $16.7 million and $49.6 million, respectively.

As of February 28, 2021 and November 30, 2020, our receivables from MiTAC Holdings and its affiliates were $7.8 million and $26.2 million, respectively.

We purchased inventories and services from MiTAC Holdings and its affiliates totaling $48.6 million and $89.8 million during the three and six months ended May 31, 2021, respectively and totaling $55.3 million and $98.6 million during the three and six months ended May 31, 2020, respectively.

Our sales to MiTAC Holdings and its affiliates totaled $0.2 million and $0.5 million during the three and six months ended May 31, 2021, respectively, and totaled $0.2 million and $0.5 million during the three and six months ended May 31, 2020, respectively.

In addition, we paid for reimbursement of rent and overhead costs for the use of facilities of MiTAC Holdings and its affiliates amounting to $47 thousand and $79 thousand during the three and six months ended May 31, 2021, respectively, and $34 thousand and $64 thousand during the three and six months ended May 31, 2020, respectively.

As of May 31, 2021 and November 30, 2020, our payables to MiTAC Holdings and its affiliates were $23.6 million and $49.6 million, respectively.

As of May 31, 2021 and November 30, 2020, our receivables from MiTAC Holdings and its affiliates were $13.0 million and $26.1 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